2020 Impact Investing Trends: CEOs Focus on Climate Action
Written by Brady Press
We are barely into 2020 and a lot has already happened in the world of impact investing. Over a series of articles, we are identifying some of the key trends we see for the coming year.
In this article, we highlight the recent flurry of corporate and institutional investor attention on climate change. How will this shifting focus influence the larger sustainable investing world and how will impact investing — investments in companies that are intentional about pursuing and measuring social and environmental impact in their business models — specifically be affected?
Blackrock Sets the Stage
This January, Larry Fink, CEO of the world’s largest asset manager, Blackrock, released two letters — one to CEOs and another to clients — that once again posed strong calls on the private sector to align purpose and profit, as well as examples of how Blackrock is doing so. Fink’s letters are historically influential on the private sector, but what made this year’s letters different from previous year’s? Their focus on climate change.
Although we recommend reading both letters in full, this Quartz article provides a concise summary and comparison of the two letters and their key takeaways. Among them is the greater picture of what Fink’s claims mean for the impact investing space, which intentionally pursues social and environmental impact alongside financial returns:
“The pairing of the two letters could easily represent a tipping point for sustainable investing, a growing but still-niche strategy that puts environmental, social, and governance (ESG) concerns on par with the quest for financial returns.”
Fink admitted that this letter was ‘the hardest to write yet,’ but seemed hopeful about potential problem-solving results, if players act now, according to an ImpactAlpha article which touches on the potential power of Fink’s proclamations (paywall):
“Fink’s letter raises the stakes for other financial institutions as well. ‘Today’s news could mark the start of a real turning point on Wall Street and lead other major players, including Vanguard, State Street and Fidelity, to follow suit,’ said Environment Defense Fund’s Fred Krupp.”
Another statement, attributed to Bill McKibben — activist, writer and leader of the environmental advocacy nonprofit 350.org — underscores the precedent Fink’s letter set for Blackrock’s competitors:
“I think Vanguard and State Street have to match [BlackRock’s actions] or better, and soon. It seems like ‘worse for the planet than BlackRock’ is not a great slogan.”
In response, State Street released its own letter in January announcing its shift toward sustainability.
Environmental Sustainability Takes Center Stage at the World Economic Forum Meeting in Davos
Like in Fink’s letter, climate change was a primary issue discussed at 2020’s World Economic Forum, and for good reason. For the first time ever, the World Economic Forum’s Global Risk Report showed that environmental threats made up all five of the top global risks outlined. This resulted in a strong theme of sustainability throughout the meeting, at which leaders addressed the severity of the environment’s current state, drawing on recent natural disasters such as hurricanes and wildfires in the U.S. as well as the bush fires overcoming Australia.
According to the Financial Times (paywall) recap of the first day at Davos, “the costs of climate change are only continuing to rise” and, as estimated by the World Economic Forum, “in the US alone, climate-related weather events could result in damage equal to as much as 10% of GDP by the end of the century.”
In its brief of Davos, Blackrock acknowledges the world’s growing interest in sustainability and the comments on what this means for investing:
“We believe this has significant consequences for the expected returns and relative pricing of assets across the investment universe. The wide-ranging implications of such a structural shift are currently underappreciated by markets, in our view. We believe structural demand for “sustainable” assets could cause them to outperform in this transition. The out-performance of sustainable assets may eventually dissipate. Yet we see a long runway for this transition to take place, given the relatively low penetration of sustainable investing strategies to date.
Against this backdrop, BlackRock is making an increased commitment to integrate sustainability across its technology platform, risk management and investment strategies.”
Clearly, Blackrock sees understanding the implications of climate change as a competitive advantage and is prioritizing sustainability moving forward.
Jeff Bezos Commits $10 Billion to Fight Climate Change
Attention to climate change is increasing across industries as well. Last week, Jeff Bezos, founder and CEO of Amazon, announced the creation of the Bezos Earth Fund, which will start giving out grants this summer. The fund marks one of the largest charitable gifts ever given; however, many, including Amazon employees, are skeptical of its impact and are critical of Bezos for not doing more to combat climate change.
Specifically, the activist group Amazon Employees for Climate Justice has pushed Amazon to stop creating cloud computing services for the oil and gas industry:
“They argued that making fossil fuel exploration and extraction less expensive would make it harder for the global economy to transition toward using more renewable energy.
Amazon has resisted the pressure, saying in a policy statement that ‘the energy industry should have access to the same technologies as other industries’…
The workers, through their group Amazon Employees for Climate Justice, said on Monday that although they applauded Mr. Bezos’ philanthropy, ‘one hand cannot give what the other is taking away.’
They added, ‘The people of Earth need to know: When is Amazon going to stop helping oil and gas companies ravage Earth with still more oil and gas wells? When is Amazon going to stop funding climate-denying think tanks like the Competitive Enterprise Institute and climate-delaying policy?’”
Looking Onward
As 2020 continues, we are looking to see if more financial institutions follow Blackrock’s lead and embrace their potential role in combating climate change. We are hopeful that, with this new climate focus, impact investing will gain popularity as a means to create real change in the environment and causes beyond.
As evidenced by Amazon’s commitment, a climate focus transcends industries within the private sector and is not reserved for asset managers. We expect more and more companies to address their environmental footprint in the next year. But as we see with still unsatisfied Amazon employees, the pressure is on companies to do so authentically.
Brady Press is an Associate Director at Changing Our World, where she specializes in building strategic corporate citizenship programs. She is a consultant to SDGCounting and StartingUpGood, and is currently researching how COVID-19 is affecting the Sustainable Development Goals.
