Unlocking Greater Returns: Investing for a Sustainable Future
When we invest in the world we care about, the rewards are multiplied.
In recent decades, the gap between the rich and the poor has widened at an alarming rate, while our environment and atmosphere have suffered significant degradation. Nobel award-winning economic studies have revealed that investing without considering global health diminishes economic stability and undermines our bottom lines. On the other hand, impact investing directs capital towards enterprises that generate social and/or environmental benefits. Contrary to popular belief, new business models focused on purposeful and morally-guided capital allocation not only help address inequalities but also offer comparable returns. Analysts at McKinsey & Company have challenged the myth that “social” investments yield weak returns that take too long to materialize. To achieve clean energy solutions that protect our atmosphere, we must invest in them, which ultimately provides favorable returns for both individuals and the planet.
The threat of climate change has been recognized by scientists, government officials, and even oil companies for the past four decades. However, significant investment in climate solutions did not materialize until 2013. Nonprofits and faith-based organizations were among the first to realize that their endowments were inadvertently supporting the fossil fuel industry, rendering much of their work counterproductive. The New York Times even reported on the front page when the Rockefellers, heirs to an oil fortune, divested from the oil industry. These landmark shifts not only signal a change in investment trends but also pave the way for wealth creation within a restorative economy.
Since 2013, close to $900 billion has been redirected towards clean energy investments. Organizations like divestinvest.org recognize that this shift is, in many ways, a numbers game. The climate-aligned bond universe has witnessed an impressive $1.45 trillion in issuance.
Jeremy Grantham of GMO aptly stated, “When you divest from oil or chemicals, the starting assumption must be that it will cost you a few tiny basis points of deviation, and it’s just as likely to be positive deviation as negative.”
It is noteworthy that eight sectors, including airlines, automotive, cement, steel, aluminum, chemicals, oil & gas, coal, and utilities, contribute to 75% of all emissions and represent 15% of the market capitalization of the MSCI World Index. By integrating emissions data into funds, financial practices, and general accounting frameworks, we incentivize companies to decarbonize and tackle technical challenges that may adversely affect their long-term performance. Failing to address emissions is, in many ways, ignoring the interests of shareholders over the long run.
By embracing impact investing and aligning our financial decisions with our values, we have the power to reshape the world’s economic landscape while unlocking greater returns. Investing in a sustainable future not only benefits our bottom lines but also builds a more equitable and resilient society for generations to come.