Investing in the Future

Leonardo Da Vinci “Nature is the source of all true knowledge.”

After the hottest ever recorded July day in the UK, Paris breaking its heat records with 42.6C on Thursday, and 200 million people affected by heatwaves across North America, it seems that climate change is here for the foreseeable future. Research published this week in Nature shows that the current global warming is unprecedented over the last two thousand years[1].  What does this mean for business as usual?
 
Plenty of companies are working on climate change mitigation (the attempt to avoid further carbon emissions). This includes the usual suspects of solar and wind power companies, makers of electric vehicles, and manufacturers of more sustainable materials such as bamboo, wood, or biodegradable plastic. More than ever though, a broad range of companies are considering adapting to the changing climate, and many are starting to view this not just as a threat, but as an opportunity.
 
What are the business benefits?

• A study of 180 US companies showed that those that were considered ‘High Sustainability companies’ (meaning that they were early adopters of environmental policies, boards of directors had formal responsibility for sustainability, and executive compensation incentives had sustainability metrics woven into them), significantly outperformed their competitors, in terms of stock market and accounting performance.[2]

 
The companies, individuals and countries that are planning to profit:

• Apple believes its watches will be useful in extreme weather events, working as flashlights, sirens or radios, and able to be charged by car batteries or hand cranks. It predicts adding £711million to its bottom line.
• Google Earth thinks more climate researchers using its mapping services could boost revenue by £110million.
• Companies such as Home Depot and Dyson are banking on selling more air-conditioning units and fans. Richard Branson is backing the Global Cooling Prize, hoping to cash in on the increased need for home cooling systems, without further exacerbating climate change.[3]
• Dutch engineers are selling their flood-management expertise to countries threatened by sea level rise.
• Melting glaciers in Greenland are revealing new mineral wealth, which may allow the nation to develop further.

 
The funds that are investing in solutions:
 

• Hartford Environmental Opportunities Fund: investing in traditional revenue streams such as low-carbon electricity and energy efficiency. Average annual return: 6.51 percent.
• Pax Global Environmental Markets Fund: some climate related investments, but the fund also buys companies that help deliver cleaner water and air and dispose of waste. Average annual return: 10.36.
• Sustainable Growth Fund: funds companies that are performing better than their peers in energy efficiency, such as J. B. Hunt Transport Services, which uses more rail shipping than on-the-road trucking for long distances, leading to energy savings of up to 50%. Average annual return: 18.84 percent.

 
The response from the insurance industry:

• This month, Chubb announced that it will be the first US insurer to begin phasing out coal investments and insurance policies over the next three years. Lloyds of London announced similar plans to start divesting from April 2018.
• AIG is offering personalized firefighting services in California.
• Axa dumped its investments in tar sands pipelines last year.
• Allianz, Axa, Aviva, Generali, Legal & General, Munich Re, Swiss Re and Zurich have all divested from coal by a greater or lesser extent.

Before you get carried away though, there is a cautionary tale. Shell invested $7billion in drilling for oil in newly opened fields in the arctic, before abandoning its efforts in 2015 amid disappointing results and mounting public disapproval. It’s worth thinking about your business and looking at how a changing climate might affect it, what measures you can put in place to weather the storm, and where you can branch out into new arenas that could both benefit the planet, your brand and your bottom line.

Contact Da Vinci’s Workshop to help you futureproof your business strategy and discover new opportunities in a changing world.

Links to further reading:
https://www.newscientist.com/article/mg23731710-800-real-colour-of-money-business-wants-profit-and-green-cred/
https://www.theguardian.com/business/2019/jul/01/chubb-no-longer-invest-insurance-coal-firms
https://www.theguardian.com/environment/2017/dec/12/insurance-giant-axa-dumps-investments-tar-sands-pipelines
https://www.theguardian.com/business/2018/jan/21/lloyds-of-london-to-divest-from-coal-over-climate-change
https://www.ns-businesshub.com/science/companies-profit-from-climate-change/
https://www.nytimes.com/2019/04/12/business/climate-change-funds-profit-global-warming.html
https://www.theguardian.com/business/2015/sep/28/shell-ceases-alaska-arctic-drilling-exploratory-well-oil-gas-disappoints


[1] https://www.nature.com/articles/s41586-019-1401-2.epdf

[2] https://www.nber.org/papers/w17950

[3] https://globalcoolingprize.org/