But the prospect of raising cheaper finance at a so-called greenium has seen the green bond market explode, with worldwide sales of about $400 billion this year. The first European Union green bond went on sale this week, attracting orders of more than 135 billion euros for just 12 billion euros of securities.
In the equity market, Engine No. 1’s success earlier this year illustrates the benefit of engagement by shareholders. The small fund management firm got three dissident directors appointed to the board of Exxon Mobil Corp. to force the energy company to curb its climate-harming activities.
Calpers, the California pension fund, supported that initiative along with other big funds including BlackRock Inc. by voting its shares in favor of the resolution. “Our next area of responsibility and potential for driving change is boards that are competent with the skills needed,” Simpson said. “We’ve really got to focus on the board of directors.”
Targeting engagement on the most-polluting companies can drive focused results. In trying to calculate the carbon footprint of its $470 billion portfolio, Calpers discovered that just 100 companies are responsible for 85% of the emissions of the 10,000 firms it examined. “If we can through our ownership engage these companies and call on them to set targets for the transition and start putting together strategies, plans for their own transition to net zero, then we’ll get the results that we’re looking for,” Simpson said.
While shunning companies with bad environmental practices is an easier option than trying to persuade them to mend their ways, it can endanger both fund returns and the planet. Capitalism, while remaining resolutely red in tooth and claw, needs to embrace the green agenda.
Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.