With massive wildfires, intense hurricanes and devastating floods becoming the new normal, some investors are now seeing their portfolio as a crucial tool at their disposal in the fight to save the planet.
It’s a trend that’s getting nearly impossible for investors to ignore as financial companies like Morgan Stanley, EY and BlackRock have outlined what climate change may mean for investors. Even Microsoft cofounder and philanthropist Bill Gates has said he is supporting companies that are helping to solve climate change.
Timothy Nash, Sheridan College economics instructor and blogger at Sustainable Economist, says investor interest in climate change is also enjoying a resurgence after being put on the backburner due to the 2008 economic crash.
“It’s been over the last three years that people are starting to understand the very real financial risks associated with climate change,” he tells Yahoo Canada Finance.
“It’s really going to start to accelerate. I’m seeing more products on the shelves — more ETFs, more mutual funds, more green bonds — on the market.”
To divest or not to divest?
Some investors, in their push to help companies act in the face of climate change, are choosing to divest themselves of problematic companies, and Nash says that move can really make a difference.
“When it comes to shifting your assets, really what we’re doing there is using the invisible hand of the marketplace,” Nash says. “If one person does it, it won’t have an impact on share prices, but enough people do it, then it will start to have an impact.”
He says he found that divestment campaigns particularly affect a company’s cost of capital, which makes it more expensive for them to raise money through share and bond issuances. It’s a penalty that he says helps force them to compete.
Nash adds that other investors may choose to still invest in a company while being vocal towards seeing it move in a more sustainable direction, but he has doubt that would be as effective.
“I’m a little bit skeptical, especially for retail investors, just because we don’t have as much clout, and although some companies are more open to engagement, a lot of companies simply aren’t,” he says.
“I would view shareholder engagement as going to the horse that’s sort of in last place and pushing them ahead a few steps and then going to another horse and pushing them ahead a few steps.”
Mindy Lubber, CEO and president of business sustainability nonprofit Ceres, says that investors are a key pillar to enacting businesses to address the realities of climate change.
“Investors could support public policy. They could use their clout with companies to get the companies to change their practices. They can invest in renewables, and they could pull their money out of fossil fuels, and they could ensure better transparency and disclosure from companies,” she says.
It’s something that is already happening, Lubber says, as over 300 investors with assets totalling over $320 trillion have already said they are going to work with the world’s largest emitters of carbon to push them to significantly reduce their carbon footprint and disclose the risks that they face due to climate.
Companies affected many ways
Lubber’s organization Ceres has been talking about sustainability with large corporations for nearly 30 years, and she says she has noticed a shift in how they are perceiving climate change.
“It’s a radically different discussion now. So I would say in the last 10 years, large publicly traded companies, large investors have realized that these issues — water risk, climate risk, human rights risk — that they run through the bottomline,” she says.
And even without investors at the table, companies can still see the impacts of climate change, sometimes on a daily basis.
Lubber says the reality now is that clothing manufactures are realizing that losing cotton crops due to climate change can dramatically affect their bottomline and that utilities are facing the fact that they’d have to foot the bill for steep costs associated with disasters like forest fires.
While Lubber says there has been significant progress made with companies, there’s still more that needs to be done.
“The reality is we still haven’t moved enough companies at the pace and scale we need to address climate change,” she adds.
“We can’t look at [it as] a problem of the future, and we’re already seeing so many impacts from climatic changes.”