While negotiators in Paris are busy seeking ways to combat climate change, investors on Wall Street are contemplating ways to profit from it.
Bank of America Merrill Lynch recently released a gargantuan report outlining various scenarios in which the planet warms by a little, or a lot, through the end of the century, along with financial implications and ways investors can benefit from making the right calls.
It’s no surprise a list of climate-change plays would include alternative-energy companies such as First Solar (FSLR), SolarCity (SCTY) and NextEra Energy, or electric-car makers such as Tesla (TSLA) and China’s BYD (BYDDF). But BofA’s list of 220 companies positioned to contribute to “climate change solutions”—and do well by doing good—includes many names not typically associated with planet-saving. Here are 7 sectors that could boom (or boom more) as the urgency to combat warming caused by the burning of fossil fuels intensifies:
Industrial firms such as General Electric (GE), Ingersoll Rand (IR), Honeywell (HON), Siemens (SMAWF), and Owens Corning (OC). You might think of these firms as old manufacturing polluters, but in reality they operate modern plants and build power-generating equipment, lighting, building materials, glass and other products that determine the efficiency of buildings, machinery and infrastructure. Technology breakthroughs and even small efficiency improvements in such wide-ranging products can lead to big cuts in power use and emissions.
Appliance makers, including Electrolux (ELUXF) and Whirlpool (WHR). Finding new ways to cut the power use of dishwashers, refrigerators, washers and dryers could save consumers a bundle and reduce greenhouse gas emissions.
Retailers such as Lowe’s (LOW) and Home Depot (HD). Buildings account for 40% of global power consumption, and improving the efficiency of heating, cooling and lighting systems usually pays for itself through reduced power usage – and lower bills -- in just a few years. Lowe’s and Home Depot will sell much of the equipment needed to modernize older structures.
Archer-Daniels-Midland (ADM). What does Big Ag have to do with climate change? Biofuels. While not popular in the United States, fuel made from corn and other plants is a major energy source in Brazil and other populous countries. Among alternative energy industries, liquid biofuels is the second-biggest employer globally, after solar.
Auto suppliers including BorgWarner (BWA), Delphi (DLPH), Magna International (MGA) and Michelin (MGDDF). Tesla isn’t the only 21st-century car company. Many of the firms that supply components to the big automakers have expertise in lightweight technologies, turbochargers, electrification, automotive software and other systems that will be vital to future cars that pollute less. It’s also possible that hydrogen, compressed-natural gas or some other technology will turn out to be more cost-effective than electric cars or the traditional internal-combustion engine. If so, many of these suppliers will have a technology lead.
Transporters including FedEx (FDX), Bombardier (BDRBF), Rolls Royce (RYCEF), which makes jet engines, CSX (CSX) and Union Pacific (UNP). Transportation accounts for 55% of global oil use, which means efficiency gains in this sector can significantly cut greenhouse-gas emissions. “Bus and rail, in particular, are seen as solution providers, transporting more people further and faster, with lower emissions and less congestion,” BofA says in its report. More efficient jets and delivery trucks will be important, too.
Tech companies such as Apple (AAPL), Cisco (CSCO), Intel (INTL), Amazon (AMZN) and IBM (IBM). Data centers use gobs of power, with new breakthroughs needed to reduce that consumption. Other savings will come from greater connectivity, including the “smart home” and the “Internet of things.” In the home of the future, appliances, lighting, heating and cooling will be operated for maximum efficiency -- remotely, if necessary -- and be activated only when sensors detect somebody around to use them.
Rick Newman’s latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.