Investors funnel more than $20 million into companies focused on fighting global warming.
Feb. 7, 2020
The urgency of climate risk has been emphasized by the younger generation, who have been protesting across the world for a sustainable future. In the market, this is clearly evidenced in the rise of eco-friendly companies such as Beyond Meat (NASDAQ: BYND) and Tesla (NASDAQ: TSLA).
Many investors are now being impacted by recurrent climate disasters like wildfires, drought, heatwaves, and flooding, which are threatening businesses and properties across the globe. A large number of shareholders are now choosing to funnel their money into investments that address climate change risk, and asset managers are racing to meet the increasing demand. They also want to steer clear of companies that have bad track records on Environmental, Social and Corporate Governance issues that would lead to future fines. ESG funds now account for over $30 trillion worldwide in assets under management.
What companies are taking action?
A recent example is the world’s largest money manager, BlackRock (NYSE: BLK), which has pledged to make climate change the core of its investment strategy. The asset manager revealed broad changes aligned with ESG, like exiting investments in coal production, leading more sustainability-focused funds and voting to stamp out corporate managers who aren’t focused on fighting global warming. Meanwhile, the Bank of America (NYSE: BAC) has committed $300 billion to sustainable investments over the next ten years, and Goldman Sachs (NYSE: GS) has vowed $750 billion over the same period, to finance and advise companies on sustainable finance. Last year, investors put $20.6 billion into funds focused on ESG issues.
How climate change is hitting the stock market
With the hottest July on record last year, the burning of the Amazon rainforest, and the deadly bushfires spreading across Australia — burning at least 27 million acres since September – it is clear that global warming is at the forefront of many investors minds. For example, the insurance sector is taking a huge hit in Australia, with the country’s biggest general insurer, IAG – revealing the bushfires have already cost the firm around $160 million. A recent report from Principles for Responsible Investment suggests climate change could permanently reduce the value of companies around the globe by $2.3 trillion. It also details how energy companies could shed almost 33% off their value, with the 10 largest oil and gas producers losing $500 billion of their combined market caps. As for mining companies, the value of coal producers has the potential to be halved, according to the report.
Is sustainable investing regulated?
According to an Oxford University analysis, around 88% of studies show those firms with environmental and social criteria had a better operational performance. However, as emphasis builds on ESG investing and analysis of climate change risks on returns, so do fears over how to define funds that have an ESG mandate in place. Securities and Exchange Commission regulators have investigated some funds to check if they adhere to what they claim to be doing. Those that continue to do the right thing and do their part to fight for a greener future will have a legacy to be proud of.
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Written by Alsha Coppolina