Investors Increasingly Focused on Addressing Climate Change: New Administration's Next Steps Will Determine Whether the Private Sector Goes It Alone
Thursday, December 1, 2016
by: Lisa Woll

Section: Policy

While President-elect Trump has yet to lay out specific policy proposals related to the environment, campaign rhetoric as well as a stated position to “scrap the Clean Power Plan” suggests the new administration may actively try to undo critical steps taken by President Obama to address climate change. This would be a profound mistake. The climate science is clear on the urgent need for action, and the investor and business communities are deeply engaged in addressing both the challenges of climate change and the opportunities created by a transition to a low-carbon economy.

New research from the US SIF Foundation’s biennial Report on US Sustainable, Responsible and Impact Investing Trends 2016 shows climate change is a significant priority for many investors in the United States and abroad. Money managers and institutional asset owners are choosing companies for their portfolios based on climate change criteria. In doing so, they seek both to manage the threats to financial performance related to climate change and to realize attractive investment returns from investments in innovative companies. More broadly, one in five dollars under professional management in the United States is invested using sustainable and impact investment strategies for a total of $8.72 trillion.
Major US investment firms have hailed the Paris Agreement on Climate Change and its process for reducing global greenhouse gas reductions.

Specific to climate risks, money managers in the United States report they are assessing climate change across the management of assets valued at $1.42 trillion at the beginning of 2016, a more than fivefold increase since 2014. For institutional asset owners, concern about climate change and carbon emissions now ranks as the second most important environmental, social and governance issue they consider, affecting $2.15 trillion in assets—nearly quadrupling since 2014.

Major US investment firms have hailed the Paris Agreement on Climate Change and its process for reducing global greenhouse gas reductions.  In July, analysts at Alliance Bernstein, for example, wrote that asset managers should analyze corporate responses to climate change to identify investment winners from losers.  In September, BlackRock, the world’s largest asset manager, issued a statement that all investors should be factoring climate change into their investment decisions. 

Investors are also influencing corporate activities through direct engagement with the managements of portfolio companies. With regard to climate risk specifically, investors filed more than 90 resolutions in 2016 and negotiated a number of commitments from companies to report on strategic planning around climate change or to reduce greenhouse gas emissions.

Additionally, many state and city treasurers and comptrollers are active participants in climate-related shareholder advocacy, and some, such as the New York State Comptroller, have initiatives to invest in renewable energy and clean technology. The New York State Comptroller’s Office also filed resolutions this year to US oil and gas companies asking them to report on their climate change strategy. In like manner, the California State Teachers Retirement System requested several such companies to reduce their methane emissions.

Educational institutions are also active in assessing their investment portfolios for climate risk. Over 30 US colleges and universities—including Stanford University, the University of California, Syracuse University and Georgetown University—have committed to restrict investments in fossil fuel companies, particularly from companies involved in coal or tar sands projects. 

These investors desire to make a positive environmental and societal impact, but that’s not the only driver. Companies that manage their operations in a sustainable and responsible way are better-managed companies in the long-term. Research shows that companies that more fully disclose and manage data on environmental, social and governance issues perform better on financial measures such as earnings and stock performance.

Therefore, investors have asked for more and higher-quality disclosure of the environmental, social and governance practices of companies. Both investors and businesses need policy certainty and long-term signals, including a price for carbon and incentives for energy efficiency and renewable energy, to continue to make the significant capital allocations required for a transition to a new energy system. Well-designed federal policy can help drive innovation, create jobs for US workers, benefit US consumers and bolster international efforts to curb climate change. Investors will look for continued US leadership in support of the Paris Climate Agreement and support for the Clean Power Plan.

Thus, while the private sector’s focus on addressing climate change has been consequential and must remain so, leadership by elected officials is critical to solving the climate crisis. 
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