Climate Change Investment Strategy

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watchnerd
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Climate Change Investment Strategy

Post by watchnerd » Thu Oct 04, 2018 12:19 am

If one believes that global climate change, with more extreme weather and possibly rising seas, is a likelihood from now and into the next few decades, how should one adjust their asset allocation or investment strategy?
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Scott S
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Re: Climate Change Investment Strategy

Post by Scott S » Thu Oct 04, 2018 12:22 am

Mostly, I would just make sure I live well up the hill from the river.

IBTL. :beer
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Yinks
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Re: Climate Change Investment Strategy

Post by Yinks » Thu Oct 04, 2018 12:39 am

It seems like most fortune 500 companies are preparing for a future with climate change. While our politicians may have their heads in the sand, companies seeking to maximize profit will adapt to continue to maximize profit.

Ergo, the bogelhead investment strategy still stands.

If the broad economy tanks because of climate change (the bogelhead approach fails) then you are left with trying to find the needle in the haystack that is counter to the broad market trend. I believe there are many a thread on this forum about not trying to find the needle.

Aside from that, seriously reconsider buying coastal properties. Their value will tank as sea levels rise. There are public tools out there that show you which coastal areas are at risk given sea level rise projections.

https://coast.noaa.gov/digitalcoast/tools/slr.html

Valuethinker
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Re: Climate Change Investment Strategy

Post by Valuethinker » Thu Oct 04, 2018 5:50 am

watchnerd wrote:
Thu Oct 04, 2018 12:19 am
, is a likelihood from now and into the next few decades, how should one adjust their asset allocation or investment strategy?
1. do not buy a property less than 6 feet above sea level**. And preferably more - you have to look at the last hurricane surges. Pay attention to flood maps -- but don't take them as absolute on trust. Do not buy a home in New Orleans, Miami* or the lower lying levels of Brooklyn Queens Staten Island or the relevant parts of New Jersey, Long Island and Connecticut. Research carefully any other area - for example not in the Back Bay area of Boston (it's built on landfill), Norfolk Virginia area (the USN has learned to use the words "recurrent flooding" in its budget requests as it prepares its infrastructure for the challenges).

Remember that with Houston Storm Harley was the largest amount of rain in that time period ever recorded. That said, some newer & poorer neighbourhoods flooded a lot worse -- you can make an informed selection. Note that drought is also a threat: if you live in a drought prone city (Denver?) then you want to install the maximum efficient measures from a water consumption point of view etc. (note in Colorado putting a rain collector on your land could be illegal because water rights are based on the doctrine of prior rights (as opposed to the common law concept of riparian rights) and this is quite prevalent west of the Mississippi in the USA - be careful what you do). This is the time to dispense with the green lawn and other horrible (English) water wasting innovations ("Kentucky blue grass" is, in fact, an imported species; the whole concept of a green lawn is an 18th century English thing, meaning you had servants rich enough to mow it).

(there's a reason why the one country in the world where golf is a working class sport is Scotland (in England it's a suburban middle class thing, with strong class connotations). Scotland the precipitation is high enough and the temperature range small enough that one can effectively golf all year round. I don't think Scottish golf courses use much artificial irrigation ;-). Population density is low and agriculture is relatively thin, so land is cheap. You do, however, need to be able to deal with the inclement Scottish weather ;-)).

It's almost certain that property prices will begin to reflect rising risks of flooding and since a house is a 50 year+ asset, they will begin to reflect risks of flooding in the late 21st century quite soon -- if not already.

2. I would not adjust my investment portfolio. As far as I am aware, there are no low cost investment funds that specifically tilt against fossil fuel companies, old line utilities etc (you'd have to throw airlines in there, too).

Rather I use a total indexation approach (global market weightings). Your goal as an investor should be to invest in the full range of assets that gives maximum return for lowest volatility (Efficient Frontier on a volatility & return basis in the jargon). Russian energy companies are very, very cheap - there are other reasons for that, but the market also seems to know that the future is under question. Note that dying industries are often strong producers of cash flow for investors (tobacco as an example).

But I make regular monthly contributions to organizations that I believe are doing something positive - Rainforest Action Network for example in the USA, which organizes and lobbies for measures to preserve rainforests, the biggest carbon sink on the planet. $5 a month, or $10, will make far more difference to a not-for-profit than irregular contributions. And gives you far more leverage over the fate of the planet than any investment policy decision you might make.

This is not a problem an individual investor can solve nor meaningfully move the dial. You can read all the Oxford University papers on sunk carbon/ stranded carbon (they have an institute there that focuses on this issue). But the effect of an individual investor's decisions with their money will be de minimis.*** Better to show up at the Exxon AGM as an individual shareholder and ask a question or support an investor resolution. Or Cenovus and Canadian Natural Resources (tar sands oil).

https://www.carbontracker.org/terms/stranded-assets/

https://www.smithschool.ox.ac.uk/resear ... tions.html



* the bedrock in Miami is water permeable. The city will have to be raised up on a pedestal. In downtown Manhattan one can build a wall (probably will, given the amounts of money in real estate at stake). Miami that won't work and the cost of a solution is so high I expect gradual abandonment. I believe New Orleans is the only American city worse affected.

** the US East Coast is affected more than the West Coast. What seems to be happening is the AMOC (aka the Gulf Stream) is slowing down. Thus water is "piling up" on the east side of the Atlantic (the globe turns in that direction ie from west to east) and so the rate of sea level rise is 2x what it is on the other side of the USA.

Jeff Goodell's book on rising seas is absolutely worth a read - very good intro, very readable.

https://www.amazon.com/Water-Will-Come- ... 031626024X

*** there was a recommendation that the Norwegian state oil fund (about $1 trillion in size, owns 2.5% of every listed company in Europe, about 1.5% of every listed company in the world; is managed largely on passive indexation principles) diversify away from fossil fuel producers and big consumers (e.g. utilities with more than 30% of their production from coal fired electricity). This would be in line with diversifying away from the specific risks of the Norwegian economy - oil and gas production is their biggest industry. However last I heard the Central Bank was objecting to this recommendation, so I am not sure if it is being implemented. Norway also has the highest percentage of Electric Vehicles in the world (due to subsidies to adopt them) which is interesting.
Last edited by Valuethinker on Thu Oct 04, 2018 7:10 am, edited 2 times in total.

craimund
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Re: Climate Change Investment Strategy

Post by craimund » Thu Oct 04, 2018 5:58 am

Yinks wrote:
Thu Oct 04, 2018 12:39 am
It seems like most fortune 500 companies are preparing for a future with climate change. While our politicians may have their heads in the sand, companies seeking to maximize profit will adapt to continue to maximize profit.

Ergo, the bogelhead investment strategy still stands.

If the broad economy tanks because of climate change (the bogelhead approach fails) then you are left with trying to find the needle in the haystack that is counter to the broad market trend. I believe there are many a thread on this forum about not trying to find the needle.

Aside from that, seriously reconsider buying coastal properties. Their value will tank as sea levels rise. There are public tools out there that show you which coastal areas are at risk given sea level rise projections.

https://coast.noaa.gov/digitalcoast/tools/slr.html
Depends on the coastal property. Sea level rise means more depth (higher MLW). Would be a good thing for my waterfront property.

Not sure how you would change an investment strategy based on "climate change" (presumably caused by human activity). There are so many variables influencing the climate. Sun spot activity has a much greater effect on the earth's climate than the CO2 content of the atmosphere. We are entering a period of low solar activity which may even result in another ice age (article below).

https://astronomynow.com/2015/07/17/dim ... e-by-2030/
Last edited by craimund on Thu Oct 04, 2018 6:14 am, edited 1 time in total.
"When you ain't got nothing, you got nothing to lose"-Bob Dylan 1965. "When you think that you've lost everything, you find out you can always lose a little more"-Dylan 1997

rkhusky
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Re: Climate Change Investment Strategy

Post by rkhusky » Thu Oct 04, 2018 6:00 am

Invest in land that will become the new beach front property and/or whose weather will become more favorable.

Valuethinker
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Re: Climate Change Investment Strategy

Post by Valuethinker » Thu Oct 04, 2018 6:54 am

rkhusky wrote:
Thu Oct 04, 2018 6:00 am
Invest in land that will become the new beach front property and/or whose weather will become more favorable.
Interestingly there is a worldwide shortage of beach sand. You need particular grades of sand for making concrete (with cement and gravel). Also there is a lot of beach repair going on at various locations.

https://globalnews.ca/news/4274233/worl ... ck-market/

Because beach erosion is accelerating, generally, it's not easy to predict where the "new" beachfronts will be. And because of storm surges, the high water mark is also variable. The government policy on the English east coast (North Sea) is one of managed retreat - a lot of those cliff front and sea front properties are just going to go - building hard defences like walls in one area simply pushes the water somewhere else -- the prediction of these is complex and very dependent on local conditions.

Weather more favourable? I am not sure anyone really knows where that will be. The extremes are increasing - England is getting droughts (yes, England, droughts) and record rainfalls and "the Beast from the East" (late March freeze up this year) i,e, Arctic like freeze-ups. The increased instability of the jet stream is driving changes in our weather in both directions. The Arctic is warming twice as fast as the planet, but that doesn't make it more habitable.

If winters in Minneapolis are 10 degrees F warmer, and summers 10 degrees F warmer with associated increases in biting insects, does that make Minneapolis weather better? Or worse?

Canada and Siberia are going to be warmer. But the inhabited parts of Canada are southern, and further north there is not the soil for widespread settlement - you are in permafrost or muskeg in the Arctic, and rocky Canadian Shield in much of the east.

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watchnerd
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Re: Climate Change Investment Strategy

Post by watchnerd » Thu Oct 04, 2018 11:48 pm

Valuethinker wrote:
Thu Oct 04, 2018 6:54 am
rkhusky wrote:
Thu Oct 04, 2018 6:00 am
Invest in land that will become the new beach front property and/or whose weather will become more favorable.
Interestingly there is a worldwide shortage of beach sand. You need particular grades of sand for making concrete (with cement and gravel). Also there is a lot of beach repair going on at various locations.

https://globalnews.ca/news/4274233/worl ... ck-market/

Because beach erosion is accelerating, generally, it's not easy to predict where the "new" beachfronts will be. And because of storm surges, the high water mark is also variable. The government policy on the English east coast (North Sea) is one of managed retreat - a lot of those cliff front and sea front properties are just going to go - building hard defences like walls in one area simply pushes the water somewhere else -- the prediction of these is complex and very dependent on local conditions.

Weather more favourable? I am not sure anyone really knows where that will be. The extremes are increasing - England is getting droughts (yes, England, droughts) and record rainfalls and "the Beast from the East" (late March freeze up this year) i,e, Arctic like freeze-ups. The increased instability of the jet stream is driving changes in our weather in both directions. The Arctic is warming twice as fast as the planet, but that doesn't make it more habitable.

If winters in Minneapolis are 10 degrees F warmer, and summers 10 degrees F warmer with associated increases in biting insects, does that make Minneapolis weather better? Or worse?

Canada and Siberia are going to be warmer. But the inhabited parts of Canada are southern, and further north there is not the soil for widespread settlement - you are in permafrost or muskeg in the Arctic, and rocky Canadian Shield in much of the east.
Is beach sand an investable commodity?

Are there sand futures?
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longleaf
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Re: Climate Change Investment Strategy

Post by longleaf » Fri Oct 05, 2018 12:04 am

watchnerd wrote:
Thu Oct 04, 2018 11:48 pm
Valuethinker wrote:
Thu Oct 04, 2018 6:54 am
rkhusky wrote:
Thu Oct 04, 2018 6:00 am
Invest in land that will become the new beach front property and/or whose weather will become more favorable.
Interestingly there is a worldwide shortage of beach sand. You need particular grades of sand for making concrete (with cement and gravel). Also there is a lot of beach repair going on at various locations.

https://globalnews.ca/news/4274233/worl ... ck-market/

Because beach erosion is accelerating, generally, it's not easy to predict where the "new" beachfronts will be. And because of storm surges, the high water mark is also variable. The government policy on the English east coast (North Sea) is one of managed retreat - a lot of those cliff front and sea front properties are just going to go - building hard defences like walls in one area simply pushes the water somewhere else -- the prediction of these is complex and very dependent on local conditions.

Weather more favourable? I am not sure anyone really knows where that will be. The extremes are increasing - England is getting droughts (yes, England, droughts) and record rainfalls and "the Beast from the East" (late March freeze up this year) i,e, Arctic like freeze-ups. The increased instability of the jet stream is driving changes in our weather in both directions. The Arctic is warming twice as fast as the planet, but that doesn't make it more habitable.

If winters in Minneapolis are 10 degrees F warmer, and summers 10 degrees F warmer with associated increases in biting insects, does that make Minneapolis weather better? Or worse?

Canada and Siberia are going to be warmer. But the inhabited parts of Canada are southern, and further north there is not the soil for widespread settlement - you are in permafrost or muskeg in the Arctic, and rocky Canadian Shield in much of the east.
Is beach sand an investable commodity?

Are there sand futures?
It is more like they sail up to third world countries at night and the next morning the beach has been transported to the first world. Not necessarily an ethical practice. After all, who wants to lose a beach? I believe there is an article that interviews a Jamaican man who woke up to his beach having been stolen during the night.
Frugality, indexing, time.

b4real
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Re: Climate Change Investment Strategy

Post by b4real » Fri Oct 05, 2018 8:40 am

Ishares MPCT
https://www.ishares.com/us/products/283 ... t-etf-fund
"The iShares MSCI Global Impact ETF seeks to track the investment results of an index composed of positive impact companies that derive a majority of their revenue from products and services that address at least one of the world's major social and environmental challenges as identified by the United Nations Sustainable Development Goals."

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watchnerd
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Re: Climate Change Investment Strategy

Post by watchnerd » Fri Oct 05, 2018 8:42 am

b4real wrote:
Fri Oct 05, 2018 8:40 am
Ishares MPCT
https://www.ishares.com/us/products/283 ... t-etf-fund
"The iShares MSCI Global Impact ETF seeks to track the investment results of an index composed of positive impact companies that derive a majority of their revenue from products and services that address at least one of the world's major social and environmental challenges as identified by the United Nations Sustainable Development Goals."
Japanese railways, pharma, and Johnson & Johnson?

I don't get it...
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bloom2708
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Re: Climate Change Investment Strategy

Post by bloom2708 » Fri Oct 05, 2018 9:33 am

Put both "where the stock market it going" and "where climate is changing" in the Nobody Knows Nothing category.

Invest based on sound principles (Boglheads or others). Spend no time on things you cannot control (climate).

You can control how you invest.

You can control how you personally deal with "climate change". Use solar panels, recycle, ride a bike, sell your gas car and have an electric car, own less house and less stuff. This is stuff completely within your scope of control. The next flood or hurricane is not.

Watch the world and see how much time "people" spend on things completely out of their control. It is sad. Don't fall for the trap.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

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