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April 27, 2009

Opportunities to Address Climate Change Available in all Asset Classes
    by Robert Kropp

The Institute for Responsible Investment publishes a handbook to help sustainable investors address risks and opportunities associated with climate change. -- With the recent Environmental Protection Agency (EPA) finding that "in both magnitude and probability, climate change is an enormous problem," the US finally seems prepared to address greenhouse gas (GHG) emissions as a regulatory issue, and join the global transformation to a low-carbon economy.

Please support
our sponsorsAsserting that such a transformation creates "far-reaching implications for investors as they make decisions about their investment strategies," the Institute for Responsible Investment (IRI), a project of the Boston College Center for Corporate Citizenship, has published a handbook to help sustainable investors "pursue climate-friendly investments, mitigate exposure to climate risk, and engage stakeholders to improve climate-related performance across the range of investment opportunities."

The 60-page handbook, entitled Handbook on Climate-Related Investing across Asset Classes, is designed to help facilitate efforts by investors to assess the impacts of climate change on their portfolios. The IRI argues that integrating climate analysis into investment decisions can lead to the creation of long-term wealth for both investors and society.

The handbook provides examples of investments across a number of asset classes. Banks and credit unions in the US can help create sustainable environments by incorporating green building criteria into their lending practices, and by supporting entrepreneurs whose business activities help mitigate carbon emissions. Banks also provide loans to large and influential corporations, and can require attention to climate risks and opportunities as a basis for those loans. Investors can use their banking relationships to encourage those institutions to adopt policies and procedures that address climate change.

The fixed-income asset class consists of bonds and other fixed return debt instruments, most of which are issued by the government. Many bond issues play a crucial role for sustainable investors by supporting public and private alternative energy investment, and green infrastructure development. By insisting upon climate risk analysis in addition to traditional financial concerns, investors can identify fixed-income products that take advantage of the investment opportunities brought on by climate change.

Public equities issued by corporations have received a great deal of attention from sustainable investors. The attention has provided investors with opportunities to use such public information as environmental, social, and governance (ESG) reporting by corporations in their investment decisions. Access to such data has also been used by investors to engage as shareowners in efforts to help corporations develop effective climate-associated strategies. Active ownership and involvement with regulatory bodies can help sustainable investors maximize long-term returns by encouraging effective corporate preparations for the low-carbon economy.

Other asset classes addressed in the IRI handbook include private equity, real estate investment, private infrastructure investment, commodities markets, and hedge funds.

The IRI asserts that investors alone cannot address the urgent demands of climate change. According to the handbook, "Governments, civil society and consumers must reframe markets so that carbon is appropriately priced, and corporations are not able to externalize costs onto society without consequence." Nevertheless, the IRI asserts, every asset class analyzed in the handbook offers sustainable investors the ability to improve long-term financial returns while realizing a mission of achieve defined environmental goals.

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