How to manage your climate portfolio
It’s not the most straightforward thing in the world, but it’s a necessary skill for those looking to be profitable at the climate-change trade.
In a new video, an executive from a hedge fund said investing in climate management was the best thing he ever did.
“It’s not a hard sell.
If you look at all the people who’ve had success and they’re all from finance, finance is a tough field,” said Peter Schmitz, an ex-Wall Street trader who founded Climate Partners.
Schmitz has worked with a variety of firms on climate management, but the strategy that he recommends is based on a simple concept: climate insurance.
You buy in with the market, buy in on a level playing field, buy into the risk that will result from a catastrophic event, and buy into any opportunity that comes along.
He added that, as a hedge-fund manager, he’s seen the benefits of hedging climate risks, but he also believes that climate insurance is essential to managing climate risks in the long run.
“It makes sense to hedge the risk of a catastrophic, even though the market will be very cautious about hedging that risk.
There’s nothing worse than when the market is going to do that,” Schmitbts said.
Climate insurance is different from the kind of insurance that a bank or insurance company offers.
It doesn’t provide immediate cash flow, and instead, it allows the market to protect itself from a specific risk.
“What this is really good for is hedge the market for a period of time, and then you can sell those positions for a profit,” Schmitz said.
The concept of climate insurance comes from a theory that was first developed in the 1970s by Harvard University economist Michael Jensen.
It was initially described as a way to help companies to avoid capital losses, which would occur if they did business with someone who had a lot of carbon dioxide emissions.
Jensen and other climate scientists believed that the way to reduce the risk was to sell in on the potential for such a scenario.
He theorized that if there was a large amount of carbon in the atmosphere, a catastrophic or extremely extreme event could happen that would cause large damages to a society.
Schmitiz’s firm, Climate Partners, offers this strategy as well, offering to hedge climate risks for as little as $20,000 a year.
To learn more about climate insurance, click here.