Climate investors warn we 'can't afford to take a step back'

When global warming is politicized, professional investors are unable to do their jobs properly.

That’s the key message from the world’s biggest investor coalition on climate change after several of its largest members left the group this month. Climate Action 100+ said in a statement Monday that the climate crisis poses “an ever-increasing financial risk to long-term shareholder value and the broader economy, and we can’t afford to take a step back now.”

It’s also a message echoed by several of the initiative’s founders.

Take Betty Yee, California’s former state controller, who introduced CA100+ to heads of state and financial leaders at a Paris forum in 2017. She says that when US money managers face “politically motivated attacks” for “considering the material financial risks of climate change in their decisions,” their ability to focus on long-term shareholder value is impeded.

“Climate risk is financial risk, period,” says Yee, a Democrat who sat on the boards of both the California Public Employees’ Retirement System and the California State Teachers’ Retirement System. “Investor engagement to encourage corporate evaluation of climate risk, including greenhouse gas emissions reductions consistent with the Paris Agreement, undergirds a responsible, effective investment approach.” 

US fund giants JPMorgan Asset Management, State Street Global Advisors and Pacific Investment Management Co. withdrew from CA100+ this month, and BlackRock Inc. shifted its membership to its international arm, meaning the New York-based parent will no longer be affiliated with the climate group.

Each asset manager gave its own, delicately phrased account for its actions, but the subtext was plain: The Republican and fossil-fuel industry war on environmental, social and governance investing strategy makes taking climate action harder for investors. And that tension was only set to grow as CA100+ enters a new phase in which signatories are expected to take a more active approach.

Still, anti-ESG campaign or not, investors are duty bound to consider material obstacles, including climate change, says Mindy Lubber, chief executive of US environmental group Ceres who’s been involved in CA100+ since the beginning. 

While investors aren’t scientists or climate change advocates “shutting down city hall,” they do have an obligation to consider the challenges to their portfolios from a warming planet, she says.

“This is a financial risk and it needs to be looked at,” Lubber warns. “It’s unfortunate that it’s being wrapped up in a political debate. My hope is that enough parties stand up and say they will act on risk, not because of politics, not even because of their opinion on climate change, but because of their fiduciary duty to look at the numbers and act on them.”

Lubber received a subpoena last year from House Judiciary Chair Jim Jordan, a far-right Republican from Ohio, seeking documents tied to what he alleged is the possibility of “anticompetitive collusion in the investment industry” related to ESG. CA100+ has also been targeted by the Republican Party’s anti-ESG campaign.

At the state level, there have been more than 160 proposals largely attributable to Republican lawmakers that seek to ban investors and companies from considering ESG factors when making financial decisions.

It may be no surprise then that Lubber says the GOP campaign has slowed down investor action on climate change.

Still, even with the attacks, CA100+’s founders insist their mission has prospered. “There is clear evidence of demonstrable progress that we all can be proud of,” says Yee.

CA100+ points to the number of investors backing the campaign (more than 700, which is up from 225 when the group started); the rising number of companies the group tracks that have made net-zero commitments; and the increasing number of companies that have implemented board oversight of climate change risks and opportunities.

Yet even with better awareness of climate risks, emissions continue to rise. By CA100+’s own assessment, the major global polluters it covers—companies including BP Plc, Exxon Mobil Corp. and Glencore Plc—aren’t moving fast enough to align with a future in which global warming is limited to 1.5C. In some cases, they are starting to go back on the little progress they’ve made. 

Stephanie Maier, global chief sustainability officer at GAM Investments and a founding member of CA100+’s steering committee, says the group has helped shape the narrative around the role investors play by engaging with companies. Still, she concedes there’s a limit to what it can achieve, even if unfettered by political attacks.

“It is recognized that investors alone cannot move companies to decarbonize the global economy,” she says. But Yee adds that every action matters, as climate-related challenges are only set to increase.

“This risk is growing, and only the rapid or orderly decarbonization of the global economy can mitigate it and provide the greatest economic benefit,” she says.

SUSTAINABLE FINANCE IN BRIEF

In a year chock full of elections, right-wing politicians all over the world are vowing to roll back green policies while downplaying the climate crisis, casting even more doubt on whether countries can achieve more momentum in the transition away from fossil fuels. In the US, long-time climate denier Donald Trump has minimized the effects of global warming, attacked electric vehicles and pledged to seek the repeal of President Joe Biden’s signature climate law. Other Republicans have successfully driven corporations away from sustainability with their multiyear campaign against ESG.  Meanwhile in Europe, polls show right-wing parties that oppose strong climate action are likely to increase their representation after the European Union’s parliamentary elections in June (while the climate-minded Greens are expected to lose seats). That raises the prospect of the US and the EU, two of the world’s top three climate polluters, retreating on environmental ambition following the world’s hottest year on record.