Up to $1 trillion investment in green technology is necessary to effectively fight climate change, but only $260 to 300 billion is currently invested. Picture Source: Wikimedia
Current actions to mitigate global climate change are utterly inadequate. Arctic sea ice, in long-term decline, hit its lowest summer extent in September 2012, according to the National Snow and Ice Data Center. Global analysis by NASA indicates 2012 to be 0.6˚C warmer than the average temperature of the mid-20th century– not the hottest year on record, but not an indication of reversal. Meanwhile, despite the efforts of more developed countries, carbon dioxide emissions continue their rise worldwide. Climate change “makes [the threat of] terrorism look like child’s play,” according to Chris Davis from the Ceres Investor Programs. Davis, who presented at the Thayer School of Engineering last Friday, thinks that we need to be showing corporations and the public sector that being sustainable makes business sense.
Davis–a Thayer School graduate, former environmental engineer, and lawyer–now consults with investors on making socially conscious investments as his third career. Like many from his generation, Davis was driven to advocacy for environmental preservation by the first Earth Day in 1970. He believes that his education at Thayer School was formative to “holistic problem solving,” and advises all aspiring engineers to retain their focus on developing that skill over simply being “implementers.” In his current work, he and Ceres advocate for “sustainable capitalism,” which takes into account environmental, social and economic factors, the “triple bottom line,” to “embrace opportunity and reduce risks.”
Ignoring the effects of corporate policy can be disastrous. The economic fallout of preventable disasters cited in the presentation included that of BP, whose share price fell by 52% in the wake of the Deepwater Horizon disaster in 2010, and Massey Energy, which faced a 45% drop in share price at the news of the Upper Big Branch Mine disaster, leading to the deaths of 29 miners. Other disasters were not directly preventable, but may be attributable to climate change, such as the wreckage associated with 2012 Hurricane Sandy, which came out to $50 billion in damages divided equally between insured and uninsured holdings. Davis then moved the audience through tallies of destruction to a Deutsche Bank meta-analysis, which found that 89% of studies showed that businesses with high ratings in environmental, social and government (ESG) factors outperform market averages in profitability; it apparently pays to be sustainable.
Even Davis finds the task of pitching long-term thinking to business daunting. “On Wall Street, they think that they’re the smartest guys in the room. They’re not,” said Davis at one point during a question and answer session after the presentation. Despite Ceres’s successes in advocacy, which have included getting Apple, Dell, HP and Intel to get their suppliers to issue ESG reports and successfully pressuring the U.S. government to make companies report about the risks of climate change to their business on SEC filings, Davis says that there is a “long way to go” on investing. Pointing to estimates that up to $1 trillion investment in green technology is necessary to effectively fight climate change, but only $260 to 300 billion is currently invested, Davis expressed his optimism that an “inflection point” in investment dollars has been reached. Davis sees tremendous potential for public sector pension fund investment in infrastructure to develop a more efficient country while ensuring a long-term steady-rate return for pension plans struggling to meet rising obligations. He attributes private sector hesitancy in part to the uncertainty of government policies caused by fluidity in the political system.
While acknowledging a surge in populist advocacy against corruption and harmful practices in corporate America, Davis cautioned those who seek to take more drastic action by calling for institutional divestment in offending corporations. Davis is not opposed to divestment in principle, but believes it to be largely ineffective. For one, according to Davis, divestment on a profitable holding will only give someone else the opportunity to make an investment in the offending company. “How do you divest from fossil fuels?” asked Davis rhetorically. For another, Davis believes that the practice makes it harder for organizations like Ceres to convince corporations to be more transparent about their own sustainability deficits and risks and those of their supply chain when divestment is a threat. Instead, Davis encourages a “reallocation of capital” to profitable green investment, along with Ceres’s preferred tactic of getting shareholders to file resolutions pressuring the corporations to take action. Davis suggests tying executive compensation to ESG rating as an important step in encouraging corporations to look beyond the short-term planning window imposed by today’s volatile markets, which he calls “quarterly capitalism.”