In the months before November's UN Paris Climate Change Conference, and since then, I have spoken to many charitable investors about whether and how they should take climate change into consideration when investing their assets.
Many are focusing on the possibility of excluding companies that contribute to climate change, most frequently by burning fossil fuels. There are a number of reasons for this. The divest movement emphasises a moral imperative and encourages investors to remove fossil fuels from their portfolios to reflect the negative impact they have on the environment. The financial argument is based on analysis suggesting that a large portion of the reserves of fossil fuels already discovered should not be burnt if we are to stay within the safe limits for global warming. These stranded assets imply that caution is needed when appraising the valuations of exposed companies.
So how does a charity decide? Last year I co-authored Intentional Investing, in which we examined the principles and practicalities of reflecting wider social concerns in charity investment portfolios. We recommended that trustees begin with their own charity's aims and values to establish whether there is a conflict. It would perhaps be easier for an environmental charity to divest from fossil fuels than an educational charity.
Nevertheless, we have seen a string of colleges and universities decide to divest, and a number of other charitable investors that have no direct conflict with the aims of the companies concerned. For each, there will be a different context, and many factors to debate, including the likely impact on the portfolio risk and return. Some divestors use moral arguments, linking climate change to future beneficiaries. Some try to reflect the views of existing beneficiaries (such as student bodies) or donors. And others use financial arguments. It will often be a combination of the three. Many commit to divesting over a number of years, starting with those companies that are perceived to do most harm. In practice divestment will take time, but the campaign recognises the immediate impact of using your charity's reputation to stigmatise the resources sector.
Exclusion will not be the right answer for all charities, and there is no doubt that the fossil fuel companies will need to be part of the solution for a more sustainable climate future: they are already some of the largest investors in renewable energy. It is also true that climate change will have a much wider effect on economies, corporates and individuals. Recognising this is essential to a broader approach to investing.
Our research highlighted four ways to reflect aims, values and wider social goals in a charity's investments: exclude, select, influence and deliver. Selecting investments that can combat or adapt to climate change is one approach, as is the measurement of a portfolio's carbon footprint. A key responsibility for long-term asset owners is using the power of dialogue and engagement. In this way, as shareholders, charities can use their position to influence companies.
There is no doubt that climate change will affect investment portfolios; how charities decide to react will depend on their individual context.
Kate Rogers is head of policy at Cazenove Charities