If the temperature rose by one degree, you would hardly feel it. But if we’re talking about Mother Earth, an average increase of one degree across her entire surface means big changes in climate extremes, say scientists.
Is climate change real?
Earth’s temperature is rising thanks to the heat-trapping, greenhouse gas emitted into the atmosphere from our activities – burning coal and gas to heat our homes, driving to work, and producing food. In the process, the warming is changing the earth’s ecosystem with profound effects, but it doesn’t mean the warming course can’t be mitigated. The Paris agreement seeks to cap the increase in the global average temperature to less than two degrees Celsius (3.6°F) warmer than preindustrial levels.
Most scientists, including climate scientists, say climate change is happening, the scale of which can only be explained by human activities. Headlines pop up year after year about new records, whether it’s temperatures or dollar damages wreaked by extreme weather. In fact, just last month was the eleventh consecutive month in a row that the earth has recorded its warmest respective month on record. Nine of the 10 largest monthly warm anomalies in the 125-year Japan Meteorological Agency’s analysis record have occurred from May 2015 through March 2016.
Water is big risk
Water is the planet’s biggest risk and it’s worsened by climate change, according to World Economic Forum’s Global Risks 2015 report.
Rising temperature is changing precipitation patterns as well as how much and how fast snow is melting in mountainous areas. Thus, some areas will see less annual rainfalls with more droughts while others will see more precipitation with more frequent flooding. Sea levels are also rising, as as the polar ice caps are melting faster. The rise means saltwater can run into fresh water supplies making them unusable. Intense rainfalls will also increase run-off rates from agricultural land pulling in pesticides, microbes, and debris into water sources.
Water supplies are expected to fall in some parts of the U.S. because of climate reasons.
By 2050, 32 percent of U.S. counties will at high risk of water shortage, compared to 10 percent today.
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Water infrastructure thirsty for $10 billion in annual upgrades Calls are being made to make investments in water infrastructure improvements, with U.S. utilities expected to spend more than $10 billion annually on infrastructure improvements. Technologies that conserve water, upgrade old, aging and leaky pipes, preserve water quality, and treat water for re-use will be critical to solving our water problem. Companies are also developing solutions that remove salt from seawater, which seems a no-brainer when 97 percent of the earth’s water is seawater!
Water and wastewater treatment, transfer, and disposal products and services are worth estimated $625 billion worldwide, and sustainability tactics such as reuse will be a big driver of market growth. Separately, global residential water treatment market was valued at more than $10 billion in 2014, with growth rates expected to be more than nine percent over the next five to seven years.
Our Water Shortage motif is up five percent both for the month, and six percent on the year, compared to the S&P’s two percent gain for the same period. In the aggregate, the water technology and infrastructure sectors in this motif are both up on yearly and monthly basis.
Climate change and our food supply
Water problems can also send ripples through our food chain, affecting output and prices. After all, 70 percent of the world’s freshwater is used by agriculture, including crop and livestock production.
Lower water supply and weeds, pests and diseases from extreme heat, drought, and flooding can take tolls on harvests and livestock. Yet demand for food is growing with rising populations. More than a billion people from today will live on earth by 2030, and a population of 9.1 billion is expected in 2050. This means 70 percent more food needs to be on the table then. One of the leaders in agricultural science, Monsanto (MON), is helping farmers reduce climate change risks. It bought Climate Corporation in 2014 to sell weather and soil data to farmers to manage shifting weather patterns. Selling drought-resistant seeds and other products to preserve crop yields is another strategy. Monsanto is in our Climate Change motif, up 1 percent for the past year, but trailing the S&P 500 which is up 2 percent in the same period. On a one-month basis, the motif has also underperformed the broad market.
Build your own climate change motif?
The fingers of climate change are far-reaching, touching many areas, representing an opportunity for investors to build their own climate change motif.
The Lancet Commission on Health and Climate Change has said climate change could be the “greatest global health opportunity of the 21st century.” One of the worst heat waves in recent memory happened in 2003 that reportedly killed more than 30,000. Besides heat waves, climate change poses other health risks such as respiratory problems from air pollution and safety risks to water supplies as mentioned earlier. Then there’s infectious diseases which is intertwined with weather as extreme or shifting weather patterns can help pathogens thrive. A study published in the Journal of American Medical Association found that “evidence over the past 20 years indicates that climate change can be associated with adverse health outcomes.”
Another market that climate change has hit is insurance. Insured losses due to weather related events at record levels. The average amount paid for extreme weather events including windstorms by insurers between 1980 and 1989 totaled $15 billion a year. Between 2010 and 2013 this rose to an average of $70 billion a year. On the other hand, a green insurance market is emerging as hundreds of billions are expected to be spent on clean projects and their infrastructure and operations will require insurance.
Be sure to check out our other blogs on climate change opportunities in renewables, battery and smart grid and how money managers are reacting to climate change.
 Evan Mills, Lawrence Berkeley National Laboratory, Responding to Climate Change – the Insurance Perspective.
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