Climate change sets new investment agenda

12th July 2012

"Climate change researchers have attributed recent extreme weather to the effects of human activity on the planet's climate systems for the first time," says The Guardian, making this "a major step forward in climate research."

And today, volunteers for UK charity Population Matters  were out and about publicising its campaign for the gradual decrease of the number of people by voluntary means such as contraception, backed by education. The group calculates that the population of the world has more than doubled over the past 50 years to the current seven billion and could increase by a further three billion over the next 70 years.

Peer-reviewed studies by the National Oceanic and Atmospheric Administration in the US, and the Met Office in the UK, found the heatwave that blighted farmers in Texas in the US last year, destroying crop yields in another record "extreme weather event", was about 20 times more likely to have happened owing to climate change than to natural variation. 

Heat and light on weather systems

And last year's record November heatwave in the UK – the second hottest since records began in 1659 – was at least 60 times more likely to happen because of climate change than owing to natural variations in the earth's weather systems,  according to this research. 

Combating global warming and population growth are linked causes.  It is easier to plan for a low carbon future if populations are static or shrinking than if they are soaring in size.

There is simply less pressure on resources such as food and water if we reduce numbers and while most of the world's population growth is in areas with low carbon footprints, the fear is that as they demand better living conditions – an essential behind the thinking of many emerging markets enthusiasts – that they will use more carbon and create more greenhouse gases.

With the exception of the denying minority which does not believe in any link between carbon emissions and climate change, most investors accept that the current mix of extreme weather events has economic and social implications.

Cut back on the kids, says Melinda

These will be eased if the world population falls or at least stabilises.  Also in The Guardian , Melinda Gates, wife of  Microsoft billionaire owner Bill, has "thrown down the gauntlet to the Vatican and vowed to dedicate the rest of her life to improving access to contraception across the globe."

She predicts "women in Africa and Asia would soon be voting with their feet, as women in the west have done, and would ignore the church's ban on artificial birth control."

It will be a long struggle.  As well as the Catholic church, many Islamic sects and members of some other religions including groups within Christianity and Judaism also oppose contraception.

Global warming can heat up investments

But given the short time horizons of some market participants, a number of investors may welcome the problems caused by pressure on resources from warming and population increases. These can help inflate commodity prices, which, in turn, help push up profits, earnings per share, dividends and equity prices.

Longer term, the investment outlook is not so rosy.  Higher prices for food and other commodities are inflationary, reducing the real value of bonds as well as cash. They eventually depress demand, and, because of population growth, fail to reverse even if demand per head diminishes.

Even worse, the pressure on land, water, metals and other resources is one of the main causes of the generally unreported wars mainly in Africa but also in other developing areas.  Currently, many are "proxy wars" – fought, for instance between those favourable to China and those backing US corporates. But they have the potential to explode into the mainstream, leading to uncertain investment outcomes.

According to ethical investors Ecclesiastical, the population increase is likely to put unprecedented strains on the world's water resources, potentially fostering geo-political tensions and conflict. The developed world is water-wasting – it takes 300 litres of water to produce a litre of beer, 50 litres of water to make a litre of fizzy drink and even bottled water takes three to four litres for every litre sold.

Water, water everywhere

Water is used in virtually every industrial process from power generation to paper making. Ecclesiastical analyst Neville White believes that a combination of global warming and population pressure will put four billion in water-stressed regions by 2025. But there are increasing investment opportunities in companies that can demonstrate water-saving technology or control/recycling of waste.

The funds invest – among others – in Boustead Singapore, a water and water-waste engineer with operations in nearly 60 countries, Sound Global,  a Chinese company which treats coking water waste, and Pennon, the owner of South-West Water whose regulated activities in the west country provide solid dividends as well as growth potential.

Rainy day reasons

In the UK, companies now routinely blame bad results on bad weather outcomes – the latest being Marks & Spencer and JJB Sports. But that can cut both ways – pub chain Wetherspoons has done well from the wet summer, presumably drinkers stuck in its bars, with beer consumption as a substitute for sunbathing.  And while M&S suffers because the wet weather cuts back on footfall, online clothing retailer Asos does well – shoppers don't need an umbrella to order from their laptop.


More on Mindful Money 

The end of economics as we know it

Part 1: What's wrong with neo-classical economics? 

Part 2: The decline and fall of neoclassicism  

Part 3: The rise of the New Economists – key players and ideas 

Part 4:  Conclusion: Bye Bye Laputa?


20 'New Economics' sites you should read

The Financialist

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