Three ways to tackle climate change with your investments
Investors can be a powerful force in helping tackle some of the world's greatest problems, including climate change
The time for action on climate change is now. The Intergovernmental Panel on Climate Change (IPCC) has given us just 12 years to radically shift our behaviour, with significant cuts in emissions required to prevent melting ice, rising sea levels, more extreme weather and huge damage to ecosystems. To achieve this we will need to cut our carbon pollution in half; meaning significant changes to our global economic models.
Climate change disproportionately affects countries with lower incomes, and philanthropic investors often link their desire for urgent action with the impact that climate change is having on their beneficiaries. So what can be done?
- Look at your investments through a climate change lens
Long term investors will look to equity markets to provide a financial return that protects them against inflation and supports their spending. Traditionally investors decided what to buy based on sound financial analysis, looking at cash flows and creating complex spreadsheets to forecast future profits. Of course this is all still necessary, but analysing financial information alone will not capture the significant impact of climate change on the value of companies and the world in which they operate.
At Schroders, we recognise that environmental stresses are growing more acute and that corporate fortunes rest on the ability of companies to navigate the changing world. We integrate environmental factors into our investment selection; and use tools like portfolio carbon footprinting – which looks at the level of carbon emissions across the different companies owned, and carbon value at risk – which looks at the impact of an increase in the cost of carbon on profits. This means we are able to effectively evaluate the risk of climate change, and help our charity clients to tilt investments away from industries that are most damaging and towards sectors that are more sustainable.
- Use your investments to promote change
As an equity investor you own a share in a company. That share gives you the right to vote, to challenge the company management directly at their Annual General Meeting or through your investment manager’s engagement programmes. Investors have the power to influence the companies in which they invest. To maximise this, coalitions such as the Global Investor Coalition on Climate Change organise and represent investors wanting to combat climate change. In the UK, the Charities Responsible Investment Network have engaged with their investee companies, investment managers and policy makers on a broad range of environmental, social and governance issues, including the Living Wage, workers’ rights in supply chains, executive pay, corporate lobbying and investment managers’ voting records.
- Choose investments that have a positive impact
The third way to tackle climate change is to choose investments that have a positive impact. Climate change strategies invest in companies that create products or offer services which help to mitigate or adapt to the effects of climate change. That might include companies developing new technologies to reduce greenhouse gas emissions or sustainable transport.
The global economy has been built on an energy infrastructure that will look dramatically different if we are successful in limiting temperature rises to acceptable levels. That disruption will create winners as well as losers, which creates opportunities for investors.
Co-head of Charities
Kate specialises in investment on behalf of charities, endowments and foundations and has over 20 years of experience, with 15 years at Schroders and Cazenove. She is a CFA charterholder and has a BSc (Hons) in Natural Sciences from the University of Durham, is Chair of her local community foundation, Vice-Chair of her local primary school and Chair of the Finance Committee of the Cripplegate Foundation. She won a Women in Investment Award for her work with the Charity Commission and FCA creating a new charity investment vehicle.
She has researched and co-authored a series of publications on Charity investment best practise including 'For Good and Not For Keeps', which examines sustainable expenditure, ‘Intentional Investing’, which researches how charities can align their investment policy with their aims as an organisation, and more recently ‘Time and Money’, which explores how charities can make the best use of longevity. Kate was chair of the Charity Investors' Group for 12 years, standing down in 2019. In this role she collaborated with CFG and authored a guide to written investment policies. Kate also regularly writes on charity investment in the charity sector press.
The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Limited 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored.