Maui was always a favorite vacation spot of mine growing up. One of the best parts was my aunt and uncle’s snorkel business. We would wake up early for the calm water, quickly eat a pineapple donut for breakfast, and set sail. Having been in business for decades, they knew the island well. Whatever you were looking for (or not looking for, like sharks), they could find it.
Thirty years later, I am now taking my family to Hawaii. While we still enjoy the water and all it has to offer, things have changed, most notably the coral reefs and the ecosystems they support.
The importance of robust reefs goes well beyond sightseeing. Consider the 2004 Indian Ocean earthquake and ensuing tsunami. The tsunami flooded communities in over 14 countries and the death toll exceeded 227,000.
One way to dramatically reduce these losses is through healthy and robust coral reefs, which can dissipate up to 90% of the wave energy from storm surges. This can reduce economic losses up to 26%, and of course, save lives. The health of the world’s coral reefs has been in steep decline over the last several decades. In fact, there are many cases where diminishing coral reefs have resulted in more dramatic economic losses than the Indian Ocean example above.
Historically, limited effort and resources have been invested in revitalizing reefs and lessening the impact of natural disasters. That’s beginning to change, and it has to do with how we invest in a socially responsible way for our clients.
In 2016, Merriman introduced an insurance-based mutual fund into our portfolios with two primary goals: 1) make money on the insurance markets for our clients, and 2) reduce the risk of our client portfolios with something that behaves very differently from traditional stocks and bonds.
Fewer economics losses from insurance claims translate to a greater investment return. One way to reduce these losses is to proactively seek ways to mitigate them.
Earlier in 2018, the first insurance policy for a coral reef was created. After a storm hits, the insurance policy can trigger to pay for reef repair and restoration. Local governments and businesses are happy to pay the insurance premium to protect coral reefs that are vital to their businesses and economic interests. These same governments and businesses are also proactively thinking about how they can revitalize what they already have. One example is the research and breakthroughs spawned out of these efforts which allow scientists to grow corals at one-tenth the previous cost with enhanced viability.
If these groups can restore the reefs, they’ll pay less insurance premium, therefore becoming better protected from the economic hardship that storms bring.
While the investment implications of this are positive, it’s the environmental and social governance components that are paramount. Smart business and smart environment are too often independent of one another. This is an excellent precedent for the two to coexist with insurance companies that are playing a direct role in rewarding businesses and governments for good behavior.
Positive change is on the horizon, and I’m hopeful that my kids will be able to experience the reefs as I did 30 years ago. If you’re interested in hearing more about how coral reefs can impact your investment portfolio, don’t hesitate to reach out to us.
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Lowell developed a passion for finance in high school, after some hard lessons learned. Now as a Wealth Advisor, he appreciates the opportunity to help his clients articulate, achieve, and expand on their financial and associated life goals. He particularly enjoys working with mid-career technology professionals.
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