Five Tips for Investors Who Care About Global Warming

The coming green economy will mean green tech, green jobs, and green investing. Ceres President, former EPA Regional Administrator, and green financial expert Mindy Lubber helps investors chart Wall Street's troubled waters to find investing opportunities with companies that are embracing the challenges of global warming.

by Mindy S. Lubber, President of Ceres

Climate change presents enormous financial risks and opportunities for investors. The risks are now embedded in all investment portfolios, as companies worldwide face growing regulatory, legal, physical and competitive risks from climate change. But risks also create opportunities. In the next 50 years, we will see a massive shift to cleaner energy sources and technologies – requiring trillions of dollars of investments globally – to avoid potentially-catastrophic climate disruption. Legendary venture capitalist John Doerr calls climate change “the biggest economic opportunity of the 21st century.”

Here are five steps investors can take to limit their exposure and seize the opportunities from climate change:

1. Urge companies to disclose potential risks and response strategies to climate change

Companies in numerous sectors will feel the ripples from climate change, whether from carbon-reducing regulations, physical impacts or growing global demand for low-carbon products and services. For example, electric power companies that generate much of their power from coal-fired power plants face potential financial risks from regulations limiting greenhouse gas emissions. Insurance companies face exposure from escalating insurance claims from extreme weather events such as prolonged droughts or stronger hurricanes. To better understand company-specific risks, a growing number of investors are filing shareholder resolutions with publicly-held companies requesting better disclosure of climate-related risks and strategies for minimizing those risks and seizing climate-related opportunities. Investors owning shares in any of these companies can vote their proxies in support of these resolutions when they are voted on at upcoming corporate annual meetings.

2. Urge mutual funds to engage with companies on climate change and vote their proxies in favor of climate resolutions

The nation’s largest mutual funds have been notoriously slow in engaging with companies on climate change and supporting climate-related resolutions. In 2008, mutual fund giants Fidelity and Vanguard did not support any climate-related resolutions that came to a vote. Among the large mutual fund companies that cast the majority of their proxies in favor of climate resolutions in 2008 were TIAA-CREF and Well Fargo. Socially responsible investment (SRI) investment funds typically support all climate resolutions. Green America has set up an online tool for investors who want to tell their mutual funds they should boost their attention to climate change. The web site allow investors to send letters to Fidelity, Vanguard and eight other mutual fund companies with poor voting records on climate change.

3. Look for clean energy and other climate-related investment opportunities

There are a growing number of opportunities for investors looking to take advantage of new products and technologies that are emerging to reduce global warming pollution. Despite the financial credit crisis, European and U.S. investment firms are ramping up climate-sensitive investment products. Some funds are tapping energy efficiency, renewable energy and other low-carbon technologies that stand to benefit as carbon regulations take hold worldwide. Among the funds that come to mind (and please, be aware, we are not endorsing either of them): Merrill Lynch launched an Energy Efficiency Index made up of companies in the auto, building materials and semiconductor sectors that are embracing improved energy efficiency as a way to boost the bottom line. KLD Research and Analytics has launched a Global Climate 100 Index, a mix of 100 companies selected for their involvement in renewable energy, future energy fuels, clean technology and energy efficiency.

4. Read company sustainability reports, annual reports, web sites and securities filings

There’s a growing mountain of information available – virtually all of it online – to get a handle on how companies are responding to climate change and other environmental challenges. More than 1,450 companies globally are now publishing sustainability reports based on the Global Reporting Initiative. These reports provide varying amounts of detail on their policies, strategies and bottom-line performance in dealing with climate change. Bank of America’s sustainability report, for example, describes the company’s industry-first goal for reducing greenhouse gas emissions in its lending. The Coca-Cola Co.’s most recent 10-K filing with the SEC explains the company’s perspective on growing water scarcity challenges around the world and how climate change could exacerbate these threats.

5. Support energy and climate policy action

Regulations to address climate change are coming from all levels of government and will affect all sectors of the economy. Therefore it’s important for investors and the companies they invest in to support appropriate state, regional, national, and international policies on climate change, such as legislation mandating reductions in greenhouse gas emissions. Investors should recognize the need for policies that establish regulatory certainty, minimize climate risks, and provide strong incentives for investment in clean technology and other climate change solutions. Many leading investors who are part of the Ceres-coordinated Investor Network on Climate Risk (INCR) have been sending letters to Congress urging strong climate and clean energy policies.

Mindy Lubber is president of Ceres, a leading coalition of investors and environmental groups working with companies to address sustainability challenges such as global climate change. Ceres, in coordination with Nike, recently launched a new business coalition, Business for Innovative Climate and Energy Policy (BICEP), which is advocating for strong climate and clean energy policies from Congress in 2009. Ceres also directs the Investor Network on Climate Risk (INCR), a network of 80 institutional investors and investment firms with collective assets totaling more than $7 trillion.