Green Investing, Like the Earth, Is So Hot Right Now
Sustainable finance has finally hit the big time. Is it time to risk your wallet to save the planet?
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My 2020 New Year’s resolution was to get rich. So far that has mainly consisted of selling off used outdoor gear. (Anyone want a vintage Wave Sport EZ kayak? I’ll give ya a great deal.) But part of my bigger-picture goal is to invest and not just spend my money on skis.
In the morass of trying to understand markets, a big question emerged: Could I invest in funds that align with my values—namely, not contributing to the destruction of the planet on the back of my own selfish greed? And it turns out that I’m not the only one trying to decipher sustainable investing. Big-money managers are doing the same.
BlackRock, the world’s largest asset manager, made waves in January when it announced that, going forward, all the firm’s investing choices would be backed by sustainability. It’d invest in environmental, social, and governance (ESG) funds, start to divest from coal, and let clients screen investments for carbon-free choices. “Climate risk is investment risk,” CEO Larry Fink said in a letter about the move.
BlackRock’s combined funds of $7.4 trillion are larger than the economy of Japan. If the company were a country, it would be the world’s third-largest economy, and Fink’s declaration is by far the biggest push in a groundswell of sustainable investing. As climate change threatens the status quo of everything from real estate to grocery shopping, it’s becoming increasingly clear that not destroying the environment makes long-term financial sense.
The European Investment Bank has also said that it will no longer fund oil, gas, and coal projects after 2021. And the Church of England’s Pensions Board, which manages almost $4 billion, has created a new index fund of companies that are curbing carbon emissions in accord with the Paris Agreement, investing nearly $800 million. Corporations are falling in line, too. Microsoft announced it would become 100 percent carbon negative by 2030 and invest $1 billion in a climate-innovation fund. Taken together, the declarations are an important signal about the financial importance of green investing. They wouldn’t be doing it if it didn’t pencil out.
Fink says the move to sustainability at BlackRock came internally, from workers and consumers who were worried about ethics, as well as from the market, where climate change is making traditional energy investments less valuable. The pivot is for BlackRock’s bottom line as much as it is for the firm’s beliefs. It’s trying to be on the right side of history while making money. That runs counter to an old, now false narrative suggesting that green investing doesn’t pay. In fact, the opposite is proving to be true.
A report from the financial-services firm Morningstar found that corporations are now facing financial risk from climate change, and that there were nearly 40 climate events—including floods and fires—that caused billion-dollar losses in 2018 alone. Meanwhile, the Institute for Energy Economics and Financial Analysis, a Cleveland-based think tank, found that BlackRock itself lost an estimated $90 billion over the last decade from its investments in fossil-fuel companies like Chevron, ExxonMobil, and Shell. The shift isn’t a silver bullet, and critics have come at both BlackRock and the Church of England for not going far enough—the latter still has holdings in Europe’s largest oil company, Royal Dutch Shell, for instance, and the number of environmentally responsible funds at BlackRock is still far outweighed by traditional ones. “Despite recent rapid advances in technology, the science does not yet exist to replace many of today’s essential uses of hydrocarbons,” Fink hedged in his letter.
BlackRock’s recent decision wasn’t enough for protestors from Extinction Rebellion and Youth for Climate France, who descended on the firm’s Paris offices on February 10, scrawling graffiti and spraying a red anarchist symbol on the floor. But change comes from a lot of places: policy, practice, and public interest. And money often moves the needle faster than anything else. “Awareness is rapidly changing,” Fink said, “and I believe we are on the edge of a fundamental reshaping of finance.”
Investing is calculating future risk. And in the face of global climate disruption, investments in sustainable funds in the U.S. grew fourfold in 2019, thanks to both a desire from consumers to support institutions that align with their values (hey, that’s us!) and the returns investors are seeing on those funds. So what we’re seeing here is a pivot away from shortsighted views of sustainability and an acknowledgement that it’s not financially prudent to destroy the things we depend on if we want to be wealthy in the long term.
Realistically, I’m probably not going to get rich this year. But it’s comforting to know that I can put my money where my mouth is, and that my financial investments can mirror my emotional ones. The environmental ethic that pulls me to be in the mountains can also guide my bank account.