Does climate change affect investment?

By Doug Moss and Roddy Scheer
Investors think seriously about the impact of climate change.
Investors think seriously about the impact of climate change.
Dear EarthTalk: Are climate change and other environmental issues affecting or informing mainstream (Wall Street) investment strategies, or is sustainability-oriented investing still just a do-gooder niche?

    -- Mary S. New York
    It wasn’t long ago that so-called triple bottom line investing—factoring in not just financial returns but also social and environmental impacts—was purely the domain of a small set of outliers willing to forego profits for the sake of proving that investing could be used as a tool to drive change. Just two decades ago, the only real way to have an eco-friendly investment portfolio would be to put your money with one of a handful of mutual funds focused on socially responsible investing — or to research and invest in often speculative individual green companies directly.
    But many investors’ perspectives have changed. It turns out that green investments are not only safer than their conventional counterparts given the actuarial risks of rampant climate change, but they also tend to perform better. Generation Investment Management, founded in 2004 by former Vice President Al Gore and ex-Goldman Sachs executive David Blood, was one of the first well-heeled firms devoted exclusively to sustainable investing—and shocked analysts by how profitable it was. General Investment's 12.1 percent annual average increase during its first decade ranked it second in profitability among 200 competitors, including many of the biggest names in conventional investing. The lesson is that companies prepared for a warmer future are most likely to succeed.
    A 2019 report by BlackRock, the world’s largest investment firm with more than $7 trillion under management, confirms that going green pays. Not only has funding and investment in the environmental, social and governance space almost doubled over the last five years, but those investments outperformed other bets overall. Environmental, social and governance equity benchmarks in the U.S. yielded an annual return of 14.5 percent, compared with 14.4 percent for other investments.
    Perhaps this new reality is why BlackRock recently announced a sweeping set of policies to make sustainability the new standard for investing. The firm plans to launch new active and passively managed socially responsible investing-based funds in the short term and will look into other ways to align the rest of its investments according to investors’ increasingly pro-environment values.
    Environmental advocates are glad to hear about BlackRock’s plans, especially given the need for the private sector to step in and take an active role in carbon drawdown in lieu of federal action. Ben Cushing of the nonprofit Sierra Club considers BlackRock’s shift “a major step in the right direction and a testament to the power of public pressure calling for climate action.”
    But he would like to see BlackRock—still the world’s largest investor in coal, oil and gas—go a giant step further and divest entirely from fossil fuels.


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