2 years ago
What the Climate Crisis Entails for Investors
Author: David Sun
Editor(s): Kushagra Sadwal
The climate crisis – it seems that not a week goes by these days without a mention, or challenge, of this issue. Anyways, regardless of where you stand on this issue, one thing we can all agree upon is the fact that the weather’s been pretty wild lately. However, this raises an interesting question for investors: How are companies impacted by extreme weather?
Extreme Temperatures
This summer has been hot. For pretty much the entirety of it, some regions of the United States seemed to be experiencing a heat wave. With this, comes two main responses from consumers: lower trading volume and shifting demand. A study conducted by scientists Jonathan Peillex, Imane El Ouadghiri, Mathieu Gomes, and Jamil Jaballah which analyzed the Paris Stock Exchange from 1995-2019 found that trading volumes fell between 4-10 percent on days where temperatures exceeded 86 degrees Fahrenheit. This means companies are less vulnerable to speculation but may have a harder time raising money. However, various industries, an example being the utilities sector, may benefit from a rise in demand, for certain goods or overall. In the case of the utilities sector, demand for electricity increases as consumers increase their usage of AC systems. On the other hand, some companies, like those in the agricultural and construction fields, may experience trouble producing goods.
Natural Disasters
One of the most alarming effects of the climate crisis is an increase in the frequency of natural disasters. Again, we can examine the effects of this on a market-wide and industry-specific scale. Overall, due to the destruction of resources, natural disasters tend to deflate stock values–usually for about three days. Still, certain industries may benefit from natural disasters. For instance, insurance companies may see a surge in revenues and certain construction companies may benefit from an increase in demand. On the flip side, the utility and agricultural industries will likely suffer from property damage.
As the climate crisis progresses, we must be aware of the impacts of these changes on companies, not only for personal profit but so we can make informed decisions for the betterment of society.
Image Source:
Zhang, Jane. Our Future. SEVENSEAS Media, Mar. 2020, sevenseasmedia.org/
students-from-around-the-world-raise-awareness-of-climate-change-through-art/. Accessed 6 Dec.
2023.