Sustainable Investing for a Climate-Proof Economy, with Kirsten Spalding

Climate Break

Mobilizing Investors to Build a More Sustainable Global Economy

As the effects of climate change rise in prevalence, all facets of the global economy will be affected. In order to address many of the global environmental crises of today, such as biodiversity loss and extreme drought, entrepreneurs are looking into sustainable investment initiatives as a tool for change. Sustainable investing is a process that directs investment capital to companies and businesses actively working to prevent environmental destruction. Sustainable investments often follow an Environmental, Social, and Corporate Governance (ESG) framework, which seeks to promote socially conscious investments. Similar to Corporate Social Responsibility (CSR), which refers to a company’s commitment to operating ethically, ESG goes one step further in providing an assessable outcome of a company’s overall sustainability performance. Thus, ESG lays a foundation for investors in determining which corporations operate sustainably.

Current Climate of Sustainable Investment

From 2021 to 2026, institutional investment in ESG projects is expected to increase by 84%. The World Economic Forum recently published a report noting that over $200 billion is required annually in order to meet adaptation and resilience investment targets, which is three times the current funding. Such investing in adaptation and resilience could reduce exposure to climate risks and yield financial benefits for stakeholders involved. Although climate financing is slowly on the rise, there remains minimal progress in climate-vulnerable and high-emission countries.

There are various types of sustainable investing, operating through registered investment companies, alternative investment funds and community investments. The US Sustainable Investment Forum identified 645 registered investment companies with $1.2 trillion sustainable investment AUM in 2022. Not only does sustainable investment cover private equity investments, but also cash, fixed income, and alternative investments. Sustainable investments, like conventional investing, receive a return on their investments. Reports from the Morgan Stanley Institute for Sustainable Investing found no financial trade-off between sustainable investing compared to traditional investment initiatives.

Does sustainable investing provide hope for the future?

Investing in sustainable industry, infrastructure, and business has the potential to provide a more climate-proof economy for all. For private investors, effective investments in areas vulnerable to climate change could reduce disruptions in the supply chain, thereby boosting labor productivity and lowering operational costs. As such, companies will have the tools in place to be able to respond to vulnerabilities when they arise while still maintaining a profit. Additionally, ESG investing has been proven to provide downside protection during social or economic crises according to the NYU Stern Center for Sustainable Business. Such protection may be pertinent in a world more susceptible to the adverse effects of climate change. Many studies corroborate such findings; a meta-study conducted by Oxford University in 2015 revealed that 88% of companies with robust sustainability practices demonstrate better operational performance, translating into higher cash flows and positive effects on investment performance.

Greenwashing and ESG Concerns

One concern within the world of sustainable investment is largely centered around the question of whether organizations will be willing to take more or less risk to achieve an impact. Companies that prioritize sustainability may be more volatile than traditional companies, creating fear around the uncertainty of consistent returns. Further, there is often confusion on how to make a good return on investment when choosing to invest in more socially responsible companies.

The rise of sustainable investment has brought about potential concerns related to greenwashing, in which a company’s ESG credentials or potential sustainability initiatives may be over-embellished, leading to falsified information. On the other hand, many investors prioritizing sustainable investment initiatives have received a surge in backlash against their new initiatives, mainly from Republican politicians. A recent study by The Conference Board revealed that 48% of surveyed businesses have experienced backlash to their ESG policies or activities, potentially deterring companies from further pursuing such initiatives. An increase in educational awareness is vital to inform investors of the benefits of sustainable investing and ways to do so responsibly amidst criticism.

Who is our guest?

Kirsten Spalding leads the nonprofit Ceres Investor Network, which supports global investor initiatives such as Paris Aligned Asset Owners, Climate Action 100+, and Net Zero Asset Managers. Nonprofit advocacy organizations like Ceres Investor Network are at the forefront of promoting sustainable business practices through mobilizing investors to build a more sustainable economy. Kirsten holds a B.A. from Yale College in music, a J.D. from Hastings College of Law, and an M.Div. from Church Divinity School of the Pacific. For six years, she chaired the Center for Labor Research and Education, UC Berkeley and taught at the School of Law. She is an Episcopal priest, rector of the Church of the Nativity in San Rafael, CA, and an avid backpacker.

Resources

• Ceres Investor Network
• Adaptation and resilience investment: How do we get the capital it needs
• Sustainable Investing
• Sustainable Investing Basics

Further Reading

• CSR or ESG: Where Do Sustainability Frameworks Fit In?
• ESG and Financial Performance: Uncovering the Relationship by Aggregating Evidence from 1,000 Plus Studies Published between 2015 – 2020
• Global Landscape of Climate Finance 2023
• Financial Performance With Sustainable Investing
• 3 hurdles to sustainable investing — and how to overcome them

For a transcript of this episode, please visit https://climatebreak.org/sustainable-investing-for-a-climate-proof-economy-with-kirsten-spalding/