Grantham, Mayo, & van Otterloo (GMO) is a Boston-based investment firm, co-founded by a renowned value investor, Jeremy Grantham, back in 1977. He is known for accurate market-related predictions, such as the 2008 Financial Crisis for example. Recently, GMO released its White Paper with a title Thinking Outside the Box, a copy of which you can download below. In the paper, it has shared its views on investing in the climate change, proposing that it can generate good returns over the long term, aside from other benefits, such as protection from climate risk.
Hurricanes, typhoons, droughts, wildfires, and other extreme weather events are causing record damage. Increasingly, climate change is impacting the economy and our daily lives and has come into focus as an existential threat to the world as we know it.1We are rapidly approaching a time when the world will be forced to act aggressively in an attempt to overcome decades of inaction. As return-oriented investors, we see this effort providing the backdrop for decades of secular growth in the climate change sector,along with the potential for strong returns.2
Beyond strong returns, we believe a climate change strategy (for our purposes, a strategy investing in the sector) may offer other significant benefits as well. We expect these to include diversification, protection from climate risk, inflation protection, and the potential to buy growth-oriented companies at a discount. However, excitement about these desirable characteristics can be tempered by uncertainty regarding how to position a climate change strategy in the context of a broader portfolio. In this paper, we will explore these benefits in more detail and also discuss how such a strategy may fit into an investment portfolio.
You can download a copy of GMO’s White Paper – Thinking Outside the Box here: