As investors, our primary job is to predict the future. This means that we are compelled to develop a deeper understanding of the growing body of research that lies at the intersection of company financial information and climate science if we are to paint a robust picture of companies’ future risks and opportunities.
A key question we need to answer is which companies are likely to successfully adapt to a future physical environment that looks different from that of today. We need to find companies that are best positioned to weather the future storm — a bad pun but a very real investment challenge.
The good news is that many corporations are taking the lead on environmental initiatives, not because they were told to do so but because they believe it is the best way to position their businesses for success. Proactively addressing climate-related challenges can help reduce future costs and gain new customers with the obvious objective of bolstering earnings. Importantly, these organizations are choosing to evolve rather than be backed into a corner by changes in regulations or technology.
Let’s take the example of one of the main themes outlined by the Climate Assessment: water.
Increased risk of water stress, rising water temperatures, saltwater contamination, flooding and drought are just some of the consequences of climate change. Companies producing new technologies aimed at water conservation, filtration, wastewater treatment, desalination and water recovery have every reason to believe that demand for their products will only increase with time.