Every investor has a role to play in advancing efforts to combat climate change, according to Mindy Lubber, CEO and president of Ceres, a non-profit sustainability advocacy organization based in Boston.
The urgency for investors and asset managers to tackle climate change and its potential negative impact on profits has never been greater, Lubber said today during a webinar on climate change and water issues sponsored by Impax Asset Management, an asset manager based in London with more than $40 billion in assets.
“We are seeing progress on addressing climate change issues, but not enough at the pace or on the scale that is needed,” she said. “Investors have extraordinary power [because] companies understand when investors push them to action.”
Dozens of shareholder resolutions on climate change received support during this spring’s proxy voting meetings and multiple asset managers have committed to greenhouse emission reductions by 2030 and net zero emissions by 2050, she said. “Investors and asset managers are changing portfolios, moving companies and changing policies,” she added.
As an example of the progress being made, Lubber pointed out that Tesla, which started as a niche company, now has surpassed market capitalization levels of several major traditional car manufacturers.
Net zero carbon emissions has to be a goal that is set by countries, not by individual industries, said Ian Simm, founder and CEO of Impax Asset Management. It would be a waste of resources trying to convert carbon-heavy industries or companies to net zero, he said. The pressure should be to produce more innovative, carbon neutral companies, he said.
Trying to achieve net zero for financial institutions and asset managers also can be difficult in the short term. “The law of unintended consequences becomes part of the equation,” Simm said. “Asset managers would be trying to sell some assets and buy different ones at the same time that everyone else is trying to do the same, which creates capital inefficiency.”
The alternative is to improve measurement of emissions and to support policies that encourage less carbon consumption. “Several industrial revolutions are on the cusp now, including a change in consumer trends” that will force the reduction of carbon emissions, he said. By investing in those trends “we will make more money,” he said.
Simm added that the G20, the leaders of the world economies, in meetings to be held this year, “must commit to net zero emissions by 2050, or we do not get there.”
If progress is made toward net zero emissions, it will create higher fossil fuel costs, which will increase inflation, but also move the world toward cleaner energy, he said.
The sustainability leaders at the web conference also weighed in on the issue of water usage and shortages, and what it means to investors.
The demand for water consistently outpaces the supply in many places. Fixing that would require an investment of $75 trillion over the next 15 years worldwide, said Lisa Beauvilain, head of sustainability and ESG at Impax. The challenge is that water shortages and cleanliness are global problems, but the impact of water usage is local, she said.
Investors need to push for better water management and cleaner standards, said Johan Floren, head of ESG for AP7, a Swedish public pension fund. Achieving sustainable water goals will take collaboration between the financial sector, corporations and policy makers, he added.