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An Earth Day to remember: opportunities of a warming planet

20 April 2016 in Investing Insights

Earth Day is this Friday, but it won’t be a day marked by tree huggers only. The historic climate accord approved in December by nearly all of the world’s nations will be open for signing on April 22.

Last week’s news that Peabody Energy, the largest U.S. mining company, filed for bankruptcy protection may have signaled the beginning of the end for “dirty” coal, a characterization it has earned for being the most carbon-intensive of all fossil fuel energy sources.

To be sure, Peabody will still run its operations while in bankruptcy; its Chapter 11 filing is expected to reposition the coal miner for a long life. Still, Peabody is the 50th coal company to file for bankruptcy since 2012. In its wake, a growing number of fund managers are calling on the world’s largest fossil fuel businesses to disclose the financial risks posed by climate change.

Climate change coming to the fore

Regardless of where you stand on this heated topic, climate change seems to be getting more attention than ever, and in lockstep, clean technologies are drawing record dollars in capital. By this standard, climate change appears poised to become a mainstream investing theme with real legs rather than being an offshoot of socially responsible investing.

And why not? Pretty much the entire world is getting behind efforts to halt the earth’s rising temperatures. In December, 196 countries approved a historic climate pledge committing them to cut or limit emissions from the burning of oil, gas and coal, aka fossil fuel. This agreement is open for signing on April 22 (Earth Day!) which means Earth Day 2016 will go down as a pretty important one, not a niche event known only to tree huggers.

Businesses are also lining up to gradually wean themselves off fossil fuel. The world’s biggest companies ranging from Walmart to Hewlett Packard to Alphabet are holding themselves to clean energy targets. Whether you believe in climate change or not, you may be well-served to key into the issues and opportunities as political and economic forces appear to be edging us towards a low-carbon world.

Take our Climate Change Quiz to test your knowledge about climate change and the investment opportunities. Or keep reading to help you better understand climate change and potential opportunities.

Why climate change matters

Climate change and global warming explained

Climate change describes lasting changes over average weather conditions and includes warming or cooling temperatures, rising sea levels, changes in wind patterns, shrinking mountain glaciers, accelerating ice melts, among others.

Global warming is an increase in Earth’s average surface temperature from greenhouse gas emissions.

As Earth moved out of the ice ages over the past million years, global temperature rose a total of 4 – 7º C over about 5,000 years. In the past century alone, the temperature has climbed 0.7º C, roughly ten times faster than the average rate of ice-age-recovery warming. Scientists say natural causes alone cannot explain all of these changes which leaves an opportunity for us to change course.

What causes global warming?

Whenever we burn coal, oil, and gas to produce electricity, power our factories, drive our cars, heat our homes, we release carbon dioxide into the earth’s atmosphere, where it traps heat.

While we hear a lot about carbon dioxide, another greenhouse gas, methane, has a global warming potential most recently estimated at 25 times that of carbon dioxide. Methane is a by-product of the decomposition of landfill waste, animal digestion, animal wastes, production and distribution of natural gas and petroleum, coal production, among other processes.

Though it’s normal for concentrations of greenhouse gases to swing over time, causing the average global temperature to vary over hundreds of thousands or millions of years, many scientists say today’s global warming is caused largely by the increase in heat-trapping gases released into the atmosphere from the burning of fossil fuels. That said, deforestation, industrial and certain agricultural processes and other activities also release greenhouse gases.

The greenhouse effect is normal and even essential. Without it, the average temperature would be 0º F – chilly, right? It is the buildup of greenhouse gases, however, that can change our planet’s climate and negatively impact our health and the greater ecosystems.

What are the risks – and opportunities – of climate change?

Extreme weather conditions such as hurricanes, droughts and heat waves will likely occur more often and with greater intensity as a result of rising temperatures, according to many scientists. The risks of extreme weather pose opportunities to address their aftermath including:

  1. Water shortages caused by early snowmelt and severe droughts and saltwater intrusion into groundwater drinking supplies, especially in low-lying, gently sloping coastal areas, caused by rising sea levels.
  2. Economic damage resulting from possible property losses, reduced crop yields
  3. Healthcare challenges arising from likely increasing air pollution, heat waves, and other conditions.

What about getting ahead of climate change?

Renewable energy is showing promise getting us towards a future less dependent fuels derived from dead plants and animals. Last year, for the first time, renewables such as wind and solar accounted for a majority of new electricity-generating capacity added worldwide in 2015. Policy will be critical to driving scale and lowering cost to fuel renewable’s adoption.

In the U.S. a federal tax credit has helped solar power capacity more than double between 2008 and 2012. Since the third quarter of 2010, the average price of a solar panel has dropped 63 percent.

There is a vast body of information about what businesses are doing to get their arms around the risks and opportunities of climate change. From how insurers are trying to get ahead of property damages caused by weather disasters to what food scientists are doing to reduce extreme weather’s impact on crop yields– these challenges require solutions which may spell opportunities for investors.

Tags: earth day
  1. Kevin
    21 Apr at 4:45 am

    What a waste of time! There is NO ‘global warming’ — the earth’s temperatures have held steady or declined for the last 18 years! This is just a fraud and scam by politicians and Marxist elitists wanting to increase their control over people and actually decrease the world’s population (population reduction), which they consider is far too high to give them their necessary resources (another scam).

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