With climate change awareness greater than ever, now seems to be a fitting time to consider how this should play into an investor's portfolio.
David Attenborough, speaking at the Katowice climate conference this week, referred to climate change as "our greatest threat for thousands of years" and warned of the "collapse of our civilisations and much of the natural world". New research also indicates global CO2 emissions have increased by a shocking 2.7% this year.
Despite this, investor responses to climate risk continues to vary - even among those with a sound understanding of the issues. Both ESG integration and negative exclusion strategies have made significant progress in recent years, according to last month's Eurosif report, and alternative options are becoming ever more attractive. Regulatory pressure is set to force trustees and others to recognise (and report on their approach to) climate risk, so the direction of travel is clear.
Most investors are aware that, if we are to achieve ‘net zero' carbon and other greenhouse gas emissions, we need to upscale cleaner energy providers and recognise that oil companies cannot continue in their current forms.
Company size and dividends may help keep investors loyal - as indeed might oil companies' protestations that they are ‘going green'.
As with almost any issue that we might care to label ‘ESG, sustainable or ethical', views vary. Some investors place significant emphasis on being agents of positive change and responsible ‘stewards' - a concept that has parallels with the impact investment movement, but on a larger scale. One core focus of their work is to encourage big oil to transition towards emitting less carbon.
A report from Shell earlier this month indicates how valuable this can be. It is unequivocal in its references to the Climate Action 100+ institutional investor coalition, which manages assets of $32trn and includes many familiar names. This group has successfully encouraged Shell to set shorter-term net carbon reduction targets of between three and five years, which will be linked to executive remuneration.
Why should investors care?
This summer's heatwave, fires and, in some areas, loss of life point to why this matters. Indeed, if this is what our current 1C above pre-industrial temperatures looks like, the target of 1.5 - 2C as agreed in Paris in 2015 should be taken very seriously. The fact we are on track for 3-4C viewed with terror as our systems simply would not cope.
In the light of this, the recent Intergovernmental Panel on Climate Change (IPCC's) announcement that we have 12 years to take action should be welcomed. It gives us a sufficient-enough time frame to be feasible, yet is sufficiently short to catalyse action.
Doing nothing was always going to be easier than making changes in the short term, but the short term has now passed. Significant amounts of money will be made and lost over the next few years. Fund managers with sound ESG, sustainability themed or ethical fund options and strategies understand this all too well and, although their methods vary, they are collectively leading the way. The decision therefore remains for other investors to make: Fight or flight? Engage or divest? Or, better still, combine the two?
Julia Dreblow is the director of SRI Services and founder of Fund EcoMarket.co.uk