In 2021, the United Nations’ Sixth Assessment Report warned of irreversible changes to the ocean and atmosphere due to climate change. Further, based on an IPCC forecast, it is a virtual certainty that global temperatures will continue to rise, increasing by at least two degrees Celsius by the year 2100. These real risks not only affect the planet but also affect the companies that work on the planet and their stocks if they’re public. Investors seeking to adjust their portfolios to consider climate change might want to consider what is called the “ABC Framework,” as outlined by the Impact Management Project (IMP), an organization that provides a forum for building global consensus on measuring, managing, and reporting impacts on sustainability.
Avoid
This means that as an investor, you should divest from companies that you find consume a lot of natural resources, are carbon-intensive, or engage in harmful deforestation, et cetera. One way to determine if a company is caring towards the environment is by looking at its ESG rating. ESG ratings are published by rating agencies to score stocks (and bonds) on environmental, social, and governance factors like the companies’ greenhouse gas emissions. Not only will doing this research “green” up your portfolio, but it can also reduce risk in the long term, as many of these “dirty” companies are facing heightened regulations and stiff environment-related costs. Some companies that fit this category include EchoStar Corp (SATS), Rex Minerals Ltd (RXRLF), and Fox Corp (FOX).
Benefit
Consider shifting your portfolio in favor of companies that lead by example, incorporating environmental practices into their governance. By being ahead of the game, these companies boost their reputation and mitigate the potential costs of regulatory and government pressure, resulting in potentially more prosperous companies. These companies might also “find it easier to attract, retain, and motivate talented workers,” claims Kozy, a senior analyst. Examples of companies with great environmental initiatives include Ford Motor Company (F), Disney (DIS), Fisher Investments (NASDAQ: QDISX), Hewlett-Packard (HPQ), Johnson and Johnson (JNJ), and Nike (NKE).
Contribute
Finally, consider investing in companies that are solely dedicated to helping mitigate climate change. These include, “resource-efficient or alternative energy, smart grids, electric vehicles or innovations in food, agriculture, forestry, and clean water”. Notably, solar technology has made great gains in recent years. Examples of stocks/funds to invest in include the Market Vectors Solar ETF (KWT), Guggenheim Solar Fund (TAN), Tesla (NASDAQ: TSLA), NextEra Energy Inc (NEE), Brookfield Renewable Corp (BEPC), ChargePoint Holdings Inc (CHPT), and Stem Inc. (STEM).