The business case for green energy
Summary
Companies are rolling back climate commitments, but investing for sustainability is financially prudent.It seems like yesterday that we, as advocates for a sustainable economy, had the wind in our sails. At the 2021 United Nations climate change conference in Glasgow, many of the world’s largest asset managers, banks and insurers pledged to decarbonize their investment portfolios, loans and insurance policies in line with the Paris Agreement.
The world today looks very different. Many of the Glasgow signatories are stepping back from their commitments. Others are playing down their climate action to avoid controversy. Particularly in the U.S., the fossil-fuel industry, its allies and captive policymakers seek to punish companies and investors pursuing sustainability goals with frivolous lawsuits, smear campaigns and the withdrawal of state-controlled funds under management.
These developments couldn’t come at a worse time. Last year was the hottest on record, and humanity suffered some of its costliest extreme weather events fueled by the warming planet. Over the past decade, these events have cost the global economy more than $3.5 trillion, an increase of almost $800 billion over the previous decade.
We can’t afford to ignore the climate crisis, the destruction of vital natural systems and increasing economic inequality. In the short term, the poor and powerless suffer the most significant consequences of a warming and deteriorating planet. In the long run, we would all lose out, absent change.
It shouldn’t be this way. When asset managers deploy capital across the world, they aren’t investing their own money. Rather, they’re investing others’ savings, pension assets and retirement accounts. As such, they have a duty to take into account all relevant risks and opportunities as they try to protect those assets and increase them.
We believe the business case for sustainable investing is beyond question. Looking at investments through the lens of sustainability helps investors identify opportunities and manage risks like exposure to fires, floods and other disruptions. The best practice is to invest for the long term, and sustainability factors will be major drivers of economic change over time. Hastening the sustainability transition is vital.
Since establishing our firm with five other partners in 2004, we’ve faced opposition to our approach. Some believe that sustainable investing has nothing to do with fiduciary duty, the legal requirement that asset managers act in the best interest of their clients. This is incorrect. If an issue is relevant to the long-term health of a business or a portfolio, it is our duty to consider it. For example, any investor in coastal properties, or any bank granting mortgages on them, should consider risks associated with more destructive hurricanes and accelerating sea level rise, both direct consequences of global-warming pollution.
While some objections to sustainable investing are self-serving or ill-informed, real problems do exist in the field. Companies and investors trying to navigate the sustainability space find themselves drowning in rules, regulations, acronyms and disclosure requirements that create unnecessary problems for them as they seek access to the high-quality data needed to track progress toward sustainability goals—even for those that are highly committed to sustainability. We think that the International Sustainability Standards Board, a not-for-profit organization that develops global sustainability standards, can play a role in simplifying these requirements.
The financial community should also make investing in climate and nature in the Global South a priority. Many of the countries most at risk from the climate crisis are the least responsible for causing it. Investment in this region is not only a matter of social justice; it’s an investment in a safer world. At the 2024 United Nations climate conference in Baku, Azerbaijan, world leaders agreed to work together to invest in climate projects for the developing countries most vulnerable to the effects of the climate crisis—mobilizing $1.3 trillion annually by 2035. More than half of this will need to come from private sources.
When something is unsustainable, it eventually stops. Treating the transition to a sustainable economy as optional isn’t an option. The cost of inaction is indefensible and unbearable.
The transition is inevitable—but a just transition in time to avoid horrific consequences for humanity isn’t. This challenge requires people to put their heads above the political parapets to say and do what’s right. We in the finance community must show leadership and create the circumstances in which the global financial system advances sustainability goals. There’s a need for high-ambition investors to stand firm in their commitment to a sustainable economy and society. Please join us.
Mr. Gore served as vice president of the U.S., 1993-2001. He is chairman and Mr. Blood senior partner of Generation Investment Management.
