A thorough understanding of climate change generally spurs long-term investors to make serious adjustments to their risk assumptions for particular companies and industries. This is absolutely appropriate, but it's also just one side of the coin. On the other side, there's a whole world of fascinating solutions helping to mitigate and adapt to climate change. Investors who get this and make it a part of their overall strategy could have a serious leg up.
Climate Fools
The Motley Fool recently hosted a summit on climate change and business, and one expert after another pointed us toward solutions providers who are working to head off the colossal disruption that a warmer planet presents. The topic of climate change so often elicits doom and gloom and can leave people feeling defeated. After the summit, investors left empowered to use the solid science of climate change to inform their investment decisions.
Stu Dalheim, vice president of shareholder advocacy at Calvert Investments, offered several illustrative examples to help guide our thinking. He highlighted Starbucks (SBUX +1.43%) and its laudable initiatives to prepare for the particular threat that rising temperatures pose to coffee crops.
Back in 2011, Starbucks began a significant public dialogue about the threats it saw to its primary input. Coffee, the very essence of Starbucks' business, is a finicky crop that thrives under narrow conditions. Starbucks' suppliers, who are mainly in Central America, are already experiencing changing rainfall patterns and more severe pest infestations. Even mature farms are seeing declining crop yields, and Starbucks is concerned that this could dissuade growers from cultivating coffee in the future, further constricting supply. The company is working with farmers on adaptation techniques and aggressively lobbying the Obama administration to get serious about climate change.
Dalheim also pointed to the growing importance of water delivery and conservation, as climate change puts fresh water supplies under stress. Ecolab (ECL +2.24%) offers a wide range of water safety and treatment services and generally helps industrial firms develop more efficient processes. The company has enjoyed significant recognition for its fully integrated climate-change strategy.
Todd Larsen, corporate responsibility programs director for Green America, raised the cautionary tale of Southern (SO 2.49%) to highlight the cost of failure to prepare for climate-change risks. Drought reduced Southern's 2008 hydroelectric power generation by roughly 50%, forcing the company to meet demand from other generating sources at a replacement cost of about $200 million. Dalheim pointed out, though, that Southern is making progress. The company just announced major solar purchases in the southwest, and it will be one of the United States' largest renewable energy producers when the transactions close.
Dalheim favorably noted Duke Energy's (DUK 1.60%) efforts to reduce the climate-change impacts from coal production, particularly in China. The company is making a serious effort to develop its carbon capture and sequestration capabilities, and it recently entered a research partnership with China's Huaneng Group to advance this agenda.
Turning to utilities, Dalheim gave a nod to Exelon (EXC 2.51%) for its low carbon profile. According to the new "Benchmarking Air Emissions" report from sustainability leadership advocate Ceres, Exelon had the eighth lowest carbon dioxide emissions rate among the top 100 power producers in 2011, primarily because of its large nuclear and renewable-energy fleet. Despite starting from such a low baseline, Exelon still reduced its total carbon dioxide emissions by 32% and its carbon dioxide emission rate by 40% between 2000 and 2011. Exelon was a sponsor of the report, but I have found no reason to question the details presented here.
Foolish bottom line
Don't get me wrong: Climate change presents plenty of reasons to be terrified, and I'll be writing about that in the coming days. But it doesn't leave us powerless as investors. We have the ability to parse the issue for risks and opportunities, and to make smart investment decisions on that basis. The problem of a warming planet is tremendous, but it is not insurmountable.
