July 2019 was determined to be the hottest month in recorded history according to scientists at the U.S. National Oceanic and Atmospheric Administration. The temperature was 1.71 degrees above average July temperatures over the entire twentieth century. In fact, nine of the ten hottest Julys occurred since 2005.
The healthcare technology sector is all afire with identifying solutions to manage a range of social determinants of health such as access to quality food, affordable and safe housing, underemployment and relative economic and social stress levels. Irrefutably, at least for many of us, environmental conditions are known to play a dramatic and direct role in one’s overall health and well-being. Effective and comprehensive solutions are illusive though, in part because the problems are systemic, and the investment required for systemic solutions can really only be made by governments in a somewhat coordinated fashion. The investment models for therapeutics, medical devices or healthcare technologies are reasonably well-understood but what is the investment model to lower the earth’s temperature by 1.71 degrees?
Obviously, climate change is a public health crisis and according to my good friend, Margo Oge, former director of the Environmental Protection Agency, it is not adequately addressed by current medical school curricula. At particular risk with climate change are the elderly, the young and the poor, a population that promises to be most advantaged by the development of innovative healthcare technology solutions. Oge highlighted the shocking situation in Flint, Michigan as just one example where generations of residents consumed lead-tainted drinking water when simple inexpensive water quality tests existed. How worried should the rest of us be about more insidious environmental developments when such obvious environmental factors are missed?
More affluent regions of the world appear to suffer fewer deaths due to climate change. In November 2018, The Lancet published a seminal global analysis sponsored by the United Nations which linked clearly the state of the environment on healthcare. Specifically, the report focused on “heat stress” created by a warming climate and determined that 157 million additional people were subjected to heat-related health issues above levels in 2000, directly responsible for a loss of 153 billion hours of labor. These health issues manifested in significantly greater incidences of kidney and heart diseases. Furthermore, the report projected an additional 50-100 “heat deaths” per one million people by 2050.
Perhaps more devastating are the collateral issues that elevated heat levels will create, such as a greater incidence of major storms (like Hurricane Dorian this past weekend, considered the strongest storm to ever hit the Bahamas) and flooding. These weather phenomena will reduce crop yields, lower overall quality of food stocks, and may well damage the healthcare infrastructure itself. It is estimated that one billion people live below 33 feet above sea level. In the U.S. alone, scientist project that 2.4 million homes will be flooded by 2100. Just this year, U.S. farmers are expected to grow 13.4 billion bushels of corn and 3.5 billion bushels of soybeans; both meaningfully lower than the definitive Pro Farmer estimates from earlier this year of 14.5 billion and 4.7 billion, respectively. The National Climate Assessment warned of a dramatic increase in mosquito-borne diseases, even in regions that have not confronted such diseases before.
Interestingly, Axios recently projected the economic impact by U.S. county by the end of this century (see below). Perhaps not unexpectedly, there is a rotation to regions further north, presumably cooler geographies, as the earth continues to warm.
In addition to purchasing real estate in Alaska and Maine, there are other interesting investment strategies to capitalize on these environmental developments. While the energy sector has been the poorest performing S&P industry sector index this past decade, returning only 4.4%, the S&P Global Water Index has increased 15% year-to-date. Clearly the slowing global economy, overall capital intensity, and the constant battering by climate-change activists have hurt the stocks of traditional energy companies.
It is estimated that only 2.5% of all the water on earth is fresh and that 800 million people are facing an imminent water crisis. Furthermore, another 2.4 billion people do not have reliable access to clean water for proper sanitation. It will require at least $1 trillion to upgrade domestic water delivery infrastructure. According to the EPA, tap water in the U.S. averages about $2 per 1,000 gallons, suggesting that the price of water is likely to increase significantly.
One of the best performing environmental investments recently has been European carbon credits, established as part of the Kyoto Protocol in 1997, which are up 20% year-to-date and double the levels from January 2018. This market is estimated to be close to $40 billion in size. One credit is required for each carbon dioxide ton emitted and is trading for about 26 euros. Across Europe, 1.7 gigatons of carbon are emitted annually according to Energy Aspects data.
Additionally, there has been a flurry of investment activity in the alternative meat sector. In part reflecting concerns about the impact of livestock production which is responsible for 15% of all greenhouse gas emissions, a number of high-profile plant-based food companies are seeing dramatic market acceptance as they introduce alternatives to traditional meat products. Beyond Meat, which went public in May 2019 with a $3.8 billion valuation, is currently valued at $10.1 billion or 115x trailing revenues. The global meat market is considered to be $1.4 trillion and accounts for 29% of the water used in global agriculture but a staggering 80% of all agricultural land.
The American Lung Association attributes 7,500 deaths each year to coal pollution. While an important industry which last year provided 30% of all U.S. power (down from 45% in 2010), the coal industry only employs 50k people. By comparison, there are 260k people working in the solar industry. Given in large measure to the attractiveness of cheap natural gas, the number of coal plants have declined from 580 in 2010 to less than 240 now, according to the U.S. Energy Information Administration, perhaps suggesting that market forces may assist in reducing the cocktail of harmful pollutants due to coal.
The Centers for Disease Control and Prevention recently announced that 16 states have 153 reported cases of serious vaping-related respiratory illnesses in just the past two months. Importantly, CVS just announced a $50 million campaign to curtail teenage vaping, and five years after the company stopped selling tobacco products.
Director Oge’s work at the EPA was to ultimately create policies to reduce environmental stresses on human health. Five years ago, the Center for International Earth Science Information Network scored all countries on the ability to mitigate those stresses. Consistent with other regional data, more affluent countries further removed from the equator tended to score more favorably.
In this environment, there may need to be a greater reliance on market forces and the creativity of entrepreneurs to lessen the environmental impacts on health. Unfortunately, the EPA made only 166 referrals to the Justice Department in 2018, a 30-year low and half the amount in 2012. Only 78 cases were prosecuted last year, the fewest amount in 25 years. By law, the EPA must have no fewer than 200 enforcement agents in its Criminal Investigative Unit and yet only has 164 now. Recently, the Government Accountability Office determined that the EPA’s Integrated Risk Information System unit had its research stifled, most notably its extensive formaldehyde analysis linking the chemical to cancer.