Doomsday and Your Portfolio
Dec 30th 2011 11:14AM
Updated Dec 30th 2011 11:16AM
Some partygoers may add nervous laughter to the midnight clink of champagne glasses and celebratory horn-tooting at tomorrow's New Year's Eve celebrations. The ancient Mayans predicted a doomsday scenario in 2012, and the intense disasters that marked the past year make it tempting to wonder if maybe those folks were onto something.
Earthquakes, floods, droughts, hurricanes, and tsunamis all made headline news in 2011. Now more than ever, investors must realize that such risks, which are growing in frequency, could have serious impacts on their portfolios, and adjust their thinking -- and holdings -- accordingly.
Billion-dollar events, brewing trouble
In November, the Intergovernmental Panel on Climate Change released a report called "Managing the Risks of Extreme Events and Disasters to Advance Climate Change Adaptation." The upshot is that many industries and companies have acknowledged the fact that climate change does affect business.
Right now, some of the most directly affected include insurance, real estate, and agriculture, but ripple effects pour down through economies. Such disasters hurt consumers' financial well-being in many ways, representing an even more precarious scenario. Fortunately, more and more companies are waking up.
Ceres, a coalition of investors and public interest groups addressing climate change, gathered a collection of concerned industry leaders to discuss the report. According to Ceres President Mindy Lubber: "2011 has been one of the most costly years on record for extreme weather events in the U.S., with more billion-dollar events than ever before ... The report affirms that climate change has gone from a mere mention of off balance sheet risks to fundamental balance sheet risks that impact every sector of our economy."
Mark Way, senior vice president and head of sustainability in the Americas at reinsurer Swiss Re, contributed the fact that over 30 or 40 years, weather-related losses in insurance have increased by a factor of five (although some of that jump is related to economic development and population growth).
Speaking of insurance, Allstate's (NYS: ALL) onto this, too. "Allstate recognizes that our business and our ability to continue to protect our customers may be profoundly affected by climate change. We are engaged in an ongoing evaluation of global climate change and natural catastrophes as it relates to Allstate's future risk exposure and America's ability to prepare for and manage these risks going forward."
Do or doomsday
Whether or not investors particularly enjoy pondering dire scenarios, it's time to adjust portfolios. Let's look for companies that want to be part of the solution and avoid companies that insist on being part of the problem (or refuse to acknowledge there even is a problem).
Many publicly traded companies are making great, innovative strides in reducing waste, greenhouse gas emissions, energy usage, and other behaviors that ultimately prove costly to society as well as their own bottom lines. Here are a few examples.
Commercial real estate management firm Jones Lang LaSalle (NYS: JLL) , which also participated on the panel regarding the IPCC report, has committed to reduce energy by at least 20% by 2020, and has been named ENERGY STAR partner of the year three times, including 2010 and 2011.
Federal Realty Investment Trust (NYS: FRT) has major sustainability initiatives at some of its retail developments. Think heat-deflecting white roofing materials, high-efficiency LED lighting, and a program that recycles restaurant oil and grease into biofuels at its Bethesda Row development in Maryland at no cost to the restaurants.
Carpet manufacturer Interface (NAS: IFSIA) is a pioneer in making sustainable operations a serious goal; take its Mission Zero commitment to source 100% of its energy needs from renewable resources by 2020.
Whole Foods Market (NAS: WFM) has long burst with green initiatives. Composting, green building, wind power offsets, solar panels, and many other forward-looking policies make environmental stewardship a major part of the organic grocer's business.
Massive multinational corporation Unilever (NYS: UL) made a massive impression when it devised solid goals regarding its environmental footprint, and even went so far as to say that sustainability is now a key component of its core business model. It vowed to cut its environmental impact by half and double sales over the course of the next 10 years. Unilever's president hammered the point home by saying this is the only way to conduct business over the long term.
Fending off doomsday depression
Back to the Mayan prophecy: Well, prognosticating experts and fortune-tellers are quite often wrong. (Plus, cheer up: Some researchers claim the 2012 date may actually be off by as much as a century.)
More importantly, unless you believe in predestination, for every dire prediction, there's the promise of redemption: avoiding a negative outcome by changing one's behavior.
Regardless of the politicized arguments about whether climate change is "real" or "man-made" or what have you, there's no denying that expensive disasters can, do, and have been happening. The best investments focus on corporate managements that recognize those risks and have plans in place to deal with them -- or even better, goals to make the world better, not worse.
Don't fall prey to doomsday depression; let's think positive and direct our investing dollars into the companies that are determined to proactively implement positive changes to their business models. On the other hand, investors who ignore the building risks to companies that derive short-term profits from avoidance may find gloom and doom in their returns.
Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on environmental, social, and governance issues.
At the time this article was published Alyce Lomax owns shares of Whole Foods Market. The Motley Fool owns shares of Whole Foods Market, Interface, and Jones Lang Lasalle. Motley Fool newsletter services have recommended buying shares of Jones Lang Lasalle, Whole Foods Market, and Unilever. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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