Climate Change: Financial Threat or Investment Opportunity of a Lifetime?

Economic growth is the tide that lifts all boats.

And, as Deutsche Bank noted in a recent report, it is a game changer for health and living standards across the globe.

For those who decry the evils of capitalism, make no mistake: It is the one reliable thing that continues to lift people out of poverty and elevate qualities of life.

It can be a catalyst for freedom, personal sovereignty, and justice. And without it, such things could not exist. Just ask anyone who’s been able to escape from North Korea or the former Soviet Union.

But what if something happened that would make economic growth unsupportable?

What if there was something that could make it impossible for free market economies to thrive and prosper?

This is a question that is now being asked by the world’s top economists, and it’s a question that we, as investors and unapologetic capitalists, must also ask. There is a very real threat that the global community is facing, a threat that could make it increasingly more difficult to maintain a model of economic growth that has been the catalyst for so much positive change in the world.

Modern Civilization Is Screwed

According to the Bank for International Settlements (BIS), also known as the central bank for central banks, the increase in the frequency and intensity of extreme weather events could trigger non-linear and irreversible financial losses.

In turn, the immediate and system-wide transition required to fight climate change could have far-reaching effects for every single agent in the economy and every single asset price.

As Deutsche Bank explains, the problem for the environmental lobby is that a world without economic growth may create a damaging backlash against new climate policies. Nevertheless, the problem with the status quo is that the irreversible damage to our planet will increase.

On the one hand, modern civilization is screwed. On the other hand, modern civilization is screwed.

Now, I’m not sharing this with you today to get into some big debate about climate change.

There’s plenty of data and data analysis out there for you to form your own opinion about whether or not the scientific consensus on climate change is sound.

That being said, regardless of your take on it, the world’s biggest banks and insurance companies, along with more and more seasoned economists, see climate change as a real and valid threat to economic growth and stable free market economies.

And so do I.

The Cat is out of the Bag

As reported on Yahoo! Finance:

Economists at JPMorgan also examined the impact climate change is having and could have on economic growth. And by the firm’s estimates, the current work outlining potential impacts on economic growth due to climate change are still too conservative.

“Economists have struggled to quantify the impact of other aspects of climate change beyond temperature and precipitation, such as extreme weather events, droughts, heat waves, floods and sea level increases,” the firm writes.

“These broader aspects of climate change would not only impact GDP and welfare directly, but would also have indirect effects via morbidity, mortality, famine, water stress, conflict and migration. There will also be damage to buildings and infrastructure and possibly the premature scrapping of some of the capital stock as policy and technology change. Moreover, there are plenty of non-linearities in both the climate system and the macro economy which could make the economic consequences of [business-as-usual] much more severe.”

Still, JPMorgan sees business-as-usual dominating the decision-making among political leaders in the years ahead.

JPMorgan is right.

One cannot rely on political leaders to do anything but maintain the status quo. It’s how they keep their jobs. And in all fairness, it could easily be argued that prior policies have resulted in many of our climate-related problems today.

For the most part, when the government gets involved, you can be sure there will be plenty of negative consequences.

And this is why we must rely on industry, not the government, to help prepare us for a world where continued economic growth could be thwarted by the effects of climate change.

Certainly transitions to electric vehicles and the continued integration of cleaner forms of energy can serve as solutions to reduce our fossil fuel consumption. But at this point, it’s going to have to be more than that.

The cat is out of the bag.

The results of climate change are no longer a “What if?” scenario. Instead, it’s a “What now?” scenario.

What are we going to do to protect ourselves from all the things that are coming with a warming climate — and which industries will benefit?

Certainly, we’re going to see big changes in coastal real estate, as the liabilities for insurance companies are going to make insuring these properties much more difficult and costly.

New farming technologies will have to be developed that will allow us to produce food in harsher heat and drought conditions.

Stronger energy infrastructures will have to be built and maintained in order to handle heavier loads of usage during heat waves and cold snaps that take temperatures to extremely dangerous levels.

New medical technologies and pharmaceuticals will have to be developed to battle new disease outbreaks. There’s some evidence that suggests climate change may put more people at risk of certain infectious diseases, including insect-borne diseases, such as malaria and Dengue Fever, and waterborne diseases such as cholera, typhoid, and hepatitis.

I’m not trying to sound like an unfeeling downer here, but part of being a successful investor is identifying crises and figuring out how to profit from the opportunities that will be bred from those crises.

In terms of massive crisis potential, climate change ranks pretty high.

Invest accordingly.

To a new way of life and a new generation of wealth…

Jeff Siegel

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Jeff is the founder and managing editor of Green Chip Stocks. For more on Jeff, go to his editor’s page.

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