1. The Growing Immediacy of Climate Change
Directly experiencing extreme and volatile weather events will spur increased investor concern about climate risk in their portfolios.
Climate change is becoming a more immediate concern as people everywhere are directly experiencing extreme and uncommon weather events. The hottest July on record occurred this year, and 2019 is on track to be the second hottest year since modern temperature data collection began in 1880. These trends and events, as well as those beyond our direct experience, are constantly in the headlines, interpreted in the context of climate change and set alongside a steady stream of scientific reports all pointing to the same conclusion: that human-caused climate change is warming the earth and changing its climate, and the worst effects can still be avoided by drastically reducing greenhouse gas emissions over the next two decades.
I expect investors to become increasingly concerned about the impact of climate change on their portfolios. They’ll want to reduce climate risk, and there is some academic evidence they are already doing so. A group of Swiss researchers found that funds Morningstar labeled as “low carbon” experienced higher net flows compared with otherwise similar funds.
I expect more investors will want fossil-fuel-free portfolios, while the demand to address climate-change solutions via investments will also grow. Asset managers, meanwhile, will increase their focus on the physical risks of climate change. Wellington Management, for example, has partnered with Woods Hole Research Center to map the areas of the world where climate change will make it increasingly difficult for companies across many industries to operate.
2. The Shift Toward Stakeholder Capitalism
Sustainable investors can help bring about stakeholder capitalism.
The world is shifting its thinking about the purpose of the corporation, as illustrated by the Business Roundtable’s statement on corporate purpose released in August. A significant departure from the long-standing view that the primary purpose of a corporation is to maximize shareholder value, the Business Roundtable statement said the purpose of a corporation is to serve and create value for all stakeholders.