Over the weekend, nearly 200 of the world's governments agreed on a groundbreaking deal to cut greenhouse emissions and reduce the effects of climate change. The agreement was the culmination of the Paris Climate Conference that featured appearances from President Obama and French president Francois Hollande.
The new deal includes several key provisions, including a goal of reaching net zero emissions by the second half of the century. Signing nations also agreed to work to limit global temperature rises and hold each other accountable for adhering to the plan.
The actual "meat and bones" of the action will be different for most nations. Part of the agreement included wording that will see each country set up its own "Nationally Determined Contributions" that will be reviewed by the other nations every five years.
This deal is obviously important from a global perspective, but it will almost certainly have lasting effects on your personal portfolio. Going forward, this agreement will change the framework of the energy sector and investors need to know what to expect.
The markets were quick to react to the news, with oil and gas ETFs such as USO , OIL , and UNG all dipping over the weekend. Logically, this makes sense. This new plan means that the demand for non-renewable energy sources will go down. With oil already nearing historic lows , this is not the news that industry needed, but it certainly isn't bad news for investors across the board.
The climate deal does mean that investors will need to consciously shift the focus of their portfolios to new sustainable sources. As detailed in Morgan Stanley's MSInvestors Guide to Climate Change , many investors are currently unprepared for the changes to come.
Morgan Stanley points to data from the Economist Intelligence Unit which estimates that private investors are at risk of losing $4.2 trillion between now and the turn of the next century due to global climate change.
Of course, this figure is based on a certain level of inaction from businesses and governments. If powerful entities can react appropriately-this climate deal is a good first step-private investors could stand to make money by playing off of new demands.
The most obvious segment that will see increased demand is renewable energy. From wind to solar to nuclear, renewable energy sources will be an increasing part of the global energy market over the coming years.
(Also read: 5 Stocks to Buy on Historic Climate Change Deal )
This is no secret-clean energy ETFs like PBW , ICLN , and OCLN are all up from Friday's close. Green energy has been an industry limited by slow demand. This problem should become less and less of a factor as time goes on.
Outside of the obvious renewable energy picks, investors should focus on companies that won't be hit by high costs as they transition to clean energy sources. While the new initiatives that corporations are taking are admirable, they can also be costly. Investors might want to take a look at companies that are already "green" here: The "Greenest" Companies You Can Invest In .
The monumental nature of this new deal cannot be understated. While the specific measures put in place are noteworthy, the agreement is most important because of the sheer number of world leaders agreeing that humans are playing a part in climate change.
Some have been saying it for years but now it is certainly true; the debate is over. Like it or not, the world is changing and investors need to change too. With a forward-looking mindset and a grasp on the new agreement, it shouldn't be too difficult.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.