Tackling Climate Change: A Smart Investment

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In the financial community, the conventional wisdom holds that businesses will continue investing in fossil fuels, despite the damage they do to the climate, because they’re profitable. Last month, financial-services company The Motley Fool held a symposium challenging the idea that fossil fuels are a wise investment, even when you exclude environmental harms.


Staff from EarthShare member organizations including The Union of Concerned Scientists and Green America joined other guests to show how companies are thriving by addressing climate risk in their portfolios and operations. If you’re an investor or business owner, you’ll want to take their lessons to heart.

Rachel Cleetus, an economist at the Union of Concerned Scientists, introduced the audience to the concept of the Carbon Bubble. The idea is simple: because we can’t burn most of the fuels that energy companies have in their reserves without causing catastrophic warming, those reserves are currently overvalued by the market. In other words, companies are placing “unburnable carbon” in their portfolios.

“We’re in a new normal now,” Cleetus said. “And we’ve got to start taking climate change as a base issue for everything we do, including the way we invest.”

Rachel Cleetus

The insurance industry is preparing more than most, particularly those companies that insure other insurance companies (“reinsurers” like Munich Re and Swiss Re). That’s because they have to pay out when towns get swept away by floods or crops wither from sustained droughts. Private insurers are so cognizant of climate risk that they no longer provide flood insurance in the U.S., leaving the federal government to provide that service.

“That means every time one of these events happen, every single taxpayer is on the hook, whether we’re talking about disaster relief or paying insurance claims. So this is not just about the people getting flooded,” Cleetus said.

Stu Dalheim, Vice President of Shareholder Advocacy at Calvert Investments has also witnessed the direct impacts of climate change on businesses:

“We’ve seen companies like VF Corporation [an apparel company] have earnings impacts due to floods in Pakistan which caused cotton prices to go up. [They’re already] dealing with very thin margins in their supply chain.”

How can you find out if a company you invest in is truly addressing climate change? Find out if their sustainably goals are integrated into everything they do, said Joe Cosola of the Center for Climate and Energy Solutions. And look at their 10-K filings with the Security and Exchange Commission (SEC).

“You can often tell quite quickly how seriously they take their [climate] risks,” Cosola said.

Addressing climate change in one’s business plan helps companies avoid risk on one hand, and also opens up opportunities on the other. Organizations like Opower and National Geographic are making and saving money by making sustainability a core part of their businesses.

National Geographic saves $500,000 per year on utilities through energy saving measures in its buildings. Opower is in the business of helping companies and homeowners reduce their energy costs – nearly $300 million since they launched in 2007.

One of Opower’s clients, an energy utility called National Grid, is banking on efficiency.

“National Grid can… make as much money investing in energy efficiency as they would investing in other types of transmission, distribution, and power generation – sometimes they make even more,” said Opower’s Senior Director of Market Development Jim Kapsis. “You’re aligning the incentives of the private sector with what is in the social interest and what’s also, frankly, in the economic interest of the country because we’re wasting a lot of resources that would be better used to stimulate other parts of the economy.”

Todd Larsen

Green America, an EarthShare organization that certifies small businesses on sustainability measures, has found that consumers, too, are more apt to support businesses that are good to the environment. This is backed up by the results of a recently released Cone Communications/Echo Global CSR study, which indicated that consumer affinity surges when companies support social or environmental issues: 96% of global citizens reported having a more positive image of a company; 94% will be more likely to trust that company; and 93% will be more loyal to the company (i.e., continue buying products or services).

 “If you provide a product that’s genuinely green, and not greenwashed, then people can see that your company is actually walking the talk and are more likely to buy the product,” said Todd Larsen, Green America’s Corporate Responsibility Director.

Slowly, the business community is finding that their continued existence is dependent on addressing climate change. Investors can play a role in encouraging this shift by supporting companies that have an eye on the future and using shareholder activism or removing support from those that aren’t.

Change may be difficult, according to Cleetus, but “’Let’s not do anything’ is not pragmatic”.



To learn more about climate change impacts on investing, visit:

Investor Initiatives, Carbon Disclosure Project

Social Investing, Green America*

Investor Network, Ceres

Clean Technology: A Smart Investment for the United States, Union of Concerned Scientists*

Carbon Bubble Interactive


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