Investing for a more sustainable world

Published Tuesday, January 17, 2017 in the New Brunswick Telegraph Journal and the Fredericton Daily Gleaner.

With the RRSP contribution deadline just weeks away, many of us will soon be reviewing and adding to the portfolios we hope will support us in retirement.

It’s a great time to ask ourselves an important question: are our investments safe from the many implications of climate change?

Risks and opportunities

If you think climate change isn’t an issue for investors, think again.

Last fall, the world's largest institutional fund management company, BlackRock Investment Institute, released a report advising investors to account for climate change in their portfolios, whether or not they believed in climate change.  Four key reasons were offered:

FIRST: climate change will bring more frequent and severe weather events, which threaten everything from buildings to bridges to water supplies to crops.  

For example, in 2012, Superstorm Sandy ripped into the US east coast, leaving behind swamped subways, flooded buildings and $65 billion in repair bills.  Sea level rises caused by melting ice sheets will only make such events worse.  The city of Miami now experiences regular ‘sunny day floods,’ when high tides, backed by strong winds, swamp streets, basements and wells. 

SECOND: few businesses will be unaffected by the regulatory changes required to address climate change.  Carbon pricing and other government initiatives intended to reduce emissions will greatly impact energy-intensive industries.  For example, the untapped reserves of fossil fuel companies, typically listed as assets on their balance sheets, risk becoming greatly devalued (in investment terms, ‘stranded’) in a decarbonized world.  

On the other hand, incentives and subsidies will offer opportunities in renewable energy and energy efficiency.  

THIRD: the green energy and transportation systems of the future are under development right now, offering both risk and the potential of great reward.  In particular, any breakthrough technology that finally enables large-scale power storage is bound to make its investors very happy.  At the same time, disruptive progress in any sector will negatively impact companies currently operating there – just as cars displaced horse carts and computers displaced typewriters. 

FOURTH: changing values and preferences may have consumers shunning companies perceived to be environmental laggards or climate change deniers, and instead spending their dollars at progressive businesses with strong sustainability credentials.  

Skeptical?  In a recent Nielsen survey, two-thirds of global consumers (and three-quarters of Millennials) said they were willing to pay more for a sustainable brand.  

BlackRock’s report states, “We believe climate factors have been underappreciated and underpriced.”  In other words, most investors neither understand nor consider the investment risks of climate change. 

What to do

Climate-proofing a portfolio is not simple, but here are a few strategies to consider:

  • Check how your investments are rated by the Carbon Disclosure Project, a non-profit organization that tracks the carbon footprints of over 5500 global companies.  
  • Check whether your service provider or investment manager is a signatory to the UN’s Principles for Responsible Investment, an initiative that boasts 1500 signatories managing over $60 trillion in assets, or the related Montreal Carbon Pledge.
  • Seek out investment managers who offer divested funds and portfolios.  I know they’re out there, because an ad for one popped up on my computer screen recently.  Or just tell your current advisor you want the risks of climate change factored into your investments.  
  • If you’re up for it, join a divestment community such as GoFossilFree or DivestInvest.  You’ll not only learn about climate-proofing your investments; you’ll be joining 60,000 institutions and individuals – including the City of Copenhagen, AXA Insurance, the Church of England and actors Mark Ruffalo and Leonardo DiCaprio – who have divested of fossil fuels to the tune of $5.4 trillion.  (Globally, such divestments have doubled over the past year.)

We work hard for our investments.  It’s well worth protecting them from all risks – including climate change.