Underwater view of big iceberg with beautiful polar sea on background – illustration.
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Denying climate change is one matter. But forsaking the capital markets is another, which is why the United Kingdom’s largest asset manager is pointing out those companies that it considers to be environmental “laggards.”
While the current White House is giving short shrift to climate science, the institutional investors are raising the profile of those companies that they determine to be the forerunners and stragglers. Those investors have been effective in getting companies to listen and to act, although critics of their strategies say that the corporate fiduciaries must act in the financial interest of their participants.
“Our Climate Impact Pledge showcases that engagement can be a powerful tool if it is consequential,” Meryam Omi, head of sustainability and responsible investing at Legal and General Investment Management said. “Talks without action are no longer fit for purpose given the urgency to address climate change. We are enormously encouraged by the progress made by many of the companies.”
The UK-based investment management firm examined six sectors that involve oil and gas, electric utilities, mining, finance, food retailers, car makers. It has said that Exxon Mobil Corp., Hormel Foods, the Korean Electric Power Corp., Kroger and Metlife are falling behind. This is on top of an earlier pronouncement that labeled he China Construction Bank, Japan Post Holdings, the Canadian retailer Loblaw, Rosneft Oil, Subaru and Sysco Corp. as loafers.
Those setting the pace are Equinor, which is detailing how its future investment plans in oil and gas exploration will reduce CO2 releases; Rio Tinto and BHP Billiton, which are phasing out their coal assets; Xcel Energy, which is promising to go 100% carbon-free; Daimler, which has committed to a zero-emissions new car fleet by 2039 and, Danone and General Mills, which have adopted comprehensive emissions targets. It also likes the financial firms Citigroup, BNP Paribas and Westpac.
The US SIF Foundation’s 2018 biennial Report on US Sustainable, Responsible and Impact Investing Trends found that sustainable, responsible and impact investing assets now account for $12.0 trillion —or one in four dollars— of the $46.6 trillion in total assets under professional management in the United States. This represents a 38% increase over 2016. Companies focused on the triple bottom line — environment, social and governance— are outperforming other broader indices while also upholding their missions and burnishing their brands.
“Large institutional investors in particular have a fiduciary responsibility to their beneficiaries to ensure investments in companies that create long-term value,” says Danielle Fugere, president of As You Sow. “Companies that have large climate emissions and insufficient demonstrated transition plans, are not likely to create such value.”
Sense of Purpose
To be sure, critics of socially responsible investing say that companies must first serve their shareholders: By maximizing the returns of investors, corporations do more good for their broader societies. In other words, profitable companies spend money throughout their supply chains, which improves the circumstances of everyone they touch.
But as long as the investment managers are meeting the standards that their governors have set forth, then they are within their right to pursue a broader purpose. In that scenario, fund managers will optimize their twin desires to maximize returns while also improving the environment.
According to the Corporate Social Responsibility Newswire, $1 out of every $6 invested goes toward corporate sustainability.
“Profits are in no way inconsistent with purpose – in fact, profits and purpose are inextricably linked,” writes the Chairman of BlackRock Larry Fink. “Profits are essential if a company is to effectively serve all of its stakeholders over time …
“Similarly, when a company truly understands and expresses its purpose, it functions with the focus and strategic discipline that drive long-term profitability. Purpose unifies management, employees, and communities,” he adds. Without a sense of purpose, no company can achieve its full potential — and may thus lose credibility in the financial markets. In other words, succumbing to short-term profit goals will result in “subpar returns.”
It is thus incumbent upon the all stakeholders who support global commerce with their dollars to effect change — everyone from stockholders to customers to communities. But the large investment managers carry enormous weight and the pension funds here are pressing the U.S. Securities and Exchange Commission to apply stronger reporting requirements for sustainability risks.
While Washington has shunned green economics, most corporate cultures are embracing sustainability. Globally, free market forces have turned the tide, causing companies across the economic spectrum to address climate change. More must be done. But institutional investors are stepping up and using their muscle to ensure that companies commit to cleaner operations.
