Is Your Portfolio Ready For Climate Change?

The day after Thanksgiving, the U.S. government released its National Climate Assessment Report, which warned of serious economic upheaval as a result of climate change. As an investor, this warning should make you worried.

I don’t want to get into a debate about what’s causing climate change, but there are a few facts about the topic that can’t be ignored. You should take the following measures now, to protect your portfolio from these inevitable environmental trends.

Incontrovertible Facts

First, we know that the atmospheric concentration of carbon dioxide has risen steadily since the Industrial Revolution. The atmosphere has now reached levels of carbon dioxide that have never been seen in the history of human civilization.

The chart depicts the accumulation of atmospheric carbon dioxide since 1960:

Source: National Oceanic and Atmospheric Administration

Second, carbon dioxide is a greenhouse gas. These gases help to warm the earth. Civilization likely only exists because of the greenhouse effect. Primarily because of the water vapor in the atmosphere (the most important greenhouse gas), the earth is about 60 degrees warmer than it would be without a greenhouse effect. But it stands to reason that if the atmospheric concentration of those greenhouse gases increases, so should the surface temperature of the earth.

Third, the average surface temperature of the earth is indeed climbing, as indicated by numerous measurements around the world of both land and water. I can tell you from my home in Phoenix, we have seen numerous all-time high temperature records fall over the past two years. 

Fourth, the world’s sea levels are rising. This is understandable because as water warms, it expands. And as the temperature increases, glaciers melt. Both factors add to the sea level, which has already risen by four to eight inches. This is an additional confirming point that the earth is indeed getting warmer.  

Given the trajectory of carbon dioxide and the relationships we do understand, it is likely that the warming trend will continue, even if the exact impacts can’t be specifically predicted.

Preparing Your Portfolio

Investing isn’t about certainty. It is about positioning for the way the future is likely to unfold. So if the world does indeed continue to warm, how should we plan?

First, I think there will continue to be global pressure to move away from fossil fuels. Some choices, like coal, are worse for the climate than others. Coal can be replaced by cleaner alternatives (like renewables, natural gas, and nuclear power). Lightening up on coal investments in favor of these alternatives is probably a good move. My #1 long-term investment choice here would be solar power, but natural gas will be increasingly attractive as well.

As a quick aside about natural gas, it is a fossil fuel, but it produces far less carbon dioxide than coal. You may have read that over the past decade, the U.S. has reduced its carbon dioxide emissions by more than any other country. I have analyzed the reasons for this, and the single biggest reason is that U.S. power plants have substituted coal for natural gas. 

Second, I believe the world will continue to move in the direction of electric vehicles. This shift will take a long time to substantially impact oil consumption, but companies that represent plays on electric transportation are probably a good idea (assuming they aren’t grossly overvalued).

Third, a warming world will see droughts in some areas, even as other areas experience more rainfall. More conservative investors may wish to focus on water utilities, especially in areas that appear to be getting drier. 

Finally, more aggressive investors may seek opportunities in carbon capture, utilization, and storage (CCUS). This approach typically involves methods of capturing carbon dioxide from the flue gas of power plants, and either storing it or recycling it into products like fuels, chemicals, or plastics. This is a subject rich with opportunities and pitfalls. I will address this topic in more detail in next week’s column.


I remind people all the time that we don’t know the future, but we need to prepare for possibilities. Nobody expects their home to burn down, but we nevertheless have homeowner’s insurance in case that happens. It is also a good idea, even if you think the probability is low, to insure your portfolio against the kind of economic chaos that is predicted in the recently released climate assessment report. 

Climate change isn’t the only threat to your portfolio. Many analysts are predicting a recession and market crash in 2019. It all begs the question: do you have enough money for retirement? If you’re nervous that you’ll outlive your nest egg, you’re not alone.

But help is on the way. My colleague Jim Pearce, the top analyst at Investing Daily, has unveiled the most ambitious initiative in the history of investment research. It’s called the Income Millionaire Project.

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