#ESGinvesting

By:  Steven Yamshon, Ph.D., Managing Principal

Balboa Island is a coastal community located in Newport Beach, California, that is popular among tourists, vacationers, and full-time residents. Prior to development in 1921, Balboa Island was a swamp with large wetlands being removed to make way for Newport Harbor. Developers dredged millions of tons of silt and sand out of the muddy patches to facilitate a man-made bay.

Since Balboa Island is barely 3 feet above sea level, it could be affected by rising ocean levels caused by high tides, storm surges, flooding, and liquidfaction. If climatologists’ projections prove to be correct, sea levels could rise between 2 and 7 feet within 100 years, although a precise measurement is impossible to predict. A rise in seawater of this magnitude would lead to property destruction, a lack of ingress and egress access points, and a declaration of abandoned land.

A long-term change in the Earth’s temperature causes ocean water to expand. Scientific studies have shown that increasing temperatures lead to a melting of ice sheets on glaciers in Greenland and Antarctica. This melting of ice adds new water to the oceans, increasing its volume. According to the United States Environmental Protection Agency, approximately 1 to 2 inches of the increase in sea levels is due to glacier melt flowing into the oceans, with another 2 to 4 inches due to the expansion of ocean water that results from warmer ocean temperatures.

At present, sea levels are rising at the rate of an inch per decade, with the rate of the rise doubling during the past three decades. This would eventually be catastrophic for businesses, residences, and tourism on Balboa Island and in other beach or low-lying areas. The risk map from Climate Central illustrates the areas that would be subject to coastal flooding.

Although the majority of the land area within the Newport Beach city limits would be spared, all beaches, Balboa Island, Balboa Peninsula, Back Bay, Lido Isle, and Pacific Coast Highway may not be usable in their current forms or locations if mitigation and adaption measures are not taken.

Knowing that the sea level will likely rise and that coastal areas will experience heavy flooding at the very least, does it make sense to buy expensive coastal property?

References:

Balica, S. et al. (2012). A flood vulnerability index for coastal cites and its use in assessing climate change impacts. Natural Hazards. Vol. 64, 73-75.

Bird, E. (1993). Submerging Coasts. New York: Wiley.

Brown, L. (2011). World on edge: How to prevent economic and environmental collapse. New York: W.W. Norton.

Church, J.A., et al. (2010). Understanding sea level rise and variability. Oxford, UK: Wiley.

Domingues, C.M. (2008). Improved estimates of upper ocean warming and multi-decade sea level rise. Nature, Volume 453 (7198), 1090-1093.

Kopp, R.E., et al. (2009). Probabilistic assessment of sea level rising during the last interglacial age. Nature. Vol. 462 (7275). Pp 863-867.

National Oceanic Atmospheric Administration. (2018). Sea Rise Estimates, Coastal Data Digital Tool. Retrieved on May 27, 2020. https://coast.noaa.gov/digitalcoast/

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

By:  Steven L. Yamshon, Ph.D., Managing Principal

Regardless, if global warming is caused by natural forces or by excess greenhouse gases, there is clear evidence that shows that global temperatures have been rising since 1850 (See Chart 1). Although climate change will cause many adverse effects on Earth, the impacts on real estate and agriculture could be most severe.

Chart 1: Average global temperatures since 1850

For one, as the Earth temperature increases anywhere from 2 to 6 degrees Celsius, the melting of ice sheets in Antarctica and Greenland along with many, if not most glaciers, will lead to an increase ocean levels. In the period between 1900 and 2008, global sea levels have risen 6 to 8 inches with scientists predicting that sea levels will increase another 2 to 7 feet by 2150. Computer models are far from being exact and can only represent likely outcomes, so we don’t know exactly how much the ocean will rise. However, sea level increases of this magnitude could inundate global coastal cities such San Francisco, Miami (See Chart 2), or Shanghai. Locally, it would also affect south facing Southern California beach areas (See Chart 3). Unless massive mitigation plans are implemented, certain coastal properties may show a large decline in value. This is something investors should be aware of.

Chart 2: Miami land masses affected by a rise in sea level

Chart 3: Coastal flooding in Capistrano Beach, California due to projected climate change

A second implication of climate change is that hotter weather will affect agricultural production. Continued droughts could lead to dry reservoirs, impaired aquifers, and decimate other water sources which could result in a decline of agriculture and food production causing higher food prices and inflation. As temperatures increase some of the crops traditionally planted by highly mechanized and large efficient farmers may need to change. For example, corn which is used for food and ethanol can only be grown in a fairly narrow range of temperatures between 90- and 100-degrees Fahrenheit. Agricultural experiments have shown that certain crops like soybeans have reduced yields as temperatures increase. It may be very likely that farmers may have to change the type of agricultural products that they are growing or move their farms to more favorable climates. Farmland is already being impacted in California as ranchers and farmers destroy thousands of acres of almond groves because of the huge water requirements (See Chart 4). With California being in a multi-year drought and water supplies being reduced from the California Aqueduct and the federally run Central Valley Project, I suspect more almonds along with other high water requiring crops such as pistachios will have to be removed with former farmland being taken out of production.

Chart 4: Implications of Climate Change on Agriculture: Almond trees removed in the Central Valley of California due to drought

If climatologists and scientists are right about climate change and that coastal areas will be impacted as well as agriculture, we can expect higher food costs, rationing of water, inflation, and the abandonment of some land. However, there will be opportunities for us to invest in farm and forestry land that will be less affected by climate change and to invest in clean technologies and infrastructure that will help with mitigation and adaption.

References:

• Englander. J. (2013). High Tide on Main Street. Boca Raton, FL: The Science Bookshelf.
• Hertsgaard, M. (2011). Hot: Living Through the Next Fifty years on Earth. Boston, MA: Mariner Books.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

By:  Thomas Steffanci, PhD, Senior Portfolio Manager

I came across an interesting article in Mining.com referencing a study by Citicorp that found that metals such as aluminum, nickel, steel, and copper (including the fossil fuels necessary for their production processes) can have a net beneficial effect on climate mitigation.

This surprising finding was that the use of these metals can drive down global-warming gases given their use to build the wind turbines, electric vehicles, solar equipment, and carbon capture technologies needed for the electrification of global economies.

In their rapid electrification scenario, the report found that for every 87 billion tons of metal to be used over the next 30 years (2020-2050), greenhouse gases would be reduced by an average of 9 billion tons. So, all the pollution fighting efforts to reduce metal mining may have a net negative effect on climate change mitigation. Moreover, the corollary would be that continued efforts to reduce the production of these metals may have a net negative marginal effect by slowing economic growth and power availability.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

By:  Steven L. Yamshon, Ph.D., Managing Principal

The United Nations (UN) Intergovernmental Panel on Climate Change (IPCC) just released their 6^th climate change assessment and now the UN is calling for a “red alert”.

Although I believe that climate change is mainly caused by human activity and there is ample evidence to demonstrate this, climate models are far from perfect. It would be impossible to make any prediction with complete accuracy so far into the future because there are too many variables. These variables are constantly shifting because one variable affects the other. Climate change models are useful in letting us know what direction we are going in and what we need to do about it. I believe that a good majority of us want something to be done about climate change, but does it call for the immediate and drastic reshaping of global economies and lifestyles? I think not. The reality of the situation calls for calm and good thinking. Remember, the IPCC is also a political document that is designed to spur governments into action, something that governments do poorly. Rapidly decarbonizing while destroying the global economy and people’s source of income is not the answer. Combating climate change is extremely important but it is only one of the 9 planetary boundaries that are being affected by humans. The loss of biodiversity and biochemical flows are just as important to our survival as climate change is, but those two boundaries get much less attention. According to the Stockholm Resilience Center, climate change is in a zone of uncertainty (Chart 1) but not beyond that while habitat loss and pollution are at the critical level.

Chart 1: Stockholm Resilience Center’s Planetary Boundaries

Susan Solomon, of MIT, wrote a paper in 2009 that stated carbon can remain in the atmosphere for up to 1000 years. Solomon also assessed that climate change is irreversible and that it may take at least 100 years for greenhouse gasses to begin to dissipate. You can access Solomon’s paper here: https://www.pnas.org/content/106/6/1704.

According to Solomon, the complete cessation of greenhouse gases will have little effect in the foreseeable future. In other words, the change in temperatures due to climate change or otherwise, cannot be turned on and off like a light switch. It takes time.

Does this mean that we should give up and go along our merry way and continue to spew out greenhouse gas emissions, deplete our natural resources, and pollute our oceans, streams, and waterways? The clear answer is NO! What we need is more investment to balance our needs with the environment and I believe this is achievable. By doing so we can move towards a circular economy (Chart 2) which will better balance resources used with resource needs.

Chart 2: The Circular Economy

Policy makers need to think about mitigation and adaption. If Solomon is correct, then people will have to think about adapting to a warmer climate. This might involve moving out of fire prone areas or using less water. It could mean reducing electricity usage by turning out the lights at night. Do you drive by empty high rise office buildings at night and wonder why all the lights are on in the various offices? I do!

Mitigation is where technology and investment can play a large part in helping combat greenhouse gasses that will accumulate in the atmosphere, not for now, but for the future. There are two types of mitigation technologies that can help reduce greenhouse gasses: Negative Emission Technologies that remove and sequester carbon from the air and SRM Technologies which is a type of climate engineering in which sunlight would be reflected to space. Both are moonshot types of projects but remember so were many other innovations such as gene editing, cloning and the personal computer.

What is needed is more investment in mitigation and adaption strategies that will start to really combat the long-term problem of climate change. Enough time has passed since the adoption of the UN Social Development Goals in 2015. Now we need to ask how we are progressing, and the evidence doesn’t look good. On average the world will need to spend about $800 billion per year on developing these new technologies if we are to make a dent in climate change for the future. Investing in green technologies is good for the planet and good for you and presents an opportunity for investors.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

Today we celebrate Earth Day and sticking to the theme of this year’s Earth Day, “Restore Our Earth”, this blog post is focusing on restoring the world’s ecosystems by helping you reduce your carbon footprint.

Did you know that meat and cheese are some of the most carbon-intensive foods to produce?(1) Globally, 77% of agricultural land is used to produce meat and dairy and according to The Land Report, the meat and dairy industries are on track to be the world’s biggest contributors to climate change, outpacing even the fossil fuel industry. In just the U.S. alone, 41% of U.S. land in the contiguous states revolves around livestock.(2) According to the Environmental Protection Agency (“EPA”), the methane produced by agricultural waste (biomass, inedible crop waste, livestock manure) accounted for 36% of the U.S. total methane emissions between 1990 and 2017. While methane represented about 10% of total U.S. greenhouse gas emissions in 2017, the EPA notes the comparative impact of methane is “25 times greater than CO2”.

Having a balanced diet is just one way to reduce your carbon footprint and we invite you to explore the many other ways you can reduce your carbon footprint by experimenting with the MIT Interactive Climate Change Simulator, EN-ROADS. Click HERE to test out the EN-ROADS simulator.

You may be asking how this ties in with my investments and BFSG? Many of our clients are expecting more than just shareholder returns from the public companies in which they invest. They want these companies to have management and leadership in place that is mindful of the footprint that they leave in the world. We agree companies should uphold their basic responsibilities to people and the planet. Furthermore, we believe exposure to environmental, social and governance (“ESG”) factors can meaningfully impact the long-term sustainability of a company’s business.  We are now proud to say that we have several different new ESG investment strategies to meet our clients’ investing goals and objectives. Whether you are passionate about environmental opportunities that will reduce greenhouse gasses or are looking to invest broadly in companies that meet the ESG criteria, we have a portfolio strategy for you.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.