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Climate Change and Your Portfolio

Investors who bet big on the shift from fossil fuels to clean energy are making a killing this year. Solar and wind stocks in particular have outperformed oil and gas stocks by a huge margin (see charts below). That’s because the cost of solar and wind have come down dramatically in recent years, so much so that solar and wind are now cheaper than coal and natural gas (the cost of solar has fallen 85% since 2010). It matters little whether you believe in climate change or not because the shift to renewables has already began.


The Tale of Two ETFs: The iShares Clean Energy ETF (ICLN) is up more than 30% YTD while the fossil fuel-dominated Vanguard Energy ETF (VDE) is down .25% YTD.

But smart investors saw it coming years ago. They didn’t let politics or ideology cloud their minds. They knew, for instance, that climate change would impact the future cash flows of every industry on the planet. Take the insurance sector and the heavy loses insurers have incurred in the last decade. Storms that were once considered rare are now annual events costing billions of dollars in damages. Ask people in Houston how they feel about global warming now. Most Texans actually worry about it a lot and they want the government to do something about it. You see, people don’t give a shit about politics when they don’t have a roof over their heads or their house is five feet underwater.

Food giants like Archer Daniels Midland, Cargill, and Monsanto are paying the price, too. That’s right, agribusiness is a major contributor to global warming. But this fact gets overlooked in the mainstream media because oil giants like ExxonMobil and BP are easier targets. But fertilizers and genetically engineered foods are huge contributors to greenhouse gasses. Something else these companies have in common is that they have been bad investments lately. Just ask Bayer, who recently acquired Monsanto amid a barrage of scandals and costly lawsuits relating to fraudulent research practices and a cancer causing weedkiller (read THIS, THIS, and THIS).

Archer Daniels Midland (ADM) hasn’t fared well either. The stock is down more than 8% for the year while the S&P500 has gained 18%. ADM executives blame the trade war for its lackluster performance but in reality the company’s stock has been flat for years. Keep in mind that ADM makes money from processing and transporting corn, not just for consumption but for the production of ethanol. A decade ago ADM invested heavily in ethanol and lobbied heavily for government subsidies which they got when it was still considered a good idea to invest in biofuels. But the production of ethanol was horrible for the environment (read THIS). Predictably, ADM’s stock took a hit, specially when oil prices dropped during the U.S. shale boom, making the case for more ethanol obsolete. But ADM continued to be one of ethanol’s major advocates despite of the fact that it was linked to deadly air pollutants, bee population decline, and a detriment to crops such as almonds and apples. Ethanol demand for corn has also contributed to major food shortages and soil erosion.

The Climate Change Protest
The dinosaurs in DC didn’t get it nor did most of the business press. That’s because obeying their corporate masters is priority number one. But these people are going extinct and they won’t be around to face the consequences of their greed. Young people, on the other hand, have their entire lives ahead of them and they are afraid of dying from polluted air and poisoned water. To them the threat is real and they want to build a more sustainable future. That means a different way to consume, be it food, fashion, and entertainment. They also hold all the power in this equation and the companies that are listening to them will the be big winners of the future.

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