investing

How to Invest for Climate Change

Be selective about new technology, and don’t write off fossil fuels yet.

Matthew Weatherley-White is cofounder and managing director at the Caprock Group, an investment adviser for wealthy families. He leads the firm’s social and environmental investing program.

In December, 195 countries agreed to take steps to address global warming. What does that mean for investors? In the short run, very little. But the goals implied by the agreement will require $17 trillion in spending over the next 15 years, according to the International Energy Agency. That’s the demand side of the equation.

Why have alternative energy stocks performed so poorly? Everyone recognizes that the solution to a high-carbon economy is alternative energy. But making a bet on a specific company is a high-risk proposition. Twenty-five years ago, everyone agreed that computerization would accelerate. But think of the losses for people who bet on Wang Labs [which went bankrupt in 1992]. That had nothing to do with the computerization of society, but everything to do with the uncertainty of computing. We’re at the exact same place with alternative energy.

How should investors position their portfolios? Investors view climate change from two angles: risk mitigation and opportunity. With oil companies, there’s a real risk of stranded assets—reserves that won’t be recoverable due to future teeth in climate change agreements. But that won’t be reflected in share prices for years. How do you analyze the risk to insurers that the Florida Keys will be underwater in 50 years? Or risks to carbon-intensive industries such as aluminum smelting? Do you sell all of these stocks? That’s an irrational conclusion to come to.

And the opportunities? Focus on energy efficiency. Portfolio managers we work with look for companies poised to benefit from doing more with less. For example, Itron (symbol ITRI) makes meters that collect, communicate and analyze usage data for utilities. BorgWarner (BWA) makes engine components that make cars and trucks more fuel-efficient. Johnson Controls (JCI) invented the first electric room thermostat. Now it’s a global leader in energy optimization for heating and cooling. Renewable energy is tough to play, but First Solar (FSLR) provides utility-scale systems around the world, and its balance sheet is well capitalized, with little debt.

Most Popular

You'll Save More on Green Home Improvements Under the Inflation Reduction Act
Tax Breaks

You'll Save More on Green Home Improvements Under the Inflation Reduction Act

Tax credits for energy-efficient home improvements will be extended and expanded by the Inflation Reduction Act.
August 12, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
3 Dated Rules of Thumb Retirees Should Think Twice About
investing

3 Dated Rules of Thumb Retirees Should Think Twice About

The tried-and-true investing and saving rules of thumb retirees depend on may no longer be as reliable as they hoped. Don’t let dated “rules” steer yo…
August 11, 2022

Recommended

The Berkshire Hathaway Portfolio: All 45 Warren Buffett Stocks Ranked
stocks

The Berkshire Hathaway Portfolio: All 45 Warren Buffett Stocks Ranked

The Berkshire Hathaway portfolio is a diverse set of blue chips, and increasingly, lesser-known growth bets. Here's a look at every stock picked by Wa…
August 16, 2022
3 Dated Rules of Thumb Retirees Should Think Twice About
investing

3 Dated Rules of Thumb Retirees Should Think Twice About

The tried-and-true investing and saving rules of thumb retirees depend on may no longer be as reliable as they hoped. Don’t let dated “rules” steer yo…
August 11, 2022
The Good News About Recessions for Investors
investing

The Good News About Recessions for Investors

Yes, an official recession is possible, but based on previous recessions, there could be reasons for investors to smile. With that in mind, here are t…
August 11, 2022
Has Inflation Peaked? Here's What the Experts Are Saying
investing

Has Inflation Peaked? Here's What the Experts Are Saying

Inflation decelerated by more than expected in July, but that doesn't mean our era of fast-rising prices – or Fed rate hikes – is over.
August 10, 2022