Climate Change and Your Portfolio

Elizabeth Laprade, CFA

Senior Research Analyst

This week’s reader question:

How should I factor climate change into my investment strategy? How does Adviser Investments manage this portfolio riskThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline.?

Climate change is a consideration for many investment managers, including us. But after evaluating the findings in the United Nations report released last week, it’s safe to say that this weighty issue is about to become even more of a factor when assessing and selecting long-term stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company.. The report, released by the Intergovernmental Panel on Climate Change, marshals research conducted by thousands of scientists from all over the world. It reveals not only that irreparable damage has already been inflicted on our planet by humans, but also what we can do to try to stem the tide for future generations.

On the heels of that bittersweet message, the Biden administration is trying to pass legislation that would put more dollars and support behind the push for renewable energy and cutting carbon emissions in half by 2030.

If the legislation succeeds, the obvious beneficiaries are renewable energy companies. On the flip side are a small number of companies responsible for most of the fossil fuel emissions around the world, including big oil, energy and coal companies. They would come under increased pressure and could see their costs increase to meet lower emission mandates.

Investors need to be aware that climate risksThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline. are likely to compound in the years ahead. As always, we invest in active managers who we believe are among the best stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. pickers in their respective areas of expertise. And a big part of the process for them is evaluating corporate leadership practices and gauging how companies are preparing for rising risks. As such, our managers are accustomed to considering the winners and the losers within the environmental impact pillar of ESG investing.

Simply put, companies that fail to comply with environmental mandates or don’t try to aid the world in minimizing fossil fuels will suffer and are less likely to make the cut with our fund managers.

About Adviser Investments

Adviser is a full-service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trustsA legal document that functions as an instruction manual to how you want your money managed and spent in your later years as well as how your assets should be distributed after your death. Assets placed in a trust are generally safe from creditors and can be sold by the trustee in short order, avoiding the lengthy and costly probate process., institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFsA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index., socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868.