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
Asserting 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.
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.
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.
SRI World Group, Inc. All Rights Reserved.