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Climate Change: Invest or Run?

Written By Jeff Siegel

Posted August 26, 2015

ccprofitOne of the secrets to being a successful investor is employing the precautionary principle, which is defined as a precept that an action should not be taken if the consequences are uncertain and potentially dangerouss.

A good example of this would be those who exited China’s stock market earlier this year as it was becoming increasingly clear that the market was ripe for a major correction.

As a solar investor, I actually warned folks months ago to abandon China solar stocks. It was a good call, and I’m glad I was able to employ the precautionary principle in this instance.

Another issue I see worthy of applying the precautionary principle is climate change.

Even if you don’t find the data and data analysis on climate change to be sound, the precautionary principle still dictates that this is worth reviewing objectively.

Certainly this is what the folks over at Citigroup are doing.

A Steady Flow of Profits

In a recent report issued by Citigroup, analysts present a case that details how climate change – under the assumption that it is real and well underway – will impact the energy, water, agriculture, health, banking and insurance industries.

… if the Scientists are correct, the impacts of climate change could be significant, and would affect all of us. In economic terms, while little would remain unaffected, the sectors most obviously impacted by climate change include the energy, water, agriculture/food/fishery, and health sectors, not forgetting the insurance sector and banking/financial markets generally.

Looking to maintain a steady flow of profits heading into the future, this suggests the following:

1.) Have no exposure to insurance companies that aren’t properly prepared for an increase in climate change-related disasters.

2.) In the energy space, stick primarily to renewable energy and clean energy technologies. I would allocate no more than 15% of my energy portfolio to fossil fuel-related stocks.

3.) Industrial agriculture is likely to be the biggest loser as a result of extreme weather conditions. Crops grown by industrial producers tend to rely heavily on synthetic fertilizers and energy inputs, which are required on land where the soil has been depleted of its nutrients. The worse the conditions, the more costly inputs required. Organic growers, on the other hand, that don’t rely on monocropping and ensure the high nutritional content of their soil will fare better in extreme weather conditions.

Here’s the deal …

I’m not saying climate change is going to wreak havoc on the global economy. But a lot of very smart folks are. And even if you don’t find the threat of climate change to be valid, the opportunity to profit from the technologies designed to slow the effects of climate change is very, very real.

If you want to invest accordingly, exercise the precautionary principle and devote at least 5% of your portfolio to investments that will benefit from any moves designed to act on climate change. This means get some exposure to the renewable energy space by trading some of your more vulnerable fossil fuel stocks for a handful of solar, wind, and geothermal stocks. Here are a few suggestions …

  • SunEdison (NYSE: SUNE)
  • SunPower (NASDAQ: SPWR)
  • U.S. Geothermal (NYSE: HTM)
  • First Solar (NASDAQ: FSLR)
  • SolarEdge (NASDAQ: SEDG)
  • Vestas (OTCBB: VWDRY)