Investors make decisions based on data and the trends data reveals. With climate change poised to inflict long-lasting effects globally, here’s one graph investors may want to take into account: the Keeling Curve. Scientists use it to track atmospheric carbon dioxide (CO2). In 2016, according to the Yale School of Forestry & Environmental Studies, for the first time in millions of years, the concentration of CO2 in Earth’s atmosphere remained above 400 parts per million for the entire year.
As CO2 concentrations climb upwards, many scientists, entrepreneurs, and investors share a common concern over what a destabilized climate can (and will) do to human life and commerce. When building or refining a portfolio, the Keeling Curve may one day be regarded with the same seriousness afforded to other indicators of long-term market direction.
What the Keeling Curve Tells Us
Starting in 1958, scientist Charles David Keeling made a daily recording of C02 levels at Mauna Loa Observatory in Hawaii. When he started, Keeling’s meticulous work was obscure. Now, it is considered a crucial landmark, according to the San Diego Tribune.
The essential word is “curve.” The graph clearly shows a repeated upward shift in C02 concentrations over time. Compared to last year’s sustained 400 ppm reading, Keeling’s first measurement in 1958 recorded a concentration of 316 ppm.
Scientists have already linked global warming to more frequent floods and more intense wildfires, as LiveScience reports. Additional warming could bring more natural disasters, alter landscapes, and disrupt entire regions. All of this could massively swing consumer demands, resource availability, and supply chains. Not to mention the potentially devastating effects it could have on vulnerable populations.
Sustainable Practices, Sustainable Profits
Despite ample evidence that the world is (quite literally) changing around them, it appears that some individual firms may be slow to invest significant capital into sustainability practices. The reasons for this are complex, but according to Dr. Rebecca Henderson of Harvard Business School, “The risks of climate change or of eco-system destruction are classic ‘externalities’ in that their costs accrue to the broader society and not to a particular firm.” This can render companies unwilling to make investments, as the increased costs associated with overhauling business practices could lose them the short-term competitive edge.
However, such a view is overly focused on immediate returns. It can be easy to focus solely on quarterly earnings reports, but the Keeling Curve is a warning that changes are coming to the business status quo, whether firms prepare for it or not.
As gatekeepers of capital, investors are in a unique position to push businesses to think sustainably and prepare for the long-term future. As the public becomes more and more aware of the importance of sustainability, businesses that build infrastructure now can establish brand advantage in their space and mitigate the risks of supply chain disruption. Dr. Henderson notes that, “The push to transform our economy from one based on the premise that natural resources are inexhaustible . . . to one that acknowledges natural limits and actively minimizes waste is fundamentally disruptive.” While this is true, companies like Uber have made it clear that there is plenty of profit in disrupting the traditional market.
Investors looking to build portfolios that perform well over time may want to start acknowledging the reality of climate change and seek out companies that make sustainability a priority. For example, in 2015 Gap committed to reducing its global greenhouse emissions 50% by 2020.
By taking the Keeling Curve as an indicator of long-term market direction, investors may be able to help themselves and the world. They could encourage the public good of reduced greenhouse emissions while protecting their investments against the financial pitfalls of environmental disaster.