Using the Tools of Climate Investing to Battle Injustice
In the span of only a few months, systemic issues once considered exogenous to markets have become the financial world’s main focus. From public health to structural inequality and the long-term battle against climate change, solving broader problems has never been more central to moving the economy forward.
While investors have been pushing companies to disclose and address climate risk, most companies have been caught flat-footed around both the pandemic and recent racial justice issues. And executives have just started to see the links between all three, like the negative health outcomes for minority communities near coal-fired power plants, for example.
“Corporations must recognize that their current efforts to promote their core values, and diversity and inclusion programs, fall far short of what is needed today,” said John Streur, chief executive of Calvert Research and Management, Eaton Vance’s $21.3 billion responsible-investment unit.
Companies are making the same mistake when it comes to people and the planet, said Rachel Robasciotti, founder of investment firm Robasciotti & Philipson in San Francisco. They are extracting “the maximum possible for an individual or company’s gain, rather than for sustainability.”
For investors, the first stage of thinking about climate is often reducing exposure to fossil fuels. More than $11 trillion in assets have now been committed to divesting from that sector, according to 350.org. There has yet to be the same commitment to removing institutions that propagate racial inequality, said Robasciotti, who published a list of companies this week she contends contribute to racial injustice, from for-profit education companies to firms that work with, or own, for-profit prisons. “With divestment you are directly impacting executive compensation and their cost of capital,” she said, “but we haven’t had solidarity on racial justice divestment as an industry since apartheid,” she said.
And while climate risk and opportunity will affect most companies in the years to come, a Bloomberg Green review of board members at the world’s largest banks found just a handful of those directors have any direct clean energy experience.
Measuring climate risk in order to manage it has been a key demand of climate-focused investors, but calls for more disclosure about workforce structure, safety and diversity have not. “Less than 40% of companies are even transparent about the racial and gender makeup of their workforce,” said Martin Whittaker, CEO of JUST Capital in New York. “If you don’t have the data to know if you are even biased against people of color in your workforce in terms of pay and benefits, then it’s going to be very difficult to do anything about it.”
Supply chain is another area where companies and investors have small but steady programs focusing on health, safety and equality issues, such as minority supplier programs or conflict minerals disclosure. Those programs could be made bigger and more effective.
The Bond Market
Long-dated bonds are seen as a potential funding solution for systemic injustice issues, from affordable housing to municipal education. Scale is crucial, however, because the scope of inequality, like the pandemic and the climate crisis, is vast. Coronavirus bonds have taken off, reaching about $163.5 billion in dedicated financing, according to BloombergNEF. But that’s just a fraction of the more than $1 trillion green debt market, though. The scale of racial justice-focused firms can be quite small, too. In the past few weeks, for example, a $1 million fund was created to back African tech firms and a $2.2 million venture fund was begun to support black company founders. The market for social impact bonds that aim to address inequality issues like prison recidivism, educational opportunity and obesity has grown to about $370 million over the last decade, according to Brookings.
But there is a long way to go.
Sustainable Finance In Brief
- Larry Fink’s green dreams for BlackRock got complicated fast.
- Sweden plans to sell $3.3 billion of top-rated green bonds this year.
- Denmark’s MP Pension fund is targeting dirty bonds not aligned with the Paris Agreement.
- Investors with $12 trillion in assets are pressing the European Union on green recovery plans.
- How to buy climate-conscious toothbrushes, vodka and sports cars.
Emily Chasan writes the Good Business newsletter about climate-conscious investors and the frontiers of sustainability.
©2020 Bloomberg L.P.