Climate Change From the Investor’s Perspective
Growing the Economy Through Global Warming Solutions
Executive Summary Investments in clean technology, or “Cleantech” have exploded in recent years. The Cleantech Venture Network estimates that Cleantech is now the third largest venture investment category, poised to rival or even eclipse prior investments in information technology and biotech. Global investment in clean energy has grown from $27 billion to $71 billion in the space of two years. Other areas of substantial investment growth come in the area of “green” real estate, with emerging interest in “green” alternative investments such as hedge funds.
The Investor Network on Climate Risk (INCR), founded in 2003, now includes more than 50 institutional investors responsible for over $3 trillion in assets. The dramatic growth in investment in climate solutions is being driven by a widespread recognition that climate change poses great financial risks and that the solutions present tremendous economic opportunity. Led by savvy institutional investors and venture capitalists, investors understand that the high costs of carbon emissions cannot be avoided, and that aggressive management of climate change will likely increase market returns in the coming century. Investors are employing a number of strategies to manage risk and capture opportunities around climate change, prodding their investment advisers and corporations in which they invest to improve data, research and strategic management. Major institutional investors are emphasizing the need for mandatory disclosures on carbon emissions so that risks can be assessed properly, and are asking the SEC to better define what material issues related to climate change should be included in corporate filings. Investors have expanded the number of climate-related shareholder resolutions filed, and these resolutions are receiving increasing levels of support. Most recently, in March 2007, investors responsible for $4 trillion called on U.S. lawmakers to enact strong federal legislation to curb pollution causing climate change.
All of these actions are driven by the understanding that greater disclosure and clear federal policy will help manage the risks and maximize the opportunities posed by climate change. Public policies that constrain carbon emissions and provide a stable planning environment will facilitate an economic conversion away from fossil fuels,towards greater energy efficiency and Cleantech solutions. For the millions of Americans with a stake in mutual funds and retirement plans, better management of climate change will translate into improved long-term investment returns and a more secure economic future.