Investing in a new climate is not about doom and gloom, but about adapting to change. We need to think about a new normal. This new normal has to do with a changing climate, but not solely the meteorological climate. That’s one catalyst, but I’m talking about Climate with a capital “C.”
Adapting to the changing climate also includes advances in technology, such as in medicine, energy, transportation, space travel, artificial intelligence and computing. We need to analyze our current investments and consider updating our investment portfolios. Let’s look at the troubling, new and exciting opportunities that emerge.
The following are nine sectors to consider, and I’ve also listed a specific exchange-traded fund as an example of an investment in each sector at the end of the article:
1. Food and agriculture. The food industry is huge and it’s evolving toward more local production, such as the farm-to-table movement. Organic foods and plant-based foods are becoming mainstream.
2. Water. Bottled water ranked as the No. 1 largest selling packaged beverage in 2019. The massive disruption in the worldwide water cycle represents a unique opportunity for investors.
3. Transportation. Transportation is the mechanism that allows economies and society to function, akin to blood flowing through our bodies. We can expect more fuel-efficient vehicles, the rightsizing of fleets and the re-rationalizing of supply chains and frequency of transport.
4. Aviation and space. The FAA estimated the U.S. space industry was valued at approximately $158 billion in 2016. In 2018, the aerospace and defense industry added more than $374 billion to the U.S. economy, totaling 1.8% of GDP.
5. Medical technology and health care. U.S. health care spending reached $3.6 trillion in 2018: That’s $11,172 per person. Medicine and medical devices are one of those areas in which technology can be especially disruptive and can have a profound impact on people and society.
6. Renewable energy. Demand for renewable energy is expected to increase by about 81% by 2040. Energy demand met by renewable technologies, including hydro-electric, solar, wind and biomass, should climb exponentially by 2040.
7. Real estate and construction. As the world heats up and sea level rises, where do we go? And where do we invest? Is Northern Europe a better bet than sub-Saharan Africa? Higher latitudes will likely fare better than equatorial regions. In general, places that are already successful will do better than those places that are already struggling.
8. Computers and information technology. Technological advances associated with modern and next-generation computing will very likely have a profound impact on the world. These effects include but are not limited to brain mapping, targeting pharmaceuticals, transportation efficiencies, financial optimization and climate modeling.
9. Artificial intelligence and robotics. AI is here to stay. It’s been around for a long time and is pervasive: Almost every modern technology has some element of AI. Many billions of investment dollars are committed to the AI industry, and more funds are flowing in daily. This technology is clearly woven deeply into the new climate. The problem is not where to look, it’s where not to look.
ETFS FOR EACH SECTOR
Food and agriculture: Invesco Dynamic Food & Beverage (PBJ)
Water: Invesco Water Resources (PHO)
Transportation: iShares Transportation (IYT)
Aviation and space: SPDR S&P Transportation (XTN)
Medical technology and health care: SPDR S&P Biotech (XBI)
Renewable energy: iShares Global Clean Energy (ICLN)
Real estate and construction: iShares Global Real Estate (REET)
Computers and information technology: Vanguard Information Technology (VGT)
Artificial intelligence and robotics: Global Robotics and Automation Index (ROBO)
These sectors and their corresponding ETFs are just examples, not an exhaustive list of investment options. They’re intended as a starting place to consider investing in a new and disruptive climate. The big takeaway is that “the economy is changing”: We can adapt our portfolios or lose out on potential investment performance.
[More: 3 keys to integrating ESG into client portfolios]
Scott Schwartz is a financial analyst and CEO of the sustainable investment advisory firm EntentVest Inc. His first book, “Investing in a New Climate: A Sustainable Approach to Investing in a New Climate,” was published in August.
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