- The risks of climate change are already impacting investors, with increasingly frequent climate disasters like wildfires, drought, flooding and heatwaves threatening business operations and properties worldwide.
- Many investors are now choosing to funnel their money into investments that address climate change risk.
- Asset managers are rushing to meet the demand, but sustainable investing isn’t as simple as it sounds.
- “We’re not saying to not to invest in an oil or gas company. But if you are, you want to invest in one that has a historically strong track record in dealing with environmental issues,” Nuveen managing director Steve Liberatore said.
The risks of climate change are already impacting investors, with increasingly frequent climate disasters like wildfires, drought, flooding and heatwaves threatening business operations and properties across the world.
Many investors are now choosing to funnel their money into investments that address climate change risk, and asset managers are rushing to meet the demand.
Investors last year put $20.6 billion into funds focused on environmental, social and governance — or ESG — issues, according to Morningstar data, almost quadruple the record the year prior. In the U.S., money managed with sustainable investing strategies now comprises over a quarter of total investment assets under management, according to the Global Sustainable Investment Alliance.
Bank of America also estimates that in the next two decades, there will be over $20 trillion of asset growth in ESG funds, in which climate change investment is a major component.
The focus on climate risk is driven largely by a younger generation of investors who want their money invested with sustainability in mind. They also want to avoid companies with bad track records on ESG issues that could face future fines.
Despite the rise in popularity, sustainable investing isn’t as simple as it sounds. Critics argue that it’s basically impossible to define funds that have an ESG mandate.
SEC Commissioner Hester Peirce, for instance, argues that while the intentions of the investing strategy are sound, slapping an ESG or sustainable label on a fund is subjective and doesn’t mean it’s necessarily in line with an investor’s priorities.
“It seems to be like 2020 is shaping up to be the year of resource misallocation in the name of — but not actually — saving the climate,” Peirce said in a phone interview with CNBC. “If we really want to save the climate, we would allow capital to flow to technologies to solve those problems. That doesn’t involve putting artificial constraints on where capital flows, which some of this trend will do.”