Impact Investing for Climate Change
Towards the end of the twentieth century, a lot of responsible investing was relegated to simply abstaining from investing. In other words, divesting and boycotting in order to send the message that we would not support companies that were doing irreparable harm to the planet. And while divesting from the companies that are most contributing to our problems is helpful, there are limits to the solutions that can provide. With impact investing, we’re able to do more than just not support problems, we can fund solutions. And with carbon at over 400 parts per million in the atmosphere for the first time in millions of years, and still rising precipitously, we need solutions as we race to achieve the goals set out by the Paris Accords to not let overall global temperatures increase by more than 2° Celsius.
How We Will Fund the End to Climate Change
Impact investing operates through several different investment principles:
Asset Allocation: Choose to invest in less carbon intensive sectors
Stock Selection: Choose to invest in the lower carbon footprint within sectors
Invest in Innovation and Ambition: Choose companies that have set ambitious goals in reducing carbon and are engaging in rigorous and innovative methods to lower their footprint, even if they are currently carbon-inefficient
Shareholder Engagement: Encourage long-terms gains over time with carbon-inefficient companies
Abstaining: Choosing not to support what isn't working is still an important tool and impact investors will choose not to invest unless there are positive impacts that can be definitively quantified. The impact investor takes the impact on the world as seriously as they do on finances.
On a Large Scale
Whatever the ultimate solution to climate change turns out to be, one thing is certain, it will take a large amount of capital. And so it is necessary that the world of finance take notice. It's been five years since Sir Ronald Cohen declared that “social impact investing is the new venture capital,” and five years later the numbers back him up, with a projection of up to $500 billion invested in assets in the impact investing industry; that’s astounding growth from $5 billion in 2007. From realized success stories to the Climate Investing Track now offered by GIIN that makes impactful investing to solve the problem of climate change more accessible, it's clear that this is a going to be a major part of the story of future finance. And by choosing to view all of the financial decisions we make in light of not just market trends but those trends that reflect the health of our planet and society, we are taking better control of both our financial and global future.
How will you choose to be part of the mission to fund a better and cleaner world? We invite you to join the discussion.