The climate crisis is fueling a human health emergency. Numerous climate-sensitive health risks are scientifically established:

The human and economic costs of these increased risks to health are potentially enormous. The current coronavirus pandemic is just one stark reminder of the toll a disaster can take on society. Climate change has become a determining factor in the likely health outcomes for populations in a variety of locations and socioeconomic groups.

From an investment perspective, assessing portfolio risk from climate change has become critical. How are sectors, regions and companies responding to current threats? What preparations are they making for future extreme weather events or infectious disease outbreaks in terms of supporting their employees, customers and other stakeholders (and, of course, protecting their bottom line)? Institutional investors are increasingly considering such analysis as part of their fiduciary duty to clients and beneficiaries – and those who are not, we would argue, are not doing their jobs properly.

In this report, we discuss the relationship between climate change, socioeconomic status and health. We highlight the primary categories of climate impact, the populations most affected, and how investors may play a role in funding solutions.

In outlining potential investment solutions, we take a holistic approach given the interconnectedness of contributing factors.  We focus on investment strategies that address specific climate-related interventions. Ultimately, however, solving the root causes of climate change and the subsequent effects on human health will require a comprehensive approach, one that considers the interplay of relevant issues: health, climate, transportation, education, financial stability, among others.

Download Climate Determinants – Human Health

Please see our report Climate Determinants — Financial Services: Transformative risks for the financial sector, governments and consumers

During Climate Week NYC 2020, Cornerstone Capital Group hosted eminent climate scientist Sir David King, Founder of the Centre for Climate Repair at Cambridge University. The Centre is a cross-disciplinary research institution, aiming to develop and understand the solutions that will safeguard our planet from the disastrous consequences of global warming. Climate Week NYC, the annual climate summit held in association with the United Nations and New York City, brings together business and government leaders to share developments in climate action and find areas of future collaboration.

Sir David possesses a wealth of experience in climate science, having served as the UK’s Special Envoy on Climate Change, and as the UK Government’s Chief Scientific Adviser. He has published over 500 scientific papers, covering policy, climate change, and physical chemistry.

Cornerstone CEO Erika Karp hosted this opportunity to hear from one of the most distinguished leaders in the field. Chief Impact Strategist Katherine Pease shared perspectives on how to embed climate action as a component of one’s investments.

Climate change is everything. This is the first in a planned series highlighting the pervasive impacts of climate change across all facets of our global society. Not only is climate change physically altering the planet, it is taking an increasing toll on human health, the supply chains for a host of products, and, as we discuss in this note, the financial services sector.

Climate change is now. The western U.S. is burning, hurricane-force winds have wreaked havoc in Iowa and Utah, and the Gulf Coast is still struggling to recover from several deadly hurricanes in recent years.

Consumers of financial services will bear the cost. Costs and availability of mortgages and insurance are already beginning to reflect climate change risks, depending on location, and this trend will likely grow.

Financial institutions are waking up. On September 9, 2020, the U.S. Commodities Futures Trading Commission released a landmark report that states in no uncertain terms: “Climate change poses a major risk to the stability of the U.S. financial system and to its ability to sustain the American economy.” The report provides a series of concrete recommendations for financial market participants, including regulators, financial institutions and asset owners, to execute the necessary transition to a low-carbon future without destabilizing the economy. Notably, the report reflects a consensus across a range of financial markets participants.

What should investors know? In this report we provide a digestible overview of the key categories of risk and potential impacts, how financial sector participants are beginning to respond, and what questions investors should ask their advisors about how they are factoring systemic financial risk into portfolio allocations.

Continue reading for our report overview, or download our full report Climate Determinants — Financial Services.

Overview: Transformative risks in the provision of financial services

Extreme weather and disasters fueled by climate change take a major toll on society in terms of human suffering, individual losses and systemic risk.[1] The financial services sector, which includes banks, insurers, investment service providers and asset management firms, is highly exposed to the potential costs related to climate change. The series of natural disasters in just this past year — including the coronavirus pandemic — has thrown these risks into even starker relief.

In the U.S. alone, there have been 273 weather-fueled disasters since 1980.[i] Altogether these events cost a staggering $1.79 trillion.[2] Looking just at wildfires, the 50 years leading up to 2015 averaged approximately $1 billion per year (inflation-adjusted). That figure jumped to $10 billion in three of the past four years.[3] While proving a direct link between the rise in weather-fueled disasters and climate change is complicated, an October 2019 scientific paper by the PNAS[ii] documented “an increasing trend in extreme damages from natural disasters, which is consistent with a climate-change signal…. with most pronounced increases in… catastrophic events. This pattern is strongest in temperate regions, suggesting that the prevalence of devastating natural disasters has broadened beyond tropical regions and that adaptation measures in the latter have had some mitigating effects on damages.”[4]

The depth and breadth of climate risks to the financial underpinnings of our society are only beginning to be fully appreciated. While insurance companies have begun to reflect climate risks in their policies and large investment banks are beginning to consider them in valuations, the complexities are not well understood by many investors, including many professionals.

The financial services community is beginning to respond in a more concerted manner, however. Notably, the U.S. Commodities Futures Trading Commission (CFTC) has just released a very detailed assessment of the various climate-related risks — physical, transition, and liability risks — as well as their impact across sectors. The report, a collaboration among more than 30 financial markets participants, offers a comprehensive set of recommendations for regulators, financial institutions and asset owners to carefully execute the transition to a low-carbon economy. This is a significant achievement, particularly in the current political climate.

However, while investors may not fully appreciate the nuances of climate risk, the markets provide nearly instant information on how they react to an exogenous shock to the outlook for a region, sector or company.[5]  A sudden shift in investors’ perception of the future risk of climate change on asset values could precipitate their decline, destabilizing investor portfolios and financial institutions’ balance sheets.

On average, there has been only a modest stock market response to large climatic disasters. Results, however, vary widely across disasters. Hurricane Katrina, which resulted in total damage of roughly 1% of U.S. GDP, triggered only a modest stock market reaction, with no discernible drop in the U.S. stock market index. The 2011 floods in Thailand, which hit Thai GDP with a 10% decline, resulted in a drop in the Thai stock market index of over 8% soon after the disaster and a cumulative drop of about 30% after 40 trading days. [6]

Market impact aside, the recorded costs of damage from such disasters are estimates of the spending needed to rebuild properties and businesses.[7] The full costs include investments not made because of the need to rebuild — investments that might have instead helped grow the economy. The true impact of more frequent destructive weather events may be immeasurable.

[ii] Proceedings of the National Academy of Sciences of the United States of America.

[1] International Monetary Fund – Global Financial Stability Report, April 2020 Chapter 5: Climate Change – Physical Risk and Equity Prices; May 29, 2020

[2] https://www.ncdc.noaa.gov/billions/

[3] https://www.nytimes.com/2020/09/16/us/california-fires-cost.html

[4] https://www.pnas.org/content/116/43/21450

[5] Ibid.

[6] Global Financial Stability Report, April 2020 Chapter 5: Climate Change – Physical Risk and Equity Prices; May 29, 2020

[7] https://www.washingtonpost.com/weather/2019/06/07/trillion-economic-blow-cost-extreme-weather-us-is-worse-than-we-thought/

Systemic risks to financial institutions can lead to serious negative consequences for the economy. Climate change, like the COVID-19 crisis, is indisputably a systemic risk.

Cornerstone’s CEO, Erika Karp, recently hosted a panel discussion on Ceres‘ new report titled Addressing Climate as a Systemic Risk: A Call to Action for U.S. Financial Regulators. Erika was joined by Steven Rothstein, Managing Director of Ceres’ Accelerator for Sustainable Capital Markets, which issued the report, and Ibrahim al-Husseini, Founder and Managing Partner of FullCycle, an investment firm focused on climate solutions. (Ibrahim is also a member of Cornerstone’s Board of Directors.)

In the report authors’ words:

While policymakers at the federal, state and global levels need to take the lead in tackling the climate crisis, U.S. financial regulators themselves have critical roles to play in keeping a now-weakened economy resilient in the face of ongoing and future climate shocks. Rather than standing back, they should seize the opportunity in this moment of potential economic transformation to join global peers and develop a playbook for climate action. With global emissions and average temperatures still rising, watching and waiting are no longer responsible options, and will in fact guarantee the worst. And, unlike in the possible resolution to the COVID-19 pandemic, there will never be vaccines developed to protect against climate risk. But the good news is: we already have all the tools and knowledge in the financial markets to take sound preventative action. 
Climate change presents risks to both the future and today — unless regulators act boldly, now.

On April 22, Earth Day, Cornerstone hosted a webinar titled “Every Day Must Be Earth Day: Climate, Coronavirus and Complexity. CEO Erika Karp was joined by Karl Burkart, Managing Director of One Earth, a project of Rockefeller Philanthropy, and former Director of Science & Technology at the Leonardo DiCaprio Foundation. One Earth is dedicated to advancing cutting-edge science to address the climate crisis. The organization funded a breakthrough climate model (published as Achieving the Paris Climate Agreement Goals by Springer Nature) which shows how the world can achieve the ambitious 1.5°C goal through currently available technologies at a lower cost than our current energy system.

In a wide-ranging discussion, Erika and Karl tackled these questions:

In preparation for our call, Karl provided a written assessment of the questions we used to shape our discussion. Below are his responses.

—————————————

Is the COVID-19 pandemic related to climate change?

There is a large and growing body of scientific literature linking climate change to the spread of vector-borne disease. Studies have focused mostly on insect carriers such as mosquitos (malaria) and ticks (Lyme). There is a general consensus that increased warming will drive increased vector-borne diseases, but no one knows exactly where and by how much.

It’s also possible that vertebrate animals are being exposed to more vector-borne diseases, making them carriers of novel diseases to humans. These ‘zoonotic’ diseases — pathogens that jump between species — include the COVID-19 outbreak, but it’s very hard to make a direct link to climate change. What we do know is that deforestation and encroachment of human activity on wildlands is creating greater risks for both humans and animals, as edge effects increase. We need to retain our current footprint of wildlands (approximately 50% of the terrestrial surface) in order to save biodiversity, preserve priceless carbon sinks, and reduce the risk of future zoonotic diseases.

Climate change will certainly increase risks to public health, and we’re only just starting to learn about the ways this could happen. An emerging body of science is looking at “zombie pathogens” that have been frozen, sometimes for centuries, but are thawing due to climate change. One anecdotal example of this, an outbreak of anthrax in Siberia in 2016, was caused by increased temperatures thawing permafrost and an anthrax-infected reindeer carcass from 1941. Whether this will happen at larger scale is a very controversial topic and the science is new, but it’s clear there are strong linkages.

Will the pandemic-related drop in carbon emissions lead to lasting changes?

It’s hard to talk about the silver lining to such a horrible pandemic, but it is true that emissions will likely drop 5-10% or more as a result of COVID-19. This is essentially exactly what was needed to get us on track to 1.5°C — a net reduction of 56% of global emissions by 2030 (or roughly 6.5% per year).

I myself had a pretty bad carbon footprint due to my travel and speaking engagements, and I’m seeing many of these venues events now going online, including Climate Week, which is normally held in New York concurrent with the UN General Assembly in September. The irony of Climate Week is that you have the whole world gathered in one place talking about solving the climate crisis while emitting enormous amounts of CO2. We’re now being forced to learn how to do many things virtually, with a much-reduced carbon footprint.

This could be a tipping point when virtual working becomes the standard, rather than the exception. A study in 2018 showed that 70% of people were able to work remotely on occasion. What if that were reversed – with physical officing being the exception rather than the rule? The permanent reduction of carbon emissions implicit in such a transformation of our work lives would be a game-changer. But I think many are rightfully skeptical that this will turn into permanent behavior change. And behavior change is only a piece of the climate change puzzle…

There’s only so much we can do as individuals to help. We need permanent policy shifts. We need to stop subsidizing fossil fuels (at a whopping $4.7 trillion per year according to the IMF) and start subsidizing clean, renewable energy. To make that shift happen, we will need a different kind of behavior change… VOTING. People need to start voting for candidates in much larger numbers at all levels of government of they care about clean air, clean water, and a balanced climate. Perhaps if we get nationwide mail-in voting, this could be the beginning of more civic engagement, which will drive the policy changes needed to solve the climate crisis.

Will the oil market collapse slow the pace of transition to alternative energies?

This is an excellent question and a very complicated subject. In my opinion, COVID-19 is “sinking all boats” — fossil fuel energy and renewable energy. I was in Riyadh for G20 meetings in late February, and prior to COVID-19 breaking out there was already a brewing conflict with OPEC+ nations balancing whether or not to cut production to stimulate falling prices. The fact of the matter is, the oil industry was already heading for a rough year. We supported research by Carbon Tracker, a think tank in the UK that has been analyzing  data from many of the Oil & Gas majors, and they predicted a major decline in the sector in the early 2020s, as more and more people switch to electric and hydrogen modes of transport.

Then COVID-19 hit. The oil markets are now in a freefall, with negative trades for the first time in history. This will put a lot of oil and gas companies out of business, including the oil services industry (companies that manage, build, and maintain the production pipeline). Massive layoffs are happening right now, and when the economy comes back to life, hopefully in a year or two, it will be a huge and difficult ramp-up for the fossil fuel industry. There will be many, many losers and only a few winners. And some of the losers need to lose, like the tar sands in Alberta, which produce 25% more supply chain emissions per barrel of oil than the global average. Then there is increased demand for electric vehicles. Just last month, Tesla had record sales in China.

I’m almost brave enough to predict that COVID-19 will be the beginning of the end of the fossil fuel era as we’ve come to know it. We will have to rebuild our economy, and I think clean economy will win out, with solar and wind power now heading to 4 cents per kilowatt hour (c/kWh) on average and one solar hybrid project last summer bidding below 2c/kWh. Renewables also make the most sense as a stimulus for economic recovery, creating jobs at a ratio of 3 to 1 per dollar invested versus fossil fuels. This is not to say the renewable energy industry isn’t also being pummeled. This was set to be the biggest year in history for solar deployment, and now there are massive layoffs. We’ll just have to see how bad it will be on both sides and hope for a realignment of subsidies to promote a clean future.

What is the impact of the current crisis on social and economic justice?

First let’s consider health. Before COVID-19 hit, there were an estimated 4.2 million deaths per year due to ambient air pollution, according to the World Health Organization. Low-income communities constitute by far the majority of those deaths. And this isn’t the case just in the developing world. A recent study in California shows that black and brown people are exposed to 40% more emissions than white people. This is often due to the location of low-income communities in proximity to fossil fuel plants — land that wealthier (and historically whiter) people didn’t want to build on.

So we need to acknowledge that low-income communities were already struggling with lung disease and other diseases at a higher rate. Now, according to a new study, those same communities are experiencing many more COVID-related deaths than the national average. In Michigan and Illinois, for example, black people make up 41% of Covid-19 deaths, despite being less than 15% of the population. And in Louisiana, nearly 60% of the people who died of coronavirus in the state are black, while the demographic is just a third of the state’s population. Top all that off with the lack of socialized healthcare in the US, and you have a recipe for disaster.

There’s blame to share in many directions, but first let’s point a finger at the fossil fuel industry, and the lack of regulations to protect communities from pollution. Second, let’s look at our healthcare system in the US. Many European countries last month called citizens home who were on visas in the US because they deemed our country as lacking sufficient medical infrastructure. Post-COVID, these two problems have to be addressed to even begin a conversation about social justice. In the global context, I shudder to think about the impacts of so many people losing their jobs and livelihoods. But one thing that does appear to be emerging is a growing movement to tackle climate injustice head-on. I think COVID-19 is going to add fuel to that fire as these great inequalities in our economic system are revealed.

What can people do to move the needle on climate justice?

It shouldn’t take a global pandemic for us to see clear blue skies and breathe in clean fresh air. We deserve better. If anything good can be said of COVID-19, it is this momentary glimpse of what the sky should look like and some space to think about the future we want to create.

So what is the future we want to live in post-COVID? I think that’s the question we all need to be asking. Are we going to let the fossil fuel industry come roaring back to life? Or are we going to finally start to build the clean energy future we all need? We could have an opportunity to start righting the wrongs, provide low-income communities with access to clean energy while providing job training and income opportunities for a clean energy future. This is what a Green New Deal should focus on – pivoting subsidies away from the ailing fossil fuel sector and towards investments in renewable energy, along with a major jobs program to transition coal, oil and gas workers to good, long-term jobs in solar, wind, and energy efficiency.

Internationally, we know developing countries are going to be hard hit by the pandemic and one initiative, Sunfunder, is working to bring energy access to rural areas of Africa where it’s needed most. There is a risk of default for many community solar projects across Africa due to the pandemic, which would be a horrible loss to the people there, derailing more than a decade of progress to bring clean, affordable energy in the region. So these are the types of efforts that need to be supported now more than ever.

One thing we do at One Earth is to identify key initiatives that are strategically important in creating a green future and achieving the 1.5°C goal of the Paris Climate Agreement. If you’re interested, please feel free to visit our website OneEarth.org and sign up for a monthly briefing of projects around the globe that are working towards a green, and sustainable future.

Editor’s Note: From an investment perspective, there are numerous ways to deploy capital in support of climate justice. Cornerstone Capital Group works with to clients to identify their financial goals and impact interests, and recommends appropriate investment solutions. Our recommendations reflect rigorous research into investment opportunities to understand their risk and return profile, their environmental, social and governance characteristics, and the degree to which an investment facilitates access to the products, services and systems needed to achieve the United Nations Sustainable Development Goals. If you would like to explore how Cornerstone may be able to serve you, click here.

 

 

Shortly following trips to Davos during the World Economic Forum in late January, Erika Karp sat down with Juliet Scott-Croxford of Worth Media to compare notes on their experiences and most meaningful takeaways from the week. Below is a transcript of that conversation, which we captured via video.

Erika Karp, CEO Cornerstone Capital Group | Juliet Scott-Croxford, CEO Worth Meeting

 

JSC:  Hi everyone. I’m Juliet Scott-Croxford, CEO of Worth Media. And I’m excited to be joined by Erika Karp, CEO of Cornerstone Capital, to talk about our shared experience at Davos in the end of January.

EK:  I’m Erika Karp, the Founder and CEO of the Cornerstone Capital Group. As we think about investing for impact we’re here to talk about Davos, what happened at the World Economic Forum last week and some of the most interesting takeaways.

JSC:  What was your biggest takeaway from the event on based on what you attended and some of the conversations that you heard?

Systems Thinking

EK:  For me, the biggest takeaway is the extent to which we need more systems thinking if we’re going to meet these huge challenges. Because it seemed like there were a lot of events going on — whether it was about climate, whether it was about health or whether it was about technology and blockchain or women or  LGBTQ events  — each of these events touches on way more than it might seem.

JSC:  And, and how do we take action on creating big systems thinking around those types of challenges?

EK:  Well, it’s really hard. I think that that kind of thinking can’t just happen at the top. That is not just a high-level conversation. That conversation needs to go down to the grassroots level. And so I wonder … if everyone who needs to be in the room sometimes is in the room.

JSC:  Hmm. So just playing on that point a bit, I think there was 24% female attendance at Davos this year. Last year it was 23%. What were your takeaways around the sort of notion around diversity and inclusion?

EK:  By the way, that’s a big jump for Davos, because I know in many past years it’s been stuck at kind of 20% or even below. And that’s challenging. So the idea of women not just having more power but more influence is hugely important. And I think women’s voices, diverse voices are not being heard to the extent to which they need to be.

JSC:  I attended a lot of the sessions that were done at the Equality Lounge [hosted] by the Female Quotient and a big part of their focus was on UN Sustainable Development Goal 5, around closing the gender gap. What conversations did you hear around gender and diversity outside of perhaps one of those areas?

EK:  Unfortunately, very little. And here’s what I think we have to get to… people might talk about SDG 5 and women’s economic empowerment. But when you think of how you actually get there, you have to talk about all the other SDGs. So we think at Cornerstone in terms of the idea of access. Women will not be really empowered until we have access to water, to healthcare, to education, to broadband, to capital. And so that intersectionality, that systems thinking around diversity, I don’t think we’re there yet.

Capitalism and Sustainability

JSC:  The main sort of focal point for the event or the big theme was around better capitalism and sustainability. How encouraged or not were you by that kind of conversation and thinking?

EK: There was a lot of talk about stakeholder capitalism, what we’ve seen the Business Roundtable talking about. And I think that’s great, but it’s so much more than talk that we need to get it done. When we go back to those Sustainable Development Goals, that systems thinking, that’s what you really need to see. So we need data, we need accountability, we need measurability, we need intentionality — all the things that we talk about with impact investing. And if you think about it, any board of directors, you know, yes, they need to serve their shareholders. They need to serve their employees. They need to serve their customers. You can’t optimize profitability without doing all three. But the issue is, it has to be about long-term profitability. We have to stop [the impact of] externalities from not being accepted by the users of capital. We have to think about financial capital, but also human capital, natural capital. We have a long way to go, I think.

JSC:  Well, one of the key takeaways for me was that the business community is awake to the climate crisis. That was encouraging for me, whilst it’s possibly a little too late. I did feel like the conversation around that was baked into every conversation or session that I had. And perhaps more so outside of North America as well. I think there’s an interesting conversation coming out of a lot of the European businesses. I think that the key challenge is how do we take it beyond conversation and into real action. Seeing the letter that Larry Fink put out and, and some of the conversations around the Business Roundtable, what do you think the next steps are? How do we take that and. to your point, build that sort of systems thinking into —

EK:  Action? Well, one of the big next steps is to facilitate tangible information, data, decision-useful information. I think that kind of push for real information, real data accountability is the starting point. And so that’s one of the things that I take away from it. Because when you have real information, real data that data providers and index providers and ETFs and fund managers and ultimately investors can have, not flawed information all through that system, then I think we have a better start.

JSC:  And what about the sense of having a common language around how we’re describing this? So a common way to describe it, a common way to measure it, a common way to hold each other accountable to it. How important do you see that?

EK:  Hugely important and that leads on from what I talked about with regard to data. We don’t have a common language when it comes to the whole idea of sustainable investing. Cornerstone uses a very clear definition. We think sustainable investing is the systematic integration of material, environmental, social and governance factors into the investment process. That is sustainable investing. It’s not ideological, it’s not political, it’s not divisive. It is about pragmatism and enhanced analytics. It is a discipline. And that discipline in finance, I mean ultimately it’s just going to be called investing and investment research, but we’re not there yet. Sometimes you’ll hear people say ESG investing. There is no such thing as ESG investing. There’s ESG analysis. We have to bring this into the realm of finance, not ideology.

JSC:  And how important is partnerships and this notion of stakeholding when it comes to taking this to the next step?

EK:  It’s, it’s just critical. This goes exactly to what we’re talking about, with systems thinking and going from not just the top down but from the bottom up to have this interdisciplinary discussion about getting things done. Partnerships are a must-have if we go back to talking about achieving the Sustainable Development Goals, which, by the way, in and of themselves are not investible. So again, when we frame things at Cornerstone, we think about the idea of access, giving the world access to each of those SDGs, giving investors access to each of those SDGs. And that implies you’ve got to have partnerships.  SDG 17, right?

JSC:  Yeah, absolutely. And people like Greta [Thunberg], who I personally think is so essential to helping hold businesses and key influences accountable to make progress. What what were your thoughts on her speech?

EK:  Oh my God. The idea of, you know, this young person talking about what is blindingly obvious to almost the whole world, except certain administrations. I think it’s tremendous. I think she represents, you know, basically the whole world that’s not at Davos.

JSC:  Playing that forward to the point around inclusivity … she has such a loud voice, a voice that is so important to people that aren’t able to be at something like [Davos]. I just think her presence is so poignant.

The Davos Experience

JSC: So this was your first and my first Davos. I’m still processing it a bit ’cause there’s so many different layers and elements to it. It’s a place of many contradictions, and it has been and is under scrutiny. Having been there and come away, what are your sort of overall thoughts on the importance of it? The challenges with it?

EK:  You know, the biggest challenge is clearly the perception of eliteism, the few, the very few making decisions for everyone else. And so that’s a huge challenge now with regard to how Davos comes together.

For a number of years I worked on the Global Agenda Council which leads up to Davos — what should be included, what are the pivotal questions that we’re going to address at Davos? The question I have is whether the hard work done on the agenda councils and the work that becomes you know, very specific, [does that] get right into the Davos conversations? I’m not sure of that. So that’s something I think we have to be very thoughtful about, because I think that innovation and ideas come from everywhere. Are those [ideas] making their way into any decisions or actions that might be taken over that one week? I’m not sure.

JSC:  What were some of the most interesting sessions you attended?

EK:  Obviously the ones that I worked on! The Green Debate was about action. What I felt that was so interesting was the extent of the earnestness of that group, which really wants to get something done. The other [event] that I was involved with, which I’m really excited about is called the World Benchmarking Alliance, the WBA. And the reason I love this initiative is because it is really about a systems-based approach: Let’s look at the keystone companies in the global economy, those that potentially can have more impact than other companies by virtue of where they’re situated in the system. And let’s keep raising the bar for the industries.

JSC:  Fantastic. So you thought the WBA offers a solution to integrate this systems-based analysis?

EK:  From what I can see. It’s relatively new initiative. But yes, it is showing us which companies can be most powerful in driving everything forward. And I should say there is no perfect company. You know, every company has challenges, whether it’s upstream or downstream, whether it’s a technology company, consumer company — every company has challenges. But if the WBA can really identify what exactly those keystone companies are doing, what do they touch and how can they be most powerful, I think that’s terrific.

JSC:  What do you think the best way of integrating that into future Davos events, to your point and taking it to the grassroots? So it can’t just sit with this sort of small group of incredibly influential people. How much does the World Economic Forum take a lead in ensuring that happens?

EK:  I think the WEF really could take the lead. I’ll give you an example as it relates to these keystone companies, or companies that are not keystone companies but sit in industries that have an outsized impact on what’s going on. One of the things that I observed — or didn’t observe — was the extent to which there’s real entrepreneurship, real disruption inside the companies that are part of the WEF. I think a lot of companies have forgotten how to take risk. They have forgotten how to innovate. And I think that’s unfortunate, especially, I would argue, since some of the agenda councils, which over the past decade have come up with interesting solutions, innovative, entrepreneurial solutions. I don’t know that we’re seeing [such solutions] to the extent that we should.

JSC:  I think that’s an interesting point. I was surprised that there were quite a lot of young people at the event, more so than I expected, but also more representation from tech companies and data companies and software companies. And I’m surprised that they haven’t taken more of a lead on [creating] more of a systems-based universal way of an analyzing and assessing progress in some of these areas.

EK:  Did you feel, ’cause I did a little bit, did you feel that there was more a sense of fear of new technologies, the negative impact of new technologies by one generation than there was by the other? It felt to me like there was a little bit of a focus on the scary stuff.

JSC:  Yeah. I think you’re right. And I think, you know, Facebook’s been in the headlines a lot, so I think that there definitely is this sense of, yeah, how much do we embrace these platforms for good? I think that is a challenge both for those companies and for people, but there is this wealth of knowledge and expertise. Let’s apply it in these areas that we need to apply it.

JSC: Are there other conversations or interesting people that you met that have kind of stuck with you a few days later?

EK:  There was one particularly interesting woman I spoke to from a health research organization. One of the things she said that just really struck me is that, you know, we can talk about systemic change as much as we want. But when it comes to healthcare and the intersection of healthcare and the technologies we need, she said the funding picture is so off, you know, without government funding of basic research. She says we can talk all we want, but it’s not enough.

JSC:  Why do you think that is? Why, what is driving that lack of investment or capital in the area?

EK:  I think it does have to do with the short-termism, broadly, whether it’s in the private sector or the public sector. Some in the foundation world are doing wonderful work, but it’s a drop in the bucket compared to what we need. If the foundations are giving a kind of first loss capital [to attract the] private sector that’s great. But again, when it comes to basic research, it’s a drop in the bucket. And then our conversation went on to infrastructure spending and education spending and you know, the things that so need to come first. But it was that healthcare discussion that reminded me this is going to take everyone.

The Role of the Sustainable Development Goals

JSC:  Yeah. And, and how integral do you think the Sustainable Development Goals [SDGs] were to the entire conversation? Cause that, that was the other thing I noticed. They were very prominent in certain places, but in other places actually weren’t the lead focus. What can we do to use them as a way to align all of these stakeholders and companies around a way forward?

EK:  I was actually surprised that they were included in lots of places because I was expecting nothing. So I was pleased to see the SDGs around and in their own little building that was [colorful]. You know, the fact that the SDGs have branded themselves as eye candy is beautiful — whatever it takes. I wouldn’t call it prominence, but it was clearly there.

I think one of the problems we have, actually, is if companies kind of hang their hats on achieving SDG 5 or whatever. I think that’s really problematic because if you really try to go after one (and we talked about this before), you’re not going to get really much done. Yeah. So I think this was the WEF kind of tiptoeing into the SDGs.

JSC:  Yeah, I agree. I’d really love this sense of having a shared set of goals and I do think that’s a really powerful way of bringing different stakeholders together around a common issue and some of the biggest issues that we’re faced with. I think you just, you kind of want to see more of it. And I sense there have been quite a lot of laggards when it comes to adopting these or taking them seriously or thinking actually this is a good way to do it.

EK:  I mean with all due respect to the WEF, it’s astonishing that this is the first time that they’ve really tackled climate.

JSC:  Yes. And it is sort of slightly contradictory in the fact that the backdrop is the, you know, the mountains and the temperature was quite warm. Yes, there’s snow on the ground, but it, I sort of felt like it was almost quite stark in that the conversation was around climate crisis finally, and we were in the backdrop that we were in.

EK:  I put that aside to some degree because had it been snowing and freezing, then somebody would say, ‘Oh look, no climate change.’ I mean, you know this is about volatility, not about any particular day. So it didn’t bother me that much. It was convenient. Walking around was a little easier than it would have been. But you know, getting between all those black cars…

JSC:  I was going to say, it takes 20 minutes to walk end to end on the promenade and I would far rather walk. I was surprised at how much traffic there was and they weren’t, I don’t think they were electric.

EK:  Well, actually I have a picture of Prince Charles arriving in a fully electric vehicle. Yes. I think, I don’t know where that was published, but we’ve got that right.

JSC:  There’s definitely more that they could do there, I think.

EK:  I think there’s a little more they can do. Yeah.

JSC:  So you saw Prince Charles, who else did he see that kind of made you [perk up].

EK:  You know, no one, not really. Maybe I was looking down or doing my work. But I did see some of my favorite people. Nigel Topping, you know, I don’t know if everyone knows Nigel, but he’s amazing. A few other people that I’ve known for a long time that in my view are really the leaders, like Steve Waygood from Aviva. I don’t know if people know Steve, but yeah, he’s one of the leaders. So it was really nice to see those serious people.

Next Year at Davos?

JSC:  What would you, a year from now, thinking about Davos next year, what change would you like to see?

EK:  I would love for Davos to just take up the issue of entrepreneurship. You know, we know that in a global economy, impact comes from entrepreneurship, new companies revitalizing economic growth. You know, the fact that we have the world’s monetary authorities driving the stock market is not okay, right? Real economic growth comes from entrepreneurship. And I don’t know that there’s been a Davos that’s really taken that up.

JSC: And so how would you, how would you do that?

EK: I’d like to see the conversation truly be a catalyst for growth. Focus on the idea of entrepreneurship, in fact, impact entrepreneurship. That’s where growth comes. That’s where new companies come from. Why don’t we have, you know, a discussion about great companies that know how to disrupt themselves and innovate from inside. And then of course, the outside companies, the innovators, the disruptors that are outside. I think it has to be about entrepreneurship because ultimately that’s how we’re going to face the big challenges of the world.

JSC: So watch this space and we’ll work on impact entrepreneurship as a topic between now and next year. Thank you.

EK: Thank you.

 

As new members of the World Benchmarking Alliance, we have been delving into their work to understand how WBA benchmarks corporate performance in terms of their contribution to the UN Sustainable Development Goals.

WBA’s approach aligns closely with Cornerstone’s thinking: they recognize that transformational, systems-based change across key sectors and issues is critical to achieve a regenerative and inclusive global economy. Recognizing that the private sector has a tremendous role to play in bringing about such change, and that clear and consistent measurements of progress are essential to the effort, WBA is creating benchmarks or indices for key focus areas:

Below we offer highlights from WBA’s recently released assessment of the automotive industry, part of its climate and energy benchmark.

Measuring the world’s 25 most influential auto manufacturers

Given the transport industry is responsible for 15% of the world’s greenhouse gas emissions, automotive companies play a vital role in decarbonizing our economy. To measure their progress toward reaching the Paris Agreement goal of limiting global warming to well below 2°C, WBA analyzed the world’s leading automotive companies to determine if they can meet that target. We have summarized their key findings below.

Destination Decarbonization: Stuck in the Slow Lane

Companies are stalling in the low-carbon transition. Of the 25 companies, only Groupe PSA, Ford, Renault, and Mazda have established fleet targets that are fully aligned with the pathway required for the low-carbon transition, with only Mazda and Nissan setting long-term targets that reach as far as 2050.  In addition to beefing up target emissions reductions, companies need to map out a clear strategic plan to achieve those targets. Groupe PSA is the only one of the 25 companies assessed that has embedded reduction targets into a publicly available low-carbon transition plan.

Driving with the Brakes On

A company’s investment in new battery technologies and electrification is a strong indication of its commitment to decarbonization. Some companies are making progress in boosting their low-carbon vehicle sales. BAIC, for example, boosted its share of low-carbon vehicle sales from less than 1% of total annual sales in 2013 to 7% in 2017. Likewise, BMW grew its low-carbon vehicle sales from less than 1% in 2012 to nearly 6% in 2018.

However, for 16 of the companies assessed, low-carbon vehicles accounted for less than 1% of sales. Several of these laggards have, encouragingly, made quantifiable commitments to rapidly increase their sales to transition to a low-carbon economy.

Sales: Customers Taking the Road Most Travelled

Though the auto sector is renowned for its high-profile marketing campaigns, less than half of the companies benchmarked show noticeable efforts to market low-carbon vehicles as a more favorable option. According to the WBA, there remains significant room for improvement from automotive companies to shift consumers towards low-carbon vehicles to help decarbonize the automotive industry.

Of the 25 companies, Tesla plays a strong role in shifting the passenger vehicle market toward electric vehicles by actively engaging consumers, increasing the number of showrooms, and creating unique customer experiences. BMW and Groupe PSA also actively promote their electric vehicles and encourageconsumer uptake. Efforts to shift the consumer mindset would require automotive companies to actively promote low-carbon models across multiple sales regions through a variety of methods.

Revving up Public Commitments to Climate Policy

There is an industry-wide reluctance for automotive companies to publicly commit to a positive, transparent and proactive approach to climate policy. None of the companies assessed show leadership in engaging with trade associations or regulatory bodies to help mitigate climate change. Nor does the industry as whole systematically safeguard against influencing climate-related regulations in a negative way, directly or indirectly, in consultations with regulators.

Though all of the companies – with the exception of Tesla – show a level of engagement with a trade association or regulatory body, none have a publicly available engagement plan, which is widely considered a best practice. That said, Ford, Groupe PSA, General Motors and Renault have established more defined positions relating to “climate-friendly” policies and what actions to take if an affiliated trade association has climate-negative positions.

Driving Change: The Future of Mobility

To better prepare for a low-carbon economy and remain profitable, auto manufacturers need to identify new business opportunities that move away from traditional passenger vehicle ownership. While automotive companies like Tata Motors, Tesla, BAIC, Honda, Nissan, and Toyota are exploring alternative business activities, they are far from scaling up operations: most companies do not offer a scope of operation, a sense of market share or profitability, and lack expansion plans with a defined timeline. This suggests that these activities may not have been given sufficient consideration in terms of the broader business strategy. To facilitate the transition to a low-carbon economy and help achieve the goals of the Paris Agreement, auto manufacturers could further demonstrate action towards diversifying their business models.

Conclusion

Car companies have a responsibility to current and future generations to change the high-emission mobility culture. Change can only occur if manufacturers proactively increase investments in and marketing of low-carbon vehicles, engage with policymakers on low-carbon solutions, and seek out new business opportunities.

Most companies have a low-carbon vehicle, but there is insufficient investment in this market. There also needs to be a more positive and proactive approach for companies to market low-carbon vehicles to consumers. As a whole, the industry needs to work with trade associations and react to climate policy. In sum, the WBA’s report illustrates that the 25 auto manufacturers are not on track to meet the goal set by the Paris Agreement.

For the full assessment please visit https://climate.worldbenchmarkingalliance.org/

Cornerstone has just released two reports addressing the impacts of climate change. Our report No Place to Hide? Climate Change and Systemic Financial Risk demystifies recent academic studies on the risk to global financial assets from various climate change scenarios. The conclusion: Without urgent investment to scale climate solutions, global financial assets face losses of $2-24 trillion, or 2-17%, depending on the pace and intensity of further global warming. The more extreme scenarios would affect entire portfolios as the global economy faces severe losses.

In other words — unless investment dollars are deployed at scale to limit further warming — there’s no place to hide.

There is still time to act, however, as we explain in Scaling Climate Action: Aligning Investments to Sustainable Development Goal 13. Our report provides a straightforward overview of the causes and most significant impacts of climate change. We then apply Cornerstone’s Access Impact FrameworkTM, identifying relevant “access themes” that offer tangible investment ideas. Those themes are:

Our report relays the key connections of each theme to SDG 13 and highlights existing investment funds that address our themes. An overview of opportunities, by asset class, is provided.

Much has been written about the physical impacts of climate change on the planet: heatwaves, droughts, rising sea levels, etc. There is less mainstream discussion of the potential impacts of climate change on global financial assets.

We dug deep into the academic literature to understand the estimated impacts and underlying assumptions. We found that $3-24 trillion, or 2-17%, of global financial assets are at risk of loss from climate change. Agriculture and Transportation (air, road, rail, sea) face the highest risk, with more than 60% of the financial value of these sectors vulnerable to climate change.

“Feedback loops” between the financial system and the macroeconomy could further exacerbate these impacts and risks. For example, climate-related damage to assets serving as collateral for loans could create write-offs that prompt banks to restrict their lending in certain regions, which could weaken household spending.

Asset managers cannot simply avoid climate risks by moving out of vulnerable asset classes if climate affects their entire portfolio of assets. In other words — unless investment dollars are deployed at scale to limit further warming — there’s no place to hide.

This report focuses on the issues raised by climate change from the financial asset value perspective. In our companion report, Scaling Climate Action: Aligning Investments to Sustainable Development Goal 13, we address how investors can factor climate change into their investment choices. While we are already seeing the impacts of climate change, we have not yet passed the point of no return from the more extreme scenarios of physical damage and value destruction highlighted in this analysis. There may be no place to hide, but there are plenty of ways to fight.

Download No Place to Hide?

A growing global population and economy leads to more demand for food, water, transportation, housing and the fuel to supply these essentials to the world’s populace. Growing food, providing transportation and supplying the energy to foster global commerce all lead to greenhouse gas (GHG) emissions. Rising GHG emissions are the root cause of climate change.

Warming temperatures put our agriculture, health and water supply at risk. Warmer oceans and higher seas lead to stronger hurricanes and storm activity, causing flooding, coastal erosion and crop damage.

As outlined in our report No Place to Hide? Climate Change and Systemic Financial Risk, without urgent investment to scale climate solutions, global financial assets face value destruction of 2-17% depending on the pace and intensity of further global warming. If the more extreme scenarios come to pass, entire portfolios would be affected as key sectors of the economy face severe losses.

In this report, we propose ways for investors seeking to fight climate change to deploy capital in support of SDG 13: Climate Action. To do so, we use Cornerstone’s Access Impact FrameworkTM, which identifies relevant “access themes” that offer tangible investment ideas and helps to measure the impact of those investments.

Investment opportunities include funds that support new clean, alternative energy technologies, better farming methods, electric vehicle transportation and other growth industries which can help curb greenhouse gas emissions and slow the pace of warming. These investments target market rate or better returns while offering solutions to restrain global warming and its negative global impacts.

Download Scaling Climate Action.

UN Sustainable Development Goal 13: Climate Action highlights the societal imperative to take urgent action to combat climate change and its devastating impacts through policy, awareness-raising, and adaptation and mitigation strategies. The effects of climate change can be seen on every continent. Weather patterns are changing, sea levels are rising, and greenhouse gas (GHG) emissions are now at their highest levels in history. Without action, the world’s average surface temperature is likely to surpass 3°C this century. Climate change is disrupting national economies and individual lives, with the poorest and most vulnerable people suffering the most. SDG 13 is further refined by targets that can be more readily translated into actions. These targets highlight the interconnected nature of the goals: For example, strategies to tackle Climate Action are intertwined with those that address SDG 7 (Affordable and Clean Energy) and SDG 3 (Good Health and Well-Being). Below are a series of synergies that can come from providing access to products, services and systems that address Climate Action.

Invest in Access to Safe, Affordable and Sustainable Transportation

By 2030, 1.2 billion cars will be on the road globally, and annual passenger traffic will increase by 50% over 2015 levels.1 These trends are expected to raise greenhouse gas contributions from the transport sector, which already constitutes 18% of all human-made
emissions.2 At the same time, emissions from freight and shipping are growing even more rapidly than those from personal transportation, posing another urgent challenge for climate mitigation.3 Transport systems are also increasingly vulnerable to climate change impacts; increases in heavy precipitation events will affect road and bridge infrastructure,4 and ports are at risk to rising seas and extreme weather. 5Yet access to mobility and transportation translates into economic growth and expands access to jobs and social opportunities.6 As people worldwide seek more mobility, access to sustainable transport options will be critical to achieving SDG 13: Climate Action.

Learn More About Investing in Climate Action

Invest in Access to Sustainable Sources of Food and Nutrition

A growing population and changing dietary needs equate to a higher global demand for food. The world will need to produce upwards of 70% more food by 2050 to feed an estimated 9 billion people.7 However, the effects of climate change are accelerating the disruption of agricultural systems, especially in regions where levels of hunger are already high,8 offsetting progress in food access as developing economies grow.9 Measures of hunger have increased since 2014, and experts attribute this in part to climate change impacts.10 At the same time, food systems will need to become more sustainable, as agriculture is currently a major source of GHG emissions.11 Solutions will need to help increase and ensure access to food with an emphasis on sustainable production in the
future.

Invest in Access to Education

Education plays an important role in both climate change mitigation and adaptation. Higher levels of education translate to an increased understanding and awareness of the immediate threats of climate change, resulting in a greater likelihood for advocacy on associated issues.12 Furthermore, women who attain higher levels of education have fewer children, thereby curbing emissions from population growth and mitigating future climate change.13 The countries that will be hardest hit by climate change are also home to large child populations who will need to adapt to these impacts.14 In this case, increased access to education helps current and future decisionmakers and workers take successful actions to adapt personally and collectively.15

Learn More About Investing in Climate Action

Invest in Access to Affordable, Sustainable and Modern Energy

Globally, more people have access to electricity than ever before.16 However, 13% of the global population still lacks access to electricity.17 Meanwhile, energy production is the dominant contributor to climate change, accounting for around 60% of total global emissions.18 Increasing access to sustainable forms of energy will be critical to reducing future emissions.19 In particular, replacing the wood, coal, and charcoal fuels that 3 billion people currently rely on for cooking with efficient cookstoves has been identified as a priority goal.20

Invest in Access to Clean Air

Clean air and SDG 13: Climate Action are directly related. Black carbon is a major output of vehicles, coal-based power plants, and other fossil-fuel burning sources. Not only is black carbon a major driver of climate change, it is also an air pollutant with serious public health consequences.21 Organizations such as the World Health Organization have conducted research showing that 91% of the world’s population lives in places where air quality exceeds guidelines for acceptable particulate matter, which contributes to 4.2 million deaths yearly.22 Providing access to clean air addresses these health issues and reduces greenhouse gas emissions simultaneously.

Learn More About Investing in Climate Action

SDG 13: References

1 Global Mobility Report, 2017, Sustainability for All Initiative;
2 Ibid;
3 Decarbonizing Transport for a Sustainable Future: Conference Proceedings, Fifth EU-US Transport Research Symposium. National Academy of Sciences. 2017;
4 Fourth National Climate Assessment. US Global Change Research Program. 2018;
5 Discussion Report: Sustainable transport solutions to the climate crisis, 2016;
6 Global Mobility Report, 2017, Sustainability for All Initiative;
7 The State of Food Security and Nutrition in the World, FAO, 2018;
8 Climate Change Impacts on Global Food Security, Wheeler, Tim; von Braun, Joachim, 2017;
9 G. C. Nelson et al., Food Security, Farming, and Climate Change to 2050: Scenarios, Results, Policy Options, IFPRI, 2010;
10 The State of Food Security and Nutrition in the World, FAO, 2018;
11 CGIAR Research Program on Climate Change, Agriculture and Food Security, 2018;
12 Sustainable development begins with education: how education can contribute to the proposed post 2015 goals, 2014, & Evaluation of a national high school entertainment education program: The Alliance for Climate Education, 2014;
13 Climate Change and Education Policy Brief, The Commonwealth, 2016;
14 Ibid.;
15 Universal Education is key to enhance climate adaptation, Science, 2014;
16 Access to Modern Energy: Assessment and Outlook for Developing and Emerging Regions, 2018;
17 United Nations Sustainable Development Goals, 2018;
18 Ibid;
19 Access to Modern Energy: Assessment and Outlook for Developing and Emerging Regions, 2018;
20 EPA Air Quality and Climate Change Research, 2018;
21 World Health Organization, 2018.
21 EPA Air Quality and Climate Change Research;
22 World Health Organization.

In our recent report Sustainable Protein: Investing for Impact at the Nexus of Environment, Human Health and Animal Welfare, we pointed out that in developed countries, diet-related health concerns and less- or no-meat lifestyles have sharply reduced consumption of red meat.  Flexitarian, vegetarian and vegan preferences have been driven, in part, by animal welfare and climate change concerns.

Today, a flexitarian diet – one that doesn’t adhere to a specific eating style and may combine plant-based and meat-based dishes – is now practiced by 31% of Americans, with another 13% subscribing to a specific eating lifestyle such as veganism or vegetarianism. In the U.K., almost 13% of the population is now vegetarian or vegan, with a further 21% identifying as flexitarian, according to a 2018 survey of British consumers.  Our report also highlighted a preference by consumers for fresh and organic products.

On February 21, Kraft Heinz announced that it was writing down the value of some of its best-known brands by $15.4 billion which, according to a Bloomberg article[1] was “an acknowledgment that changing consumer tastes have destroyed the value of some of the company’s most iconic products.”  Subsequently, the stock price of Kraft Heinz plunged 21%.

Another Bloomberg article[2] observed that “all the old guards of the supermarket aisles are struggling as consumers opt for fresher, less-processed and more on-the-go food items from upstart businesses.”  In our report, we pointed to rapid growth in the organic yogurt, almond milk and protein bar categories in recent years, with many of the leading companies being relatively young start-ups.  While Kraft Heinz attempted to respond to these trends, its efforts haven’t been enough.  As Bloomberg observed, the company “has tried to spruce up a tired suite of brands — from organic Capri Sun to natural Oscar Mayer hot dogs.”

Our report concluded that, reflecting the shift to sustainable protein, opportunities exist in alternative proteins, organic foods, new agricultural technologies, sustainably managed farmland, and sustainable fisheries and aquaculture.

[1] Kraft Heinz Falls Near Record Low on $15.4 Billion Writedown, 2019-02-22

[2] Kraft Heinz’s Financial Recipe Turns Sour, 2019-02-22

Advances in agricultural technology, changes in human diet, and rising awareness of the environmental destruction caused by factory farming are accelerating the rise of sustainable protein.

Investors can target a number of outcomes — access to a sustainable food supply, lower greenhouse gas emissions, more plentiful and cleaner water, and a reduction in animal cruelty — through sustainable protein related investments. Opportunities exist in alternative proteins, organic foods, new agricultural technologies, sustainably managed farmland, and sustainable fisheries and aquaculture.

In this report we outline how a confluence of behavioral, technological, and regulatory changes have fueled the trend toward sustainable protein; identify emerging developments in the “alternative protein” space; and highlight ways to consider sustainable protein investment across asset classes.

Download Sustainable Protein: Investing for Impact at the Nexus of Environment, Human Health and Animal Welfare

This article originally appeared in Investment News on December 13, 2018. 

Sustainable and impact investors are set to intensify their decades-long support for action on climate change on the heels of a recent report from the Intergovernmental Panel on Climate Change and the Fourth National Climate Assessment, issued by the U.S. government.

The U.S. government notes that unless urgent action is taken, climate change could shrink the U.S. economy by hundreds of billions of dollars every year in direct costs. Consistent with these findings, the IPCC’s alarming (and unsurprising) conclusions are that urgent global economic transformation is needed to head off catastrophic damage to ecosystems, communities and economies beginning within a quarter century.

Many investors now understand that climate change is not merely an environmental issue but a material economic risk for long-term portfolios. However, investors should avoid a single-minded focus on climate change that ignores the relationship between ecosystems and human development.

The IPCC report stresses that an effective fight against climate change must include efforts to achieve sustainable development goals such as gender equality, the eradication of poverty, and food security.

In other words, how we fight climate change matters. Even the most optimistic scenarios will require substantial human adaptation to changed ecosystems, which will be especially challenging for poor or marginalized communities. Achieving sustainable development goals will strengthen the ability of poor communities to adapt to inevitable change and complement more direct efforts to mitigate climate change. However, these climate mitigation efforts by themselves may either help or hinder progress towards the sustainable development goals.

For example, mitigation strategies such as reforestation or biofuel development may reduce the land available for agriculture at a time when crop yields are already declining because of rising temperatures and water stress. The resulting increases in food prices have the effect of reducing buying power and possibly destabilizing civic and political cultures in developing countries.

Conversely, sustainable agricultural strategies, conducted with attention to social equity, can increase food security and counteract some of the negative effects of climate change on drinking water, biodiversity and income inequality, while reducing greenhouse gases associated with intensive farming practices.

The empowerment of women can also support and reinforce both climate change mitigation and adaptation. Improving the quality of cookstoves available to poor women has the direct effect of reducing fuel use and deforestation. It also reduces asthma rates, which improves educational outcomes, and empowers women by freeing them from the labor-intensive “drudgery” of traditional cooking methods.

Numerous studies have also shown that as women gain education and empowerment, they earn more income and often choose to have fewer children, which is associated with reduced poverty and lower greenhouse gas emissions.

The introduction of modern technologies such as cookstoves into poor households would have an undeniably positive effect on quality of life for the poor and the resilience of their communities. However, the resulting increase in the demand for energy could undermine the intended climate benefits unless these strategies are accompanied by investments in renewable energy and energy efficiency — both of which come with additional benefits for income and energy access.

These and many other examples demonstrate the need for a holistic understanding of the connection between issues of climate and human development. Yet much of the financial capital flowing into climate mitigation today is motivated solely by opportunities for financial return arising from new public policies and the dramatic improvement in renewable energy technology.

These flows are important for achieving global scale for environmental solutions. However, a lack of attention to the social dimension of investment decisions may create a blind spot for unintended consequences that counteract environmental benefits.

The insights of sustainable and impact investment offer an essential complement to mainstream financial analysis. Integrating environmental, social and economic concerns into investment analyses can yield a more nuanced understanding of the complex interactions between climate and society. As part of this analysis, a commitment to stakeholder engagement will help investors incorporate the perspectives of local communities who will be impacted by investment decisions — because, as the IPCC report notes, climate change will impact people differently depending on geography, income and culture.

So what can investors who are concerned about climate change do? First, their investment policy statements should explicitly incorporate both climate change and key related social issues, such as gender equity, poverty, food security, and health. Second, the evaluation of investments or investment strategies intended to address climate change should integrate an analysis of their impact on broader sustainable development goals. Third, investors should use their voice to ask companies, governments and financial markets how climate change and sustainable development is incorporated into policy, planning and performance measurement.

An effective response to climate change will require the mobilization of every resource available to society, including governments, business, and civil society. Given the unique power of financial markets, investors can contribute to a long-term solution or exacerbate existing problems. Sustainable and impact investors have an opportunity to influence the outcome, if they choose to take it.

Citizen activists are taking to the streets to demand government accountability and action on issues they care about passionately, with groups ranging from #metoo to #neveragain, Black Lives Matter, and the alt-right. Against this backdrop, some of the largest shareholders in the world are now joining long-time shareholder advocates to call for improved corporate governance, equality and environmental stewardship. How will this heightened partisanship and conflict affect relations between companies and shareholders?

Cornerstone Capital Group recently convened our panel of corporate governance experts for a live webinar on hot topics in corporate accountability, sustainability and shareholder engagement. Our Head of Research and Corporate Governance, John Wilson, moderated a discussion with Catherine Jackson of Jackson Principled Governance, independent board director Karina Litvack, and Tim Smith, Head of ESG Shareholder Engagement at Walden Asset Management. Below are the key questions addressed, with video replays of each discussion.

How are shareholders helping to reshape the conversation around gender equality in the boardroom and the workplace?

Accountability and Action on the Slate? Corporate Governance in This Activist Age: Gender Diversity

How are climate competencies becoming a matter of corporate governance?

Accountability and Action on the Slate? Corporate Governance in This Activist Age: Climate Competencies

Some of the largest asset managers in the world have made a new commitment to advocacy on issues such as firearms and climate change—How does their participation change the conversation?

How is the political landscape in the U.S. and Europe influencing the conversation around corporate political activities?

How is the changed political landscape in the U.S. and Europe influencing the conversation around corporate political activities?

Accountability and Action on the Slate? Corporate Governance in This Activist Age: The Asset Manager Role

How are climate competencies becoming a matter of corporate governance?

Upcoming Event:

Citizen activists are taking to the streets to demand government accountability and action on issues they care about passionately, with groups ranging from #metoo to #neveragain, Black Lives Matter, and the alt-right. Against this backdrop, some of the largest shareholders in the world are now joining long-time shareholder advocates to call for improved corporate governance, equality and environmental stewardship. How will this heightened partisanship and conflict affect relations between companies and shareholders?

Join Cornerstone Capital Group as we convene our panel of corporate governance experts to discuss hot topics in corporate accountability, sustainability and shareholder engagement, addressing questions such as:

April 17, 2018

11:00 am – 12:00 pm

Register here

Areas with higher exposure to water-related risksSource: Aqueduct Water Risk Atlas

Download the full report here.

Sebastian Vanderzeil is Director, Global Thematic Research Analyst with Cornerstone Capital Group. He holds an MBA from New York University’s Stern School of Business. Previously, Sebastian was an economic consultant with global technical services group AECOM, where he advised on the development and finance of major infrastructure across Asia and Australia. Sebastian also worked with the Queensland State Government on water and climate issues prior to establishing Australia’s first government-owned carbon broker, Ecofund Queensland.

Craig Metrick, CAIA is Managing Director, Institutional Consulting and Research at Cornerstone Capital Group, where he oversees the firm’s manager review process and provides investment advisory services for our foundation, endowment and family office clients. Previously, Craig was Principal and US Head of Responsible Investment at Mercer; for nearly 15 years, he has consulted on implementing responsible investment principles and mandates. Craig serves as the Chair of the Board of the US Forum for Sustainable and Responsible Investment (US SIF).

Jennifer Leonard, CFA is Director, Asset Manager Due Diligence at Cornerstone Capital Group. In a career spanning microfinance, institutional financial services and impact investing, Jennifer has developed a unique skill-set in working to deploy capital for social and financial returns. Previously, she was vice president of impact investing at The CAPROCK Group, where she co-led the firm’s impact practice and helped clients build customized, impact-mandated portfolios. From 2009-13, she was a Latin America equity research analyst at Morgan Stanley.

Emma Currier is a Research Associate at Cornerstone Capital Group. Emma graduated with a Bachelors of Arts degree in Economics from Brown University in May 2016. While at school, she worked with the Socially Responsible Investing Fund and as a teaching assistant for the Public Health and Economics departments. She spent her sophomore summer researching differences between American and Indian educational styles in Arunachal Pradesh, India, and completed a summer investment bank analyst position with Citi in the Media & Telecom group in 2015.

 

We recently had the pleasure of hosting the webinar “Oceans in Peril: What Can Investors Do?”

Craig Metrick, Managing Director, Institutional Consulting & Research for Cornerstone, was joined by ocean health expert Karen Sack of Ocean Unite; Rolando Morillo of Rockefeller & Co, who is responsible for identifying and supporting the management of public equity investments for the Rockefeller Ocean Strategy; and Jason Scott, Co-Managing Partner of Encourage Capital, which specializes in investments to “solve critical environmental and social problems.”

The panelists engaged in a wide-ranging discussion of major ocean health challenges and ways in which investors can deploy their capital toward solutions.

 

Executive Summary

Can investors be confident that International Oil Companies (IOCs) are sustainable for the long term? Technological, policy and market trends intended to mitigate climate change threaten permanent displacement of oil demand. The long-term investments of oil companies may prove to be liabilities if future demand falls short of expectations. The potential implications for investors are significant, but uncertain since the likelihood and impact of these trends are difficult to forecast.

In uncertain circumstances, business strategies and practices that historically have served shareholders well may become a hindrance to adapting to new operating environments. The primary risk for oil companies is an inability to adapt to scenarios that fall outside of historical norms.

Given the difficulty of making accurate forecasts in an uncertain environment, the most useful current signal of how well a company is positioned for the long term is its corporate governance. While there is no doubt that oil companies are preparing for the future, the question for shareholders is whether the companies are envisioning a future that looks much like the present or preparing to adapt to societal change that could result in an entirely new operating environment.

As we discussed in our June 2017 piece, “Making Their Voices Heard: Shareholders Vote for Greater Transparency on Climate Change,” a majority of shareholders at two IOCs and more than 40% at a few others supported proposals asking companies to disclose an analysis of the impact on their businesses of a global shift to a “low carbon” economy – one in which greenhouse gas emissions are sharply curtailed in order to limit global warming to 2 degrees Celsius. Some companies, such as Shell, Statoil and Total, have done so. Within the past few days, Exxon Mobil has promised to produce a report as well.

While these analyses are important, we believe oil company shareholders should be primarily concerned with whether the company has adopted practices for governance, disclosure and engagement that indicate flexibility and resilience in the face of secular decline for its primary product.

We explore six key questions to guide investors as they engage with oil companies and review upcoming climate risk reports:

Download the full report here.

John K.S. Wilson is the Head of Corporate Governance, Engagement & Research at Cornerstone Capital Group. He leads a multidisciplinary team that publishes investment research integrating Environmental, Social and Governance (ESG) issues into thematic equity research and manager due diligence. He also writes and presents widely about the relevance of corporate governance and sustainability to investment performance for academic, foundations, corporate and investor audiences. John has nearly two decades of experience in sustainable investing and corporate governance.