Hedging Your Climate Risks
Whether you agree it's because of human activity or not (and, for the record, I do), there's no doubt that the weather has been a little wacky over the past few years, driving a range of events that have had very real repercussions on businesses and the economy. Hurricane Katrina is one obvious example, but there have also been other, more subtle cases.
Many ski resort operators in North America, for instance, were beginning to believe that winter would never arrive on the eastern side of the continent. In the west, we're now being told that cold weather may have jeopardized a large part of California's orange crop.
Several businesses, from golf courses to gas utilities, can be materially impacted by the vagaries of the weather. If you do believe that climate change is indeed an anthropogenic phenomenon, and thus that we're only beginning to feel its impacts, you also probably believe that businesses will increasingly need to find ways to hedge their exposure to weater-related risks.
That is where Weather Bill comes in. The new company, which was discussed in a Red Herring article yesterday and profiled on CNBC's Closing Bell tonight (video), offers weather hedging contracts for businesses. In a nutshell, if you get hurt by bad weather (e.g. too much rain over your golf course = lower revenues), this triggers a payout and you are compensated for some of your loss. If the sun shines (over your golf course), you loose all of your money.
Insurance majors have been in the business of offering similar products for a while. Various forms of weather risk-hedging mechanisms allowing firms to tap straight into the liquidity of financial markets have also emerged over the past few years. So-called cat bonds are a good example. What Weather Bill will add to this space, as far as I can tell, is accessibility for smaller players who don't necessarily have the means and/or the saavy to effectively play the weather markets, as they are called.
There isn't really an immediate investment angle here, but I thought our readers would enjoy the heads up on some of the business opportunities that are arising in response to climate change.
To conclude this post, Jim Jubak over at TheStreet.com wrote an interesting article entitled "Turn a Profit From Global-Warming Stocks". The title says it all! Have a read.