Investors are increasingly making the business case for taking action on climate change. The collective choice problem inherent in planet-wide environmental issues, amplified by the distorting impact of often-undisclosed political donations from corporate executives and billionaires (see our work on the fake dark money front group Main Street Investors Coalition) has left investors, particularly long-term, passive investors like indexed pension funds, as best positioned to push for change.
The 5050 Climate Project founded by the late Rich Ferlauto is now a part of Majority Action, the group that has been very effective in pursuing shareholder initiatives on guns, and it has been renamed The Climate Majority Project. Their report, dedicated to Ferlauto, was produced with the support of Nathan Cummings Foundation, Partners for a New Economy, the Arca Foundation, and the Silberstein Foundation. It says:
In recent years, institutional investors worldwide have won substantial advances in corporate disclosures and engagement on climate change. Companies across a range of industries have set emissions reductions targets, undertaken scenario planning, and made meaningful disclosures of climate-related risks. Moreover, despite the Trump Administration’s announced plan to withdraw from the 2015 Paris Agreement, investors joined with mayors, governors, and business leaders across the United States in the “We Are Still In” coalition, re-doubling their commitment to meeting the agreement’s goals of keeping warming to well below 2°C above pre-industrial levels, and pursuing efforts to limit warming to 1.5°C.
What is especially important in this report is the way it frames climate change as both risk and opportunity for investors. For example, utilities:
Decarbonization of the economy and electrification of other sectors create unprecedented opportunities and challenges for utilities and their investors. Utilities are facing stagnant demand, with increases in usage from economic growth offset by increased efficiencies and development of distributed generation.11 Economy-wide decarbonization has the potential to drive a dramatic expansion of electricity usage as transportation, heating, and industrial activities are electrified.
The risks the report covers include financial, regulatory, competitive, and physical. It concludes with a plan of action for a shift to net zero carbon emissions by 2050, including transparency on political and lobbying expenditures and meaningful transitional milestone goals for incentive compensation.
And there is an action plan for investors as well, titled “The Case for Accountability.” Long-term investors are ideally positioned to address this issue because they aren’t going anywhere.