Principles
Climate change is a major investor risk that is material, undiversifiable, and preventable.
The recently released report from the United Nation’s Intergovernmental Panel on Climate Change (IPCC) could not be clearer: we are on track to climate disaster, and we have just a decade to avert the worst of it. The report sounds the alarm about the dangers of failing to limit warming to 1.5°C; by contrast, even 2°C of warming places hundreds of millions more people at risk of poverty, doubles the number of people living with water stress, subjects tens of millions more people to devastating heat waves, and more. Warming beyond 2°C — the path we are currently on — will likely result in catastrophic harm, as global conflicts and mass migration produce unprecedented levels of social, political, and economic disruption. The recent U.S. 4th National Climate Assessment estimated that economic losses due to climate change could double those of the Great Recession of 2008, with hundreds of billions of dollars in damages annually due to heat-related deaths, sea level rise, decreased agricultural productivity, and more. Climate change puts investor assets at unprecedented risk, as experts agree that the effects will be large, negative, and undiversifiable.
Responsible corporate governance is critical to addressing climate change.
According to the United Nation’s Intergovernmental Panel on Climate Change (IPCC], the only hope of averting climate disaster requires cutting carbon emissions in half across the entire global economy by 2030, and then reaching net-zero emissions worldwide by 2050. To achieve this, corporate boards urgently must become climate competent, ensuring that their business models, investment plans, executive incentives, and policy influence are aligned directly to this target. Climate competent boards are competent, independent, and diverse, capable of leading companies through the complexities our climate challenge requires. Particularly in times of business model transformation, regular refreshment of the board can be important to ensure that the current balance of director experiences and abilities matches the company’s current needs.
Investors have the power, opportunity, and responsibility to act and hold public companies accountable.
Long-term investors must act to ensure that the companies in which they are invested are aligning themselves to a net-zero carbon future, mitigating risks to shareholders, and taking full advantage of the opportunities economy-wide decarbonization presents. Indeed, for long-term investors, voting on the election of corporate directors is the single most direct and important action they can take to communicate their views to company leadership and ensure that companies are managing the challenges and opportunities of climate change. Large investors with significant voting power bear particular responsibility for ensuring that boards are appropriately overseeing and planning for our net-zero carbon future.
