Easy Ways Investors Can Fight Climate Change

In 2015, the Principles for Responsible Investment (PRI) ran an Asset Owner Strategy Project on Climate Change including some of the largest investors in the world AXA and Allianz among other global signatories to PRI.

This year-long effort was successful and resulted in this framework and report including case studies across asset class.​​

Increase Allocations to Positive Sustainable Investing

trees superimposed on city skyline
Tim Robberts/Stone/Getty Images

The first and arguably most important step an investor can take is to increase their allocation towards positive sustainable investing.

Options for investors include not only renewable energy and other new technologies and innovations, but also funds in the market we've been writing about here, although better public facing options for retail investors are needed as many of the better fund managers are private such as Generation Investment Management.

Reports call for trillions of dollars of new investment in this direction, most recently this Mapping the Gap report by CERES and if capital shifts towards more sustainable companies and away from less sustainable ones then getting ahead of this is another reason for investor action and related shifts in capital now.

Perhaps most importantly, individual investors need to voice their desire to their investment partners, whether their 401(k) plans, their brokers or family office, that they have specific options that seriously consider climate change and how.  Only through a consensus voice of demand will this attention from investors occur and it needs to.

Engagement with Corporations

Engagement is the other main action investors can take on climate change, in addition to shifting capital and making new investments.  There are three categories of engagement, first of all involving investor engagement with companies.

This is especially important given the fact that institutional investors own something like 70% of the value of shares outstanding in public companies (let alone privately held companies) and even more important as capital shifts to lower fee, more passive investments.

Without engagement, such passive ownership creates a carte blanche for status quo business as usual which is not acceptable in an age of climate change.

Fortunately, the largest investor in the world, BlackRock, just created a precedent that all investors need to follow.  BlackRock too will be held to account for how far it takes its new commitment to engagement.

Record levels of shareholder engagement on climate change are underway as we speak.

The Carbon Asset Risk effort of CERES is worth support for one example.

Individual investors should vote their proxy statements thoughtfully, as the value of their holdings are at risk if they aren't careful.  Shareholder resolutions act as a needed check and balance on many issues, including rampant C-suite compensation.

Engagement with Policymakers

Many states are providing leadership on climate change such as California, New York and Rhode Island to name a few.  Cities are also competing to be global leaders on these issues.

Investors can make their voices heard both by voting on proxy statements and making very clear to your state and local representatives where you stand on climate change.

Given that the science is telling us that action is desperately needed now, you should strongly consider keeping climate change in mind when you enter the voting booth this year.  

Climate change shouldn't be political, but until it isn't, it is, and politicians and their decisions will affect future investment value and the world your children will inherit.

Engagement with Outsourced Fund Managers

Many Pension Fund outsource their asset allocations to external managers.  It is now critical that asset owners hold their partners accountable on climate change.  

The Yale Endowment famously wrote a letter on this to their investment partners, and David Swensen is a global thought leader on investing in general, with many following his usually prescient lead.

CalPERS at $300 Billion the largest US Pension Fund representing retired employees of the state of California, has started down the path of demanding action from investor partners on ESG.

Individual Investors have the opportunity to make similar demands of their investor partners and should take that opportunity.

Sell Companies with No Business Case

Divestment as a strategy is not an answer for climate change. Without reducing consumption, carbon emissions continue, and fossil fuel production will continue. However, a growing number of investors, have started selling coal companies and otherwise disassociating from coal finance.  

Just about all of the US publicly traded coal companies have gone bankrupt.  China's commitments to reduce coal use has put other global entities involved with coal under heavy pressure. Investors such as AXA, Allianz and Norges Bank have taken important steps in this direction as have many large banks.

With Peabody Energy having lost 99% of its value over the past few years, a thoughtful and timely process on coal would have preserved much shareholder value.  Oil companies are now under extreme financial pressure as Saudi Arabia, Iran and Iraq can pump the world's remaining oil at cheaper prices - it's unclear why they wouldn't want to do that going forward, so expect a long term lower price of oil.  Oil companies need to restrict capital expenditure to profitable ventures only.  Gas is more complex but frequent earthquakes are a growing concern as is local water quality.

So-called fossil fuel free funds have proliferated, but divestment requires a thoughtful process, as does climate change itself.