Investors have enormous power to change our economy and make it more sustainable. In fact, they seem to be the one stakeholder group that the companies, who control most of the emissions value chain, really listen to. And the investment landscape is changing for the better.
Investment choices are pivotal, because a transition to a low carbon economy will require a shift in the way we build and use our infrastructure and this is driven by investment.
Some very large investors, such as Norway’s $900 bn. sovereign wealth fund, have already decided to shift their capital from companies that are part of the climate problem to those that are part of the climate solution (refer).
The reasons for doing so are partially political. But they are also linked to a higher return and lower risk expectation from sustainable investments. Given the time horizon over which energy investments are planned and amortised, an energy transition over the next 10 to 20 years, will endanger the valuation of conventional energy investments and companies already today. This is the discussion of the “carbon bubble” (refer).
In addition, there is also a large and growing divestment movement: a demand that investors stop funding activities that contribute to climate change for political/moral reasons. This has started at US universities, where students are putting pressure on their alma mater’s multi-billion endowment funds’ investment strategies. From there, it has spread to activist shareholders and even consumers (refer).
As the heavy hitters are making their investment choices, you, as a private investor, can also push the climate agenda – and create help create a power tide. You can, for instance, adjust your own portfolio and invest into stocks or bonds of sustainable companies while avoiding fossil fuel companies (following in the footsteps of many leading investment experts). Green companies, for instance, are companies that provide renewable energy products, storage and smart grid technology, electric mobility, water and general resource management, energy efficiency products or services – to name a few. You can also invest into a green fund that bundles a number of such stocks or buy green bonds. You should look at the details of your investment choice to avoid falling for widespread “green washing”.
Or you can invest into green startups. I personally think this is the most power way, because it will be new, innovative, hungry entrants into the market that are most able to shake up the entrenched climate relevant industries. In this way, you can support disruptive, revolutionary change rather than try and persuade the existing players to evolve (something many of them find very difficult for cultural reasons).
So, make your money work for the right cause! In some cases (for example in funds or stocks), going green might be the best overall investment choice, in other cases (for example in green bonds), you can give sustainable companies a push by accepting a lower return. If your help green startups, you take a venture risk with potential venture returns. Here are some more ideas.