Climate Change and Investment Opportunities

The last few years have undoubtedly demonstrated the fragility of the world’s economies. Governments around the world have seen the aftermath of several disasters, including the Covid-19 pandemic, the economic crash, and environmental disasters, leaving the general public wondering how they can protect themselves, their finances and the environment. According to a report by Statista, during the pandemic, investors began to lose confidence in the market’s future as their willingness to take risks declined. Despite their lack of confidence, many people, particularly the younger generation, began investing during the pandemic. People invested in companies whose services and products they regularly used, such as Youtube, Tiktok, Gamestop etc. ​​Cryptocurrencies such as Bitcoin nearly doubled in value in 2021, but the value plummeted in the first months of 2022 (DeMatteo, 2022).

When it comes to investing, there are numerous options available to make money, such as bonds, index or mutual funds, gold, stocks, cryptocurrencies, real estate etc. However, when choosing a specific type of investment opportunity, there are always some factors to consider, such as the risk involved, inflation rate, return on investment, volatility, and so on. One of the most important yet frequently overlooked factors is the environmental impact. Climate change has altered and significantly impacted the lives of people all over the world, as it not only affects the weather, temperature, and water levels but also increases the likelihood of new viruses and diseases. As a result, in order to protect ourselves from various types of disasters, we must consider the environmental impact of our decisions. Let us consider the following investment opportunities and see how they fare when it comes to the risks involved, returns and environmental impact:

Bitcoin

Bitcoin rose to prominence as cryptocurrencies gained popularity. It is a decentralized digital currency that operates independently of a central government and allows users to transfer funds without the use of intermediaries. The risk factor with bitcoin can be two-fold, the first is the “inherent risk” with investing in bitcoin and the second is miscalculating the risks involved (Humphery-Jenner, 2021). The general risk is that the price is highly volatile and therefore changes daily, for instance within just April 2021, the price ranged between $63,000 and $50,000. As a result, determining the best time to invest can be extremely difficult. However, with high risk comes high reward; the value of Bitcoin has risen from one dollar in 2011 to thirty-five thousand dollars in 2022. It reached a staggering price of $66,974.77 during its peak in October 2021. As a result, the returns are as volatile as, if not more volatile than, the currency itself. Nonetheless, despite its numerous benefits and risks, the environmental impact cannot be overlooked. According to Digiconomist, Bitcoin mining emits approximately 97 million tons of CO2 per year, which is comparable to the emissions produced by some smaller countries. Furthermore, according to a University of Cambridge study, bitcoin mining consumes 121.36 terawatt-hours per year, which is more than the amount consumed by Argentina.

Stocks

The most common investment products are stocks, bonds, and mutual funds. A stock refers to all of the shares into which a corporation or company’s ownership is divided. An individual can buy shares of a particular company which grants them a portion of the profits made by the company. The process of purchasing stock in a company typically involves a stockbroker who arranges the transfer of the stock from a seller to a buyer. Consequently, it becomes an expensive procedure when compared to other options that do not necessitate the involvement of a third party. Making money with stocks works in two ways: you can make money when the stock prices rise or when the company pays you for the portion you own. The risk of investing is associated with the success of the company; when the company does well, you profit; when the company does not do well, you risk losing more money than you initially invested. Furthermore, the company’s success can be determined by the market, which frequently fluctuates, making the outcome of your investment uncertain. However, while the problem cannot be eliminated, it can certainly be managed; in order to maximize returns, the investor must strike a balance between risk and reward, which can be achieved through research and practice. Despite the fact that the majority of the environmental impact is due to the amount of electricity used, the stock market is not helping the environment improve. According to a study, the growth of stock markets in developed countries reduces CO2 emissions significantly, while it increases them in emerging economies (Paramati et al., 2018).

Rooted

With the rise of global warming and climate change, some companies decided to join the fight while making a profit for their investors. Rooted, which is based in the Netherlands and founded by William ten Zijthoff and Hugo Sinnema, provides their clients with the opportunity to benefit the environment while earning a profit. The clients purchase a fig tree or a “bond” which matures after a fixed period of time and grants the client a high return of 20% on average. The bonds last for twenty years after which the client has an option of extending the period. The risks are substantially low as the cost for growing and maintaining the trees is relatively low and therefore the money saved can go to the investors. The region and climate ensure proper growth of the fig trees, which are difficult to eradicate by nature, much like weeds. The only disadvantage of the returns is that they begin in the second year of investment because the trees take time to grow. Rooted has a positive impact on the environment as for every tree/bond purchased by an investor, 500 kilograms of CO2 are compensated over the term which results in a significant contribution to the environment. Furthermore, Rooted supports local businesses which help boost the economy of the area where the trees are planted. What makes this investment option special is that, unlike the aforementioned opportunities, you get a high return while saving the environment.

Sources:

DeMatteo, M. (2022, January 28). Bitcoin Doubled Its Value in 2021, Then Nearly Lost It All In the First Month of 2022. Here’s a Look at Its Price Over the Years. NextAdvisor with TIME. https://time.com/nextadvisor/investing/cryptocurrency/bitcoin-price-history/

Evans, B. M. (2021, July 4). Pandemic investing: “Using my part-time pay to invest in stocks.” BBC News. https://www.bbc.com/news/uk-wales-57499560

Humphery-Jenner, M. (2021, April 29). Three useful things to know about Bitcoin risk, returns and diversification. UNSW BusinessThink. https://www.businessthink.unsw.edu.au/articles/bitcoin-returns-risk

Lustgarten, A. (2020, May 6). How Climate Change Is Contributing to Skyrocketing Rates of Infectious Disease. ProPublica. https://www.propublica.org/article/climate-infectious-diseases

Norrestad, F. (2021, August 26). Covid-19 and investment behavior worldwide – statistics & facts. Statista. https://www.statista.com/topics/7856/covid-19-and-investment-behavior-worldwide/#dossierKeyfigures

Paramati, S. R., Alam, M. S., & Apergis, N. (2018). The role of stock markets on environmental degradation: A comparative study of developed and emerging market economies across the globe. Emerging Markets Review, 35, 19–30. https://doi.org/10.1016/j.ememar.2017.12.004