Investing in Climate Change: Profiting the Right Way

“….and all you can talk about is money and fairy tales of eternal economic growth. How dare you!”

-Greta Thunberg

The above is an excerpt from the speech given by climate activist Greta Thunberg, and probably the most famous/notorious line of the year so far, depending on where you stand on the issue of climate change.

To be honest it shouldn’t matter where you stand on the climate change debate, the way I see it these are words that we should all take seriously, if for no other reason just in case. It is a call to action that we ignore at our own peril and that of untold future generations to come. It doesn’t matter which side of the political divide that you stand on, Democrat/Republican, Left/Right, or whether you are a denier or believer. The science on man-made climate change and global warming is compelling, and even if one is a sceptic, why take the risk of being wrong?

So having said that, I spent the last few weeks researching how we, fund managers and investors, could help out without taking a hit financially. Fortuitously I came across my old friend, Stephan Nicoleau of Fullcycle, a Fund managing investments in the global transition to low-carbon infrastructure.

Traditionally (and I use this term loosely as climate change investments as a niche is less than 20 years old) There are two basic ways to approach investing in climate change based companies Divestment or investment.

Divestment: As the name suggests in this method we, the investor, move away from companies that contribute to global warming like oil and gas companies or carbon heavy industries like coal or cement. The conscientious investor uses a negative filter to divest their portfolio of these environmentally damaging companies thereby starving them of capital.

While it may sound logical this method has proven to be a failure, for every investor that moves away other steps in. Bill Gates in his interview with the Financial Times summed it best when he said “Divestment, to date, probably has reduced about zero tonnes of emissions.” He continued “it’s not like you’ve capital-starved [the] people making steel and gasoline.”

Furthermore by having a voice in these companies, an investor can try and effect change from within.