Have you watched Our Planet on Netflix? While an impressive docuseries showcasing jaw-dropping natural wonders on our planet, this series made me sad at the same time.
The increase in the global average surface temperature of 2° F. that has occurred since the pre-Industrial Era (1880 – 1900) might seem small. However, the annual global average surface temperature has increased at an average rate of 0.07° C. (0.12° F.) each decade since 1880. Moreover, it has increased over twice that rate (+0.18°C / +0.32°F) since 1981.
Consequently, a reduction in snow cover and sea ice is occurring, and this is threatening the survival of myriad species (e.g., polar bears). Our planet has also lost nearly 50% of all global coral upon which one-fourth of all marine species are dependent. Indeed, a temperature increase of merely 1.8 – 3.6° F. (1 to 2° C.) can force coral to expel algae (in a process termed coral bleaching that denotes coral death).
Role of Public Investors in Curtailing Climate Change
Greenhouse Gas (GHG) emissions have been identified through scientific studies as a major cause of the atmospheric temperature increase. Achieving a reduction in global GHG emissions is critical. The good news is that an increasing number of institutional investors are taking actions to curb this issue and/or pressuring industries specifically linked to high emissions to gradually shift resources to renewable energy.
Because capital markets pull future risk forward – more investors are starting to shift capital allocations to minimize the planet’s exposure to environmental risks. For example, the world’s largest sovereign wealth fund (located in Norway) – with £770bn asset under management (AUM) – announced that it will divest Norway’s sovereign fund from oil and gas exploration.
Larry Fink in his annual letter on corporate governance (as the CEO of BlackRock, a large asset management firm with AUM of $7 Trillion) stated that climate risk equals investment risk. Therefore, companies with revenues of at least 25% derived from thermal coal production will be excluded from BlackRock’s portfolio.
While skeptics argue that corporate “green-washing” is far more prevalent than real climate-oriented action (which is likely), this is preferable to climate change denial or indifference. My viewpoint is that it is important to express approval for increased corporate social responsibility so that it continues to expand!
Social Impact Investing and Portfolio Returns
In the past decade, we are seeing an increase in private equity funds with risk-adjusted returns shifting toward greater alignment with globally-developed Sustainable Development Goals (as determined by the United Nations [UN]).
KKR ($220 Billion [AUM]) recently closed a $1.3 Billion global impact fund investing in companies that have core business models providing commercial solutions to environmental and social challenges.
E8 (a Seattle-based angel investor group) organizes investments in “clean technology" (that has a smaller adverse environmental impact).
Chaired by Bill Gates, Breakthrough Energy provides venture funding for diverse innovative solutions (such as increased battery storage time for use in renewable energy endeavors).
Environmental-Focused Private Sector Actions
The following are three examples of companies taking specific actions to protect the environment. Microsoft is committing to the goal of becoming “carbon negative” by 2030. Unilever's Sustainable Living Brands (SLBs) are growing 69% faster than the rest of the company. Nearly 70% of Patagonia's products are made from recycled materials.
Challenging companies’ self-reported activities using inconsistent reporting frameworks remains vital, but the needle finally appears to be moving in the right direction. However, we cannot become complacent.
My hope is that corporations take an increased leadership role in combating climate change. Both the public and private sectors need to do more to halt human-caused warming of our atmosphere and oceans, or more areas across the planet may no longer be inhabitable by our species – or any other species – in the next century.
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