The UN Intergovernmental Panel on Climate Change has given us just 12 years to radically shift our behaviour, with significant cuts in emissions required to prevent melting ice, rising sea levels, more extreme weather and huge damage to ecosystems. To achieve this we will need to cut our carbon pollution in half.
Climate change disproportionately affects countries with lower incomes, and philanthropic investors often link their desire for urgent action with the impact that climate change is having on their beneficiaries. So what can be done?
1 Look at your investments through a climate-change lens
Long-term investors will look to equity markets to provide a financial return that protects them against inflation and supports their spending. Traditionally, investors decided what to buy based on sound financial analysis, looking at cash flows and creating complex spreadsheets to forecast future profits. This is still necessary, but analysing financial information alone will not capture the significant impact of climate change on the value of companies.
At Schroders, we recognise that environmental stresses are growing more acute and corporate fortunes rest on the ability of companies to navigate the changing world. We integrate environmental factors into our investment selection and use tools such as portfolio carbon footprinting, which looks at the level of carbon emissions across the different companies owned, and carbon value at risk, which looks at the impact of an increase in the cost of carbon on profits. This means we are able to evaluate the risk of climate change and help our charity clients to tilt investments away from industries that are most damaging and towards sectors that are more sustainable.
2 Use investments to promote change
As an equity investor you own a share in a company, which gives you the right to vote and challenge management directly at the AGM or through your investment manager’s engagement programmes. Investors have the power to influence the companies in which they invest. Coalitions such as the Global Investor Coalition on Climate Change organise and represent investors who want to combat climate change. In the UK, the Charities Responsible Investment Network has engaged with its investee companies, investment managers and policy-makers on a broad range of environmental, social and governance issues.
3 Choose investments that have a positive impact
The third way to tackle climate change is to choose investments that have a positive impact. Climate-change strategies invest in companies that create products or offer services that mitigate or adapt to the effects of climate change. This might include companies developing new technologies to reduce greenhouse gas emissions or sustainable transport.
The global economy has been built on an energy infrastructure that will look dramatically different if we are successful in limiting temperature rises. That disruption will create winners as well as losers, which creates opportunities for investors.
Kate Rogers is head of policy at Cazenove Charities