Investing to fight climate change
27 Sep 2021Markets traded around three themes in August: inflation, timing of central bank stimulus reduction and more moderate growth3 min
21 Sep 20213 min
The voices calling for action on climate change are growing louder.
At a recent speech in Paris, Bank of England (BoE) governor Mark Carney stressed that climate change could have serious consequences for investors. He pointed to the threat of a ‘Minsky moment’ – a sudden collapse of asset prices after a long period of growth, named after economist Hyman Minsky – caused by climate-based factors like carbon taxes and the effect of extreme weather events.
The stark warning comes after teenage environmental activist Greta Thunberg met UK political leaders in April, while global network Extinction Rebellion held protests in London. Meanwhile, the acclaimed creator of nature documentaries Sir David Attenborough spoke of seeing conditions deteriorating “far faster” than he imagined while making BBC programme Climate Change: The Facts.
The BoE announced earlier in the year that it would start disclosing how financial risks associated with climate change are managed across its operations. Mr Carney said, “We need to lead by example and, by providing such disclosures, we will be playing our part to secure the transition to a sustainable financial system.”
So if climate change is such a key concern, what can you do about it?
The power of philanthropy
Philanthropy plays a critical role in supporting many organisations which have for decades been tackling climate change, such as Friends of the Earth, Greenpeace and the Rainforest Alliance.
And it appears there is significant scope for more to be done in this area.
The most recent edition of the Coutts Million Pound Donors Report, published in 2017, analysed key trends in major philanthropy over the previous 10 years. It found that, when it came to charitable donations of £1 million or more over that time, just 1% of the total value went to environmental causes. Despite this, the report also features inspiring examples of how philanthropists are enabling systemic change. Winsome McIntosh, for example, founded the charity Client Earth, which uses the law to combat climate change.
For philanthropists, there are other ways to address climate change beyond simply giving to environmentally-focused organisations.
Rachel Harrington, who advises Coutts clients on philanthropy, explains: “Climate change is not just an environmental issue. It profoundly threatens many other causes that philanthropists care about – such as health and wellbeing, poverty and community cohesion.
“There will be many different ways you can make an impact, depending on whether your main focus is the environment itself, or your philanthropy lens is more ‘social’ and focused on issues such as poverty, inequality and human rights.”
In fact, a number of UK trusts and foundations that haven’t traditionally focused on environmental issues are integrating climate change concerns into their everyday programmes. The Joseph Rowntree Foundation, for example, helped develop Climate Just, an online service that helps users – predominantly public service providers – identify the neighbourhoods most vulnerable to climate change
The power of responsible investing
Responsible investing is another important way to make a difference, and climate change concerns are integral to our approach here at Coutts.
By focusing on good governance and the most material environmental and social issues – and by engaging with the companies in which we invest – we are actively ensuring corporate strategies and actions are aligned to the Paris Agreement goal of limiting global warming to well below 2°C.
And through our partnership with Hermes EOS, which implements our voting and engagement strategy, we have links with Climate Action 100+ – an investor initiative to ensure the world’s largest corporate greenhouse gas emitters take necessary action. It unites more than 320 investors with more than $33 trillion in total assets under management to engage with companies on curbing emissions and strengthening climate-related financial disclosures.
Such activity is about more than doing good in the world too. A meta-study by the University of Oxford in 2014 revealed that 88% of research papers found a positive link between good corporate sustainability practices and stock performance.
Find out how Coutts can help you with your philanthropy and read more about the bank's responsible investing approach.
When investing, past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.
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