There has been no bigger indicator to show that sensitivity to climate impact is gaining momentum than investor action.
Investors have not been silent on climate change. Indeed, the trillions of dollars represented by the investors behind CDP have motivated thousands of companies to disclose their carbon emissions and climate action plans for more than a decade.
In the past several years, however, we've seen increasing subtle—and not so subtle—indicators that investors are evaluating climate risk in new ways. Here’s a recap of some of these actions:
- BlackRock - the world's largest asset manager - confirmed in its 2020 and 2021 CEO letters that mainstream investors increasingly believe that ESG metrics have a direct impact on risk and return. The firm's CEO, Larry Fink, asserts without question that companies that embrace sustainability and the net zero transition will drive better returns and attract investor interest.
- At the COP25 gathering in Madrid, 631 investors who collectively manage over $37 trillion in assets called on global governments to step up action to address climate change and achieve the goals of the Paris Agreement by signing the Global Investor Statement to Government on Climate Change.
- The Climate Action 100+ 2020 Progress report details the carbon reduction progress of 160 companies, segmented by largest emitters and representing nearly 80 percent of industrial emissions. Collectively, the Climate Action 100+ now has more than 600 investor signatories and its actions are driving significant change in utilities, oil & gas, and transport—including pushing companies to transparently disclose how climate change will impact their business.
- In advance of the 2019 G20 meeting in June, a group of 477 investors—representing nearly half the world’s investments—produced a letter addressed to the “governments of the world,” demanding more aggressive action on climate change. The letter specifically called out that the ambition gap between what is required on carbon reduction and what governments have committed to is “of great concern to investors.”
- Gold standard credit rating agency Moody’s purchased Twenty Four Seven, Inc. The firm has been working to more adequately price climate risk, based not only on the reputational or ethical risks that companies are exposed to, but on the physical risks to business as well. The purchase indicates that Moody’s may be working to shift analyst and investor perspective toward the very real and disruptive threats that climate change poses for the business community.
Do these actions indicate that we have reached a tipping point in corporate climate action? Are increasing rates of voluntary action a foregone conclusion? And how does this impact business, particularly companies that may be falling behind?
Although the answers to these questions may not be entirely clear, the fact that they are being asked is a sign that major changes are inevitable. For most companies, increasing investor interest in climate change is seen, but not yet fully felt. During this transitional period, there are concrete steps companies can take today to help ensure they are ready to respond to investor demand, now or in the future.
- Commit to a publicly announced, science-based, carbon reduction goal. Investor engagement, and continued demand for action on carbon and transparency in disclosure from stakeholders (ranging from employees to customers), means that all companies should be considering a carbon reduction target. Research demonstrates that companies that set public goals move faster and make more progress. In today’s environment, where efficiency, sustainability and energy procurement work holistically together, reduction goals can drive cost savings and innovation. Learn how to get started here.
- Evaluate your business’ risk and resilience readiness. Events like the recent Public Safety Power Shutoff (PSPS) blackouts in California mandated by PG&E and the record-breaking blackout in Britain this past summer have brought to light the stark reality of aging infrastructure, a failing grid model and climate change impact for thousands of residents and business owners. It’s an opportune moment for all companies to consider whether they are ready to respond to the physical risks their energy supply faces. And, unfortunately, energy preparedness requires the kind of long-term thinking most companies aren’t used to. Get a jump start with our resources.
- Get the boardroom on board. Research from INSEAD indicates that corporate boards are increasingly recognizing the importance of sustainability, but that many don’t know where to start or how to move faster. With increased action and awareness from investors, the long-term health of businesses will depend on boards that understand the challenges and opportunities ahead. An important first step is for the board to reexamine the purpose of the company and how sustainability can be embedded as a core value. This becomes ever-easier in an environment where doing the right thing for the planet and its people is the right thing to do for shareholder primacy as well.
As we navigate sustainable business in this new decade, companies can be assured that the pressure to act in a more sustainable way is certain to increase. By taking steps today to prepare for future investor action, companies can find cost savings, drive resilience and be seen more favorably by employees and customers alike.
Is your company prepared? Take our energy & sustainability risk assessment to find out your company’s risk score and learn about the 5 types of risk that shape your score—and your future.