The Battle for the Planet: How Climate Change Investments Can – And Must – Save the World
After the latest report from the Intergovernmental Panel on Climate Change (IPCC) was released last August, the press coverage sounded like something straight out of a disaster movie. The BBC described the report as “code red for humanity,” while the Financial Times warned that “time is running short to avert ‘hell on earth.’”
The findings, stark as they are, carry considerable weight. The IPCC, which currently has 195 member countries, is the United Nations body tasked with assessing the science related to climate change. It was created in 1988 by the World Meteorological Organization and the United Nations Environment Programme with the objective of providing governments at all levels with scientific information they can use to develop climate policies. IPCC reports are also a key input into international climate change negotiations.
The Consequences of Current Climate Trendlines
The latest report highlights the ongoing and impending impacts of the grim trendlines of climate change. Since data first started to be recorded around 1850, the change in average global temperature fluctuated minimally until the 1970s – but since then, global surface temperatures have risen faster than in any other 50-year period over the past 2,000 years. As Professor Ed Hawkins at the University of Reading, U.K., one of the report’s authors, said, “It is a statement of fact, we cannot be any more certain; it is unequivocal and indisputable that humans are warming the planet.” It seems similarly indisputable that the consequences of that warming climate will present humanity with one of the gravest challenges it has ever faced.
If average global temperatures reach the point where human life on this planet becomes unsustainable in many regions, the impacts on global health, development and political and economic stability may be incalculable. But the financial impact has already begun. Put into economic terms, climate change increases uncertainty and risks, which leads to higher costs. To take just one example, the number of extreme weather events like flooding, wildfires and ice storms is on the rise – as seen in the recent heat dome in the Pacific Northwest of the United States, which caused such extreme temperatures that some roads even buckled under the heat.
This kind of damage to property and infrastructure is leading to rising insurance premiums. RATESDOTCA, a Canadian insurance rate comparison website, analyzed home insurance prices based on its policy transfers from 2011 through early 2021. They found that the average cost of home insurance had grown at more than three times the rate of inflation over that period, as personal property damage claims grew by 44% nationwide over the course of the decade. A similar dynamic is playing out in countries around the world – including emerging economies, where many communities lack the protection of insurance and must navigate these growing risks on their own.
However, despite these bleak scenarios, there is hope for a better future. Humanity can change our behaviours and actions to lessen the effects and mitigate the risks associated with climate change. And as investors – whether as individuals or institutions – we can lead this change. Addressing this generational crisis will require investors at all levels to identify trends, risks, threats and opportunities, and to use that information to direct capital towards companies and initiatives that enable people to survive, thrive and be happy, while minimizing our impact on the environment.
Assessing Climate Change Solutions From an Investor Standpoint
Project Drawdown, a nonprofit that researches, reviews and assesses climate solutions, analyzes and ranks these solutions by their impact on CO2-equivalent emissions (a common denominator the organization uses to describe the impact of all greenhouse gas emissions). Their table of solutions can serve as a useful guide for leveraging investment capital to contribute significantly to a reduction in carbon emissions. Some solutions require large-scale institutional or government investment. Other areas are nascent and developing, requiring philanthropic or government funding to establish markets or scale before ultimately becoming targets for private investment. And in some areas, opportunities for direct investment or private funding already exist, and are becoming more accessible to individual investors. Based on Project Drawdown’s analysis, a sample of some of the areas and themes that investors could focus on include:
- Transitioning to wind, solar and other renewable energy: This is an area where large asset allocators can make a significant impact, given the volume of capital needed to make this transition. For example, CPP Investments, Canada’s largest pension plan, had made approximately C$9 billion of equity commitments to renewable energy globally as of September 30, 2020 – and this year it committed a further €245 million to European renewable energy. Although it is still a holder of conventional energy assets, its investments in onshore and offshore wind, solar, hydro and battery storage are growing.
- Reducing food waste: Wasted and surplus food means wasted labour, energy, water and land. What’s more, organic material that ends up in landfills generates methane, a greenhouse gas. To help address this issue, the investment firm I founded, Pique Ventures, invested in FoodMesh, a technology company that helps organizations reduce their food waste – including by powering food recovery programs for governments.
- Health and education: Though they may not be the sectors most associated with climate change reduction, health and education initiatives and businesses have meaningful climate impact. For example, advancing gender equality globally by supporting women’s rights to voluntary, high-quality family planning and education improves health and well-being, curbs population growth, and reduces greenhouse gas emissions. As Project Drawdown explains, “Women with more years of education have fewer and healthier children, and actively manage their reproductive health.” And improvements in education enable women, particularly in emerging economies where they are often the first to experience climate impacts, to be active participants in the economy and make decisions that can reduce negative climate impacts. Gender equality initiatives also attract significant philanthropic dollars: For instance, Co-impact’s Gender Fund recently announced a US $1 billion fund backed by MacKenzie Scott and Dan Jewett, Melinda French Gates and the Bill & Melinda Gates Foundation. It’s just one of many emerging opportunities in gender-lens investing, each of which can have positive climate impacts.
- Plant-rich diets: Plant-rich diets reduce greenhouse gas emissions, and consumers themselves can have an impact by filling three-quarters of their plates with vegetables and grains, shifting to a vegetarian diet, or adopting plant-based protein and meat alternatives. Investors also have a key role to play: For example, as Beyond Meat and Impossible Foods have gained in popularity among consumers, they’ve also piqued the curiosity of investors. Beyond Meat went public in 2019 and Reuters reported in April that Impossible Foods is considering an initial public offering. In the private markets, Dao Foods established a venture fund last year to invest in 30 startups in China focused on plant-based food.
- Forest restoration: The restoration of tropical forests improves biodiversity and revitalizes their function as significant carbon sinks, since forests absorb more carbon from the atmosphere than they release. ISF Advisors, an advisory group focused on transforming rural economies, surveyed the investment landscape in 2020 and found 26 funds investing in tropical forest areas that benefit smallholder farmers and forest-dependent communities. Similar efforts are mobilizing capital around the world: For instance, Canada’s Forest Trust launched in 2021 with the goal of planting millions of acres of “Smart Forests” on deforested land across Canada by 2040, in order to sequester more carbon.
- Refrigerant management: Refrigerators and air conditioners keep spaces cool by using chemical refrigerants, typically hydrofluorocarbons (HFCs), to absorb and remove heat. HFCs are greenhouse gases that have 1,000 to 9,000 times greater capacity to warm the atmosphere than carbon dioxide. Investments in the safe management, recovery or purification of refrigerants could prevent leaks or improper disposal of HFCs and reduce or avoid their impact on global warming.
- Clean cookstoves: Around the world, 4 billion people cook over open fires or on basic stoves, burning organic materials such as wood, charcoal and coal as fuel. These traditional cooking practices produce 2 – 5% of annual greenhouse gas emissions worldwide, due to deforestation resulting from the unsustainable harvesting of fuel, and to greenhouse gas emissions from the open fires. Poor ventilation within homes also leads to harmful smoke, disproportionately impacting women and girls, and has led to 4.3 million premature deaths. The Clean Cooking Alliance has directed over $25 million in support for companies in the clean cooking industry over the past 10 years – just one example of the growing investment opportunities available in this sector.
There is no shortage of human ingenuity or entrepreneurialism. But if our planet succumbs to the gravest climate change scenarios, there will be a global shortage of resources that will dwarf any previous crises our species has faced. To avoid losing the very planet upon which our existence depends, we’ll need to mobilize the innovation, determination and business acumen that have driven human development. Investors can play a crucial role in this process, applying their skills and expertise in evaluating risk, identifying opportunities, and committing capital to businesses, projects and initiatives that limit human impacts on climate change. This is a battle that we must win: Only by working together to leverage the full extent of public and private resources can we build a planet where future generations can thrive.
Photo courtesy of Jonathan Cutrer.