A Sustainable Investment Strategy
In recent years, we have found that more individuals are focusing on sustainability and how they can align their investment decisions with their views on sustainability in a changing global environment. In this effort, tension may arise between the lifetime financial goals of investors and the social and environmental legacy they are leaving to future generations.
According to the Intergovernmental Panel on Climate Change, greenhouse gas emissions have increased since the pre-industrial era, driven largely by economic and population growth. This has led to atmospheric concentrations of carbon dioxide, methane, and nitrous oxide that are unprecedented in at least the last 800,000 years.
Exhibit I shows how the increase in global anthropogenic, or human-induced, greenhouse gas emissions (Exhibit l.d) and average greenhouse gas concentrations (Exhibit l.c) from 1850 to 2011 has coincided with increases in land and ocean surface temperature (Exhibit l.a) and rising sea levels (Exhibit Lb) over the same period .
Scientists, industries, governments, and society in general are now looking for ways to manage the tradeoffs between improving people's standard of living in the short and medium term and, in the long term, avoiding environmental damage that may inhibit humanity's standard of living. For instance, some energy companies have been shifting from coal-fired power plants to cleaner burning natural gas, and to low- and zero-carbon energy sources. Data from the US Energy Information Administration shows carbon emissions from natural gas are nearly 50% below those from coal.
However, the challenge of balancing shorter-term economic goals with longer-term concern for the environment can present society with many difficult questions: How can the transition from fossil fuels to alternative energies be managed practically? How long of a vision should be considered? What should the current generation's legacy be for future generations? What are society's responsibilities, even when not mandated by current laws? What financial losses might be faced if action is not taken? For a global and long-term issue like sustainability that works across borders, addressing these questions effectively at an international level can be difficult for governments representing economies with different energy needs and short political cycles.
Institutions and individuals can embrace these concerns through their behavior and consumption decisions and can become effective agents of change. Investors can also express their preferences through their participation in global capital markets.