Why: ClimateSmart.
Globally dynamic for a more volatile age.

Chapter 1: Overview

What makes ClimateSmart different from other types of investment strategies? 

Our belief is that the climate scientists have it more or less correct. That escalating climate change is coming and it will, unfortunately, get worse before it gets better. 

So what does a warmer world look like? 

Will the US still be the financial “safe haven” for the world? Or will it have moved to the EU? Or China? Or India? Or a plurality of countries? 

How are various governments coping with escalating climate change and the potential ensuing impacts like higher levels of migration and food shortages? 

How much will the blessing or curse of geography impact various countries and governments differently? How will that change as weather patterns shift? 

Climate change is going to add another layer of uncertainty onto an already uncertain world. So how do you prepare an investment portfolio for it? 

We really see two options: 

1. You can try to put in place a static view on which parts of the world, governments, and economies will face the greatest impact from such events.
2. You can simply prepare your strategy to dynamically shift as capital flows in response to unpredictable climate events.

We believe the latter approach is more likely to turn out to be the correct one. Here’s why: 

Chapter 2: Escalating climate change will increase political risk for investors everywhere

When you zoom out far enough, we can predict the course of what climate change will do to our world in the coming decades with some degree of certainty. 

The What: The planet will get hotter (even with nearterm extreme mitigation; too much warming is already baked in). The response will be more extreme weather events from droughts to hurricanes to floods to fires. Those events will introduce new types of weather-driven stresses that our existing political, economic, and corporate systems have not had to deal with historically. 

The problems emerge when you start to zoom in. 

The Where and the When: What weather events are more likely to happen where? How accurate have those models been so far? Which companies and industries will be impacted? What will the downstream effect be? 

You can make educated guesses. Even very fancy ones with big, AI-driven models. But at the end of the day, one of the hardest parts about climate change is its unpredictability. Just looking in the US, the 2021 heat dome in the Pacific Northwest and, more recently, the 2024 hurricane in North Carolina were two events that existing models predicted as highly unlikely to occur. And yet they did. 

So, to us, it only really makes sense to stay zoomed out with “The What” of escalating climate change. 

And a very reasonable conclusion from there is that climate change is likely to put significant stress on global governments. Populations really don’t like it when food prices rise sharply. Remember it was rising wheat prices that set off the Arab Spring. Populations really don’t like incorporating large amounts of immigrants. See the history of basically every Western country (maybe aside from Canada). And populations in economically left behind regions tend to turn quickly against the ruling party and towards more punitive, dictatorial political stances. 

So, if climate change continues to escalate as it has been, we are likely to see much more stress on governmental systems with wider swings from one side of the political spectrum to another. Some countries will probably be able to contain such swings in the existing political confines without breaking (ie, continuing to hold free and fair elections). But others won’t. History has many examples of extreme economic stress pushing a population to take up extreme political positions. 

The impacts of such stress on a government has a name in investing: political risk. 

Put simply, we believe that one of the (many) unfortunate effects of climate change will be far greater political risk over the next 50 years than we’ve seen in the previous 50 years. 

We will likely see more governments fail. We will see more turn to corruption (and hurt their publicly traded corporations in the process). And we will see more make knee-jerk poorly-thought-out policy choices, particularly in reaction to an unfolding economic crisis. 

The unfortunate truth is that greater political risk is coming. So how can you prepare for it?

Chapter 3: Political risk can emerge suddenly and unexpectedly

One of the biggest problems with political risk is it tends to emerge suddenly. One day, the status quo. The next, everything has changed. 

Some examples just from the 2020’s: 

• When Putin invaded Ukraine in 2022, the political risk of investing in Russia skyrocketed as Western governments shut down access to all Russian assets. If you held stock in say, a Russian Oil and Gas company, tough luck.
• Also in 2022, when UK Prime Minister Liz Truss sought to implement a series of novel fiscal policies in the UK, the bond market reacted so sharply that she was ousted within six days. 
• In 2025 in the US when US President Trump announced his “Liberation Day” tariff policies that were much more extreme and inexplicable than markets expected, US stock and bond markets tumbled severely in response, losing 10% over the next two days.

And those are just a few examples. 

This is the challenge with anticipating political risk. While it may be considered higher in newer countries with less established governments, or in places with more a history of political upheaval, political risk can suddenly pop up in the most established governments.

Chapter 4: There simply may be no “Safe Havens” anymore

Prior to President Trump’s liberation day, there was a belief that there was a place to invest that was immune, or at least far less exposed to political risk: the United States. 

Since World War II, the US has existed as the financial leader of the world. 

The “risk free” rate of return was synonymous with the going rate for US Treasuries. Political leaders in the US were believed to have understood that such a position enabled the US to do things that other countries could not. For example, it could operate in a regular budget deficit. It could finance a gigantic military. It enjoyed a cheap cost of capital and all the growth benefits that generated. 

It was unthinkable that a politician would wilfully threaten such financial supremacy. Where “flights to safety” would return to US stocks and bonds for the simple reason that “they always have.” 

For this reason, a reasonable approach to mitigate the political risk of climate change would be to focus on US markets. Prior to Trump’s “Liberation Day,” we did just that for our portfolios.

We, and most of the investing world, thought that no politician would intentionally undermine the United States’ centrism in the financial world. And then Trump did. 

A new “Safe Have” may emerge for capital. For the duration of the reign of the British Empire, England served this role for the global financial economy until the US supplanted it after World War II. Perhaps China will be next? Or the EU? Or maybe the US will survive this and hold on. Or maybe another country entirely. 

To us, this only adds to the uncertainty factor for what is next. The number of plausible scenarios is growing, not shrinking. The best approach to adapt to uncertainty is to be prepared to move with it, dynamically.

Most portfolio models operate with a logic like this one from Vanguard:

You set a prefixed amount in US stocks and International (and do the same for bonds). 

If international stocks do really well one year, you trim off those gains and use them to buy more US stock and vice-versa. (This process is called rebalancing)

But the problem with such models is that they assume the status quo will not significantly change from say now, until one retires in 30 years: 

• That the US will represent around 60-65% of the global stock market, by market cap.
• That developed equities will represent 20-25%. 
• And that emerging will make up the final 10-15%.

But a lot can and will change between now and then. To just pick one out. 10-15% Emerging? You’re saying that the two most populous countries (China and India) with fast-growing middle-classes and the largest manufacturing bases in the world should only get a small fraction of a portfolio focused on long term growth?

And, again, this doesn’t even account for that additional layer of uncertainty that climate change poses.

So instead of setting static, pre-determined weightings that chop up the world into different macro slices (US, developed, emerging), we simply go global. 

If US tech firms make up a majority of the global tech sector by AUM, they get a majority allocation. But if that changes and shifts to China or somewhere else, then our portfolios move with it, unconstrained by any predetermined allocation that a given % of a portfolio “should” be in the US. 

If a radical leader is elected in a developed country and they institute policies that tank the local stock market, our portfolios track that outward flow of capital. While the falling share prices from companies in that country hurts, we get to benefit from wherever investors decide that capital should flow (assuming it adheres to the other parts of our investment philosophy). 

You can fight uncertainty or you can embrace it. We choose the latter. 

Climate-induced political risk coming. We know that. We just don’t know exactly when or where it will arise. We know that when it does the global flows of capital will shift. So the best we can do is position our portfolios to be dynamically ready to shift with it.