Climate change is arguably the greatest challenge of our time. Most experts agree that, to prevent the most dangerous consequences of human interference in the climate system, it is imperative that economies across the globe make the transition to a low-carbon, and ultimately carbon-free, future.
The choices we make in our daily lives, from the food we eat to the clothes we wear, all have an impact on our ability to advance the fight against climate change. This is especially true of our investment decisions. By making a collective commitment to invest only in companies that are dedicated to reducing their carbon footprint, individual investors can help incentivize major corporations to align their business goals with the imperatives of environmental justice.
We believe that making investment decisions that are both responsible and financially profitable requires a multi-pronged, active approach. Our aim in what follows is to outline what we view as the key components of such an approach.
Critical to the fight against climate change is striking at the root of the problem: fossil fuels. The transition to a fossil fuel-free economy will take many years, but we can help accelerate this process by withdrawing our financial support from the companies most responsible for climate change. This means eliminating investments in:
- Oil, gas and coal producers
- Pipeline companies
- Natural gas distribution utilities
- Liquefied natural gas operations
This involves avoiding companies with an above-average carbon footprint, and investing in those that commit to two key measures:
- Board-level directives to incorporate climate risk into business decisions, financial analysis, investment evaluation and long-term planning.
- Conservation and energy efficiency targets, greenhouse gas emission reduction targets, or green power purchasing/production goals.
A good example is Apple Inc., which has an outstanding record on both fronts. Here are some highlights:
- Transitioned to 100% renewable energy for the electricity used in its offices, retail stores and data centres in 43 countries.
- Reduced emissions from direct operations to only 2% of the company’s carbon footprint.
- Expanding emission reduction efforts with its Supplier Clean Energy Program to transition the company’s entire supply chain to 100% renewable energy.
- Reduced its carbon footprint by 35% between the years of 2015 and 2018.
- Decreased average product energy use by 70% over a 10-year period.
- In 2016, Apple became the first U.S. tech company to issue a green bond.
Importantly, when industry leaders like Apple take such a clear and decisive position on climate risk, other companies tend to follow suit, creating a ripple effect that produces real results for the environment.
Here the focus is on companies developing the new energy paradigm that will define our post-carbon future.
Over the past several years, broad-based recognition of the need to combat climate risk has led to significant growth in alternative energy, non-fossil-fuel-based transportation technology and green infrastructure projects. For example:
- The share of renewables in global electricity generation jumped to nearly 28% in Q1 2020 from 26% in Q1 2019, with the increase coming mainly at the cost of coal and gas.1
- Global electric vehicle sales have increased steadily, reaching 1.2 million in 2018, while sales of conventional gasoline-powered passenger vehicles have declined by almost 500,000.2
- Ratings agency Moody’s forecasts a 20% annualized increase in green bond issuance, surpassing US$200 billion.3
A company that exemplifies the transition to a post-carbon world is TPI Composites, Inc., the largest U.S.-based independent manufacturer of composite wind blades for the high-growth wind energy market supporting global wind turbine manufacturers. Wind blades TPI manufactured in 2018 have the potential to eliminate 213 million tonnes of CO2 throughout their average 20-year lifespan, equivalent to emissions from over 45 million cars driven for a year or over 520 billion miles driven.
We believe that investment fund managers should use the leverage they possess as major shareholders to urge companies to continue striving for a higher standard in combating climate change. This means actively and regularly engaging with management, either one-on-one or in concert with other shareholders or stakeholders. Shareholder engagement can also be very effective in getting companies back on track in cases where they have deviated from their strong commitment to environmental responsibility.
Putting it in writing
Canadians who wish to invest responsibly have an increasingly wide range of options in a rapidly expanding marketplace, making the selection process quite difficult and even overwhelming. Compounding this challenge is the task of separating the funds that merely pay lip service to environmental responsibility from the ones that have a true commitment to combating climate change.
We believe that, in addition to the four characteristics outlined above, there is a very simple gauge of that commitment: a willingness to state in the prospectus – a binding regulatory filing – that the fund’s objective is to invest in companies that are dedicated to environmental responsibility. The IA Clarington Inhance SRI Funds, managed by Vancity Investment Management Ltd., incorporate this multi-pronged, active approach and commitment to sustainability.
 International Energy Agency, Global Energy Review 2020.
 Gaurav Sharma, “Green Bond Market Poised to Hit a Mammoth $200B Valuation in 2019,” Forbes.com, January 31, 2019.