Climate change is the defining investment issue of our generation. As a firm that manages more than $2 billion in assets, we understand the financial risks of a warming planet – and the opportunities in driving clean-energy investments and reducing greenhouse-gas emissions. Which is why we support Senate Bill 32, which will continue California’s progress on mitigating climate change, and why we are meeting with legislators Wednesday to discuss its merits.
The future is clean energy, and California is setting the pace. Here, better than anyplace in the world, people understand the importance of leading innovation and gaining a competitive advantage.
Preventing global temperatures from rising another 2 degrees is good for economic growth and financial prosperity. Corporate reports, Wall Street research and academic papers from Deutsche Bank, Harvard Business School and the University of Oxford all underscore how companies that focus on sustainability perform better financially over time and are more resilient. Smart clean-energy initiatives help investors and businesses be more profitable, cut costs and manage risks caused by climate change.
If the financial opportunities are real, the consequences of inaction are even bigger – $44 trillion in cumulative lost Gross Domestic Product by 2060, according to Citigroup. And because most investors are widely diversified – exposed to most industries and markets – there is no way to hide completely from this financial risk. As University of Cambridge researchers have described it: No single investment strategy is able to offer more than 50 percent hedging for these climate-change risks. Which means that it is in investors’ interests for policymakers to take the necessary steps to stay within 2 degrees of current temperatures.
What we need to do is bolster California’s landmark climate programs by passing SB 32, safeguarding the state’s cap-and-trade program, protecting the Low Carbon Fuel Standard and extending the state’s greenhouse-gas reduction goals beyond 2020. We support these steps because they strengthen California’s leadership in addressing climate change and because many of the companies we hold investments in, including Nike, Autodesk, General Mills and Starbucks, say these efforts help their bottom line. Companies that are catalyzing California’s low-carbon economy, such as Hannon Armstrong and Tesla, are also growing and generating returns for our portfolios.
California is seeing wide-ranging benefits from its climate leadership. The state’s economy is growing while per capita energy use and carbon intensity have fallen. As a Bloomberg column recently noted, California’s healthy economy is in no small part due to its commitment to addressing climate change and encouraging clean-energy innovation. Last year the state posted a 3.29 percent growth rate and created 483,000 jobs, the most of any state by far. This remarkable success and the lack of national climate policy make the state’s leadership all the more critical. If California weakens its efforts, it could have ripple effects on other states, U.S. policymakers and international efforts.
Just as crucial is the signal that these policy changes will send to business. Companies thrive and innovate in times of policy continuity. For instance, California’s clean-energy companies outperform similar companies in other states on a number of metrics, including revenue growth, percentage of revenue invested in research and development, and gross margin, according to Bloomberg.
As institutional investors, our mandate is to deliver appropriate long-term, risk-adjusted returns to our clients. To do so we must address the challenge and opportunities of climate change. As California debates extending its leadership in combating climate change, we ask that legislators and the governor consider the perspectives of investors and businesses. We believe that continuing to promote clean energy and driving innovative climate solutions is good for California’s economy, its businesses and its residents.
Jonas D. Kron is senior vice president at Trillium Asset Management, focused on the business risks and opportunities from climate change. Contact him at JKron@trilliuminvest.com. The information provided is not a recommendation to buy or sell the securities mentioned. Securities were selected on an objective basis for illustrative purposes and do not represent all of the securities purchased, sold or recommended. It should not be assumed that investments in such securities have been or will be profitable.