3 Investment Strategies to Tackle Climate Change ~ U.S. News

Originally published by U.S. News http://money.usnews.com/investing/articles/2016-12-21/3-investment-strategies-to-tackle-climate-change
By Dawn Reiss

In a post-election climate where much of an incoming White House administration is filled with anti-climate change proponents, some investors are trying to take a public stance.

Peter Krull, president of Krull & Co., a socially and environmentally responsible investment firm in Asheville, North Carolina, says he’s seen a surge in investors who are interested in investing in more sustainable companies since the election in November.

“In this post-election era, investors know any type of climate change work isn’t going to be done in Washington anymore,” Krull says. “It’s going to be done in corporate boardrooms and by investors. That means responsible investing is going to become even more important.”

That’s because President-elect Donald Trump has publicly bashed wind farms, called global warming a hoax and selected a cabinet that ranges from Scott Pruitt, the Oklahoma attorney general who is a climate change critic, to run the Environmental Protection Agency. Former Texas Gov. Rick Perry was chosen to lead the US. Energy department, which he famously couldn’t name during a 2011 debate and has referred to the science behind climate change as a “contrived, phony mess.” ExxonMobil Corp. (XOM) chief executive Rex Tillerson was tabbed for secretary of state.

“It’s pretty clear by [Trump’s] actions that his administration is going to try and prolong the fossil-fuel based economy, which will make renewable energies volatile,” says Garvin Jabusch, co-founder and CIO of Green Alpha Advisors in Boulder, Colorado.That’s scary to many investors.”

Despite that rhetoric, companies such as Alphabet (ticker: GOOG, GOOGL), which has said it will get all of its energy from wind farms and solar panels in 2017, are already staking their future in renewable energies. “That’s huge,” Krull says. “That’s corporate America taking a leadership role on sustainability that’s not going to happen in Washington.”

Consider what is happening globally. Start by looking at reinsurance companies – like Munich RE, which has the world’s largest natural catastrophe database – that insure insurance companies, Krull says. Using data on how weather patterns is changing, actuaries are predicting the future of “global weirding” – the unexpected consequences from the rise in the global average temperature. Reinsurance companies then put pressure on insurance companies who pressure businesses to reduce their climate-related risk.

“When you take climate change and climate change risk and put it in underwriting process, you push companies to be more climate sensitive, especially if they know their insurance rates are going to go up if they don’t fix it,” Krull says.

Many European countries and China are already investing more proactively in this direction. Maria Simon, segment marketing manager at eVestment in Atlanta, says companies and investors that focus on environmental, social and governance – the key factors many investors use to measure the sustainability and ethical impact of a company – will probably fare better in the long run.

“More European and Chinese institutional investors and managers are quite far ahead when it comes to ESG,” Simon says. “It seems like the U.S. market is still trying to catch up.”

While some investors or market managers just look at companies in the Standard & Poor’s 500 index that have the highest ESG rankings, Jabusch says that’s not enough. “ESG makes you feel better but doesn’t necessarily involve in investing what is next,” he says.

For example, Jabusch cites companies such as Toyota Motor Corp. (TM) and Ford Motor Co. (F), which have hybrid cars, but these cars are a small percentage of their overall portfolio. For some portfolio managers, that’s enough for them to say they’ve invested in “green” companies, even if only 1 percent of a business focuses on sustainable practices, Jabusch says.

“If look at their business aggregate, you’ll see most of their cars are directly contributing to the huge amount of fossil fuel we are using,” Jabusch says.

While having a diversified portfolio is essential for an investor, Jabusch says consider companies like Tesla Motors (TSLA), with its massive gigafactory in Sparks, Nevada, that is working to create a zero-emissions building that won’t rely on fossil fuels, and working to reduce its kilowatt per storage capacity to save consumers money.

Regardless, keep in mind an exchange-traded fund or mutual fund is a reflection of a manager’s vision for the future, Jabusch says. It’s important for investors to review the holdings of a portfolio to make sure that fund manager’s vision aligns with their vision of sustainability.

“You have to look at the holdings and make sure it aligns with your own vision of the future,” he says, both in terms of economics and sustainability.

Look beyond the obvious. Consider real estate investment trusts that have a focus on “green buildings” that are more sustainable or have created systems to monitor energy and water usage. Krull points to Paris-based Unibail-Rodamco SE, that has the largest commercial real estate company in Europe and San Francisco-based Prologis (PLD), which focuses on industrial real estate.

“There are a lot of REITs looking at LEED certification or other strategies to make buildings more efficient and integrate monitoring technology,” Krull says. “Many are using technologies to connect buildings and see where energy is flowing, who is leaving the lights on at night. When you aggregate that over 100 million square feet, it makes a huge difference. There’s a tremendous opportunity to scale efficiency.”

He also suggests looking at technology companies that are focusing on software design, such as Adobe Systems (ADBE) and Autodesk (ADSK) that help companies that are looking for sustainable solutions as well as 3-D printing companies that create products on demand.

Look at undervalued companies. Jabusch says despite the volatility in the current market, it’s a good time to invest in undervalued sustainable companies.

He points to companies such as First Solar (FSLR) in Tempe, Arizona, and Vestas Wind Systems, a Danish company that makes wind turbines, which Jabusch says has more orders than it can fill. “A lot of the better renewable energy firms are undervalued today and may become more undervalued as the Trump administration continues,” he says. “And that makes them more favorable for investors in the long-term.”

As the average power purchase agreement prices for wind and solar have come down making it cheaper per kilowatt hour to use than coal, gas and nuclear, many individuals, including farmers, are using these tactics to make money on their land, especially in “red” states like Texas, Oklahoma, North Dakota, Kansas and Iowa, and also the southeastern part of Oregon.

“Even if you don’t believe in global warming, many are starting to de-couple their ideology from their thinking about renewable energy simply because of the economics,” Jabusch says. “It’s going to be hard for any administration to ignore that.”


Garvin Jabusch mentioned both Tesla (ticker: TSLA) and First Solar (ticker: FSLR) in this interview and Green Alpha Advisors had long positions in either or both stocks in some client portfolios at the time this article was published.  Garvin also mentioned Toyota Motor (ticker: TM) and Ford (ticker: F) – neither of which was held in any Green Alpha client portfolios at the time this article was published.  Please see additional important disclosures here: https://greenalphaadvisors.com/about-us/legal-disclaimers/