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Concentration of CO2 in the Atmosphere

Now that Climate Change is Here, How Do You Invest?

There’s no denying climate change any longer after the recent rash of climate events. (researchleap.com)

Todd M. Walker and Craig R. Walker

We’ve been warned since the ‘70s, of course. –although scientists and environmentalists called it “The greenhouse effect” back then. Over the years the debate raged over whether the impact from man-made gases would be warming or cooling until a consensus emerged that while it might affect various regions differently, one thing would be constant: if we did not reverse the process, our weather would become increasingly extreme no matter where you live.

Still, even as average temperatures increased as predicted and wildfire seasons lengthened and droughts deepened, doubt and debate continued over the new term “climate change” – from outright denial, to acceptance something was happening but it was just a natural cycle, to suddenly a remarkable sea change in public opinion this summer, and we hope a defining moment of our time.

Faced with a 1-2-3-4 punch of over-the-top destructive worldwide weather – from unprecedented heat, drought, and fires of our Great West, extreme flooding in Germany and China, and finally seeing just remnants of a hurricane doing more damage to our east coast than direct hits have, the reality of the climate crisis finally hit home. By the end of the summer the press was no longer wondering “if” climate change is real, but the ‘what can be done?’ and how quickly. We believe the age of climate reversal has begun.

What We Are Telling Our Clients

Certainly, compared to saving civilization on our planet, we recognize that savings and investments are not the highest global priority. But people are understandably concerned about their nest eggs as we enter this unknown and we are getting more and more questions on this. So, here’s our current thinking, including some good news.

  • Don’t Panic, but Don’t Wait.

As Al Gore coined in 2006, climate change is an inconvenient truth, but it will not be the end of the world. We’ve lived with the prospect of nuclear holocaust for far longer and prospered. People and economies will continue to function, mankind will find solutions and adapt to the new reality as it always has. So, we advise not to sell all your investments to cash. This was the wrong answer in the Great Depression, 2000 and 2008 and it’s the wrong move now. On the other hand, don’t waste any more time to act, now that public opinion has changed. Like all things financial, the trend is your friend.

  • The Tools Are at Your Fingertips.

Fortunately, one branch of the investment industry started worrying about the environment and climate change as early as the 1980’s and has built up an effective way you can help, simply by investing. We are referring to the socially responsible investment (SRI) industry, also known as sustainable, impact or green investing, or most recently “ESG” – investments that factor in environment, social and corporate governance factors.

SRI grew steadily through the 80s and 90suntil it really took off in the new millennium. Today the industry remains the fastest growing financial sector. In fact, more than one out of every three dollars under professional investment management in the U.S. is now involved in SRI.1

Plus, SRI/ESG investment choices continue to grow: The number of sustainable funds available to U.S. investors grew to almost 400 in 2020 — up 30% from 2019 and a nearly fourfold increase over a decade, according to Morningstar2.

  • How You Invest Can Make a Big Difference for the Planet.

How do socially responsible investments help against climate change? In a two-pronged way: first by choosing to reject some industries for your portfolio, such as fossil fuels, you and many others squeeze off the capital they need to grow, survive (and pollute). Second, by redirecting that capital (investments) to planet-conscious industries such as clean energy, you foster their growth. Get enough people to do that and the impact can be dramatic, as the coal industry discovered over the last five years.

  • But Will You Sacrifice Performance?

This is an old myth about SRI/ESG and the answer is no. In fact, according to Price, Waterhouse, Coopers ESG-aligned funds cumulatively outperformed their traditional counterparts by 9% over a period from 2010 to 20193. Of course, as always past performance is no guarantee of future results.

There will be many new SRI/ESG investment opportunities in the age of climate reversal. (alcse.org)

  • Play both Defense and Offense – and Sectors We Like Now.

Responding to climate change as an investor is the same as with any disruptive news. First, you want to review your portfolio to sell holdings in harm’s way, in this case sectors like fossil fuels, waterfront real estate companies, casualty insurance, winter sports, travel, etc. Then you want to reposition money into sectors positioned to benefit, such as renewable energy, home energy solutions, green utilities, internet conferencing, electric vehicles, lithium & batteries, infrastructure construction, smart agriculture, etc. There are many mutual and exchange traded funds today that can help you pinpoint these areas, or you can work with a personal investment manager who can create a custom portfolio for your individual situation.

  • Stay the Course

Yes, we know this is the usual mantra from investment people but to understand the sound thinking behind it, you have to realize two major points about the stock market. 1) In summary, what you are adding to your portfolio with stocks is the power of innovation. Bonds, CDs and fixed annuities promise a stated rate of return, but no more than that. Innovation has no bounds for shareholders – think Apple, Tesla. Of course, fixed income securities are designed to pay back your principal at maturity. They each play a role in your finances, but without the stock innovation piece you cannot keep ahead of inflation and generate real wealth over time. 2) The press typically focuses on the bad news, chasing some people out of the market. But smart investors know that good news can also break out at any time and you must stay in the market to capture the 50% of the time that happens. Which is why the market hasn’t collapsed so far from the combined impact of Covid and climate change. History is on the side of eventual innovation and solutions.

And that’s also why the major change this summer on accepting climate change in a way is good news. It finally allows the U.S. and the world to coordinate resources behind a common goal and really start doing something. It’s happening already, and we believe will become one of the central themes of this age and offer some of its best investments.

  1. Source: The Forum for Sustainable and Responsible Investment — Trends Report 2020
  2. Source: Morningstar, U.S. Sustainable Funds Continued to Break Records in 2020, 2/25/2021
  3. Source: 2022: The growth opportunity of the Century; Are you ready for the ESG Change? © 2020 PricewaterhouseCoopers, www.pwc.com

Todd and Craig Walker are Financial Advisors at Greenvest®, a Vermont-based personal asset management firm specializing in socially responsible investing since 2004, and a certified B Corporation®. www.greenvest.eco

Greenvest and Vanderbilt Financial Group are separate and unaffiliated entities. Vanderbilt Financial Group is the marketing name for Vanderbilt Securities, LLC and its affiliates. Securities offered through Vanderbilt Securities, LLC. Member FINRA, SIPC. Registered with MSRB. Clearing agent: Fidelity Clearing & Custody Solutions. Advisory Services offered through Vanderbilt Advisory Services. Clearing agent: Fidelity Clearing & Custody Solutions. Insurance Services offered through Vanderbilt Insurance and other agencies. Regional Supervising Office: 55 Main St., Suite 415, Newmarket, NH 03857 • 603-659-7626. For additional information on services, disclosures, fees, and conflicts of interest, please visit www.vanderbiltfg.com/disclosures

Information contained from sources believed to be reliable but we cannot guarantee its accuracy or completeness. Past performance is not a guarantee of future results.

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