Navigating the Changing Investment Climate

When an outspoken critic of climate-change science suddenly reverses his opinion entirely, that's one more indicator supporting the need for action. It's also a good sign that investors should take action to protect their portfolios, too.

A climate-change change of heart
The University of California at Berkeley's Richard Muller penned an editorial for The New York Times this week, powerfully titled "The Conversion of a Climate-Change Skeptic." New research through the Berkeley Earth Surface Temperature project, which he started with daughter Elizabeth, has convinced him his previous stance is dead wrong and that global warming is indeed under way.

Muller's also raising the thermostat in the uncomfortably heated climate-change debate by stating, "Humans are almost entirely the cause."

Muller was previously well known for criticism of global warming proponents' science, and his work at Berkeley had been funded by the Charles Koch Charitable Foundation.

An emerging material risk
Some investors have begun to deal with the gravity of the risks inherent in climate change already.

A report recently released by Mercer for The North American Investor Network on Climate Risk, the European Institutional Investors Group on Climate Change, and the Australia/New Zealand Investor Group on Climate Change released survey results from 93 asset owners and asset managers who together represented collective assets of $12 trillion.

The survey results showed that a majority of those questioned view climate change as a "material risk" and are specifically considering it in their investment policies; 83% of asset owners and 77% of asset managers have adopted this point of view.

Sustainability leadership group Ceres, which coordinates the Investor Network on Climate Risk, has long followed this topic. According to Ceres' Director of Investor Programs Christopher Davis:

While it's encouraging that more investors are concerned about the risks of climate change, many of them could be doing more to protect their clients and portfolios from those risks. This summer's extreme drought conditions, which are causing huge economic ripples across the U.S. economy, are the latest example of why investors should be making climate change a core consideration in their decision-making.

Some of the strongest investor advocates cited for incorporating Environmental, Social, and Governance (ESG) rankings into their investment decisions, and engaging with companies to improve their policies, are The New York Comptroller's Office, The California Employees' Retirement Systems (CalPERS), and Pax World Management Group.

The drive for disclosure
Investors may be coming around to the idea that climate change matters, but what about companies? Fortunately, we have more ways than ever to try to figure out which companies are making moves to address these issues.

The Carbon Disclosure Project is one of the avenues through which companies are addressing greenhouse gas emissions and climate change. Last September, the group reported on the S&P 500 companies' addressing of these issues, and despite a lack of clear-cut policy decisions, it found most large companies are acknowledging that addressing climate change could be a strategic advantage.

Respondents with board or senior executives overseeing climate-change programs increased to 87% from 68% the year before. The number of companies that dubbed climate-change policy as an integral part of business strategy doubled to 65% in 2011. Even better, 64% of the respondents were working on greenhouse-gas emission targets; only 51% had this plan the year before, and back in 2008, a paltry 32% were concerned with the topic.

The Carbon Disclosure Project also offers an annual Carbon Disclosure Leadership Index. Last year, News Corp. (NYSE: NWS  ) , Spectra Energy (NYSE: SE  ) , PepsiCo (NYSE: PEP  ) , and Bank of America (NYSE: BAC  ) were the top-scoring S&P 500 companies in the index for their respective segments (consumer discretionary, energy, consumer staples, and financials).

Out of a maximum score of 100, News Corp., Spectra Energy, and Pepsi received scores of 93, 96, and 90, respectively. Bank of America got the highest score of the disclosure leaders in the list, with a score of 97.

On the other side of the coin, The Carbon Disclosure Project called out several large, well-known companies for being total non-responders; these included market darlings Apple and Amazon.com.

The changing investment climate
Many point out that it's difficult to get too much accomplished in this area when there's a lack of clear-cut environmental policy. Meanwhile, the Securities and Exchange Commission has talked about requiring environmental disclosure for all public companies, and while some companies have voluntarily begun including that information in their risk factors, such disclosure hasn't been mandated yet.

Even though some investors and companies are already moving on this issue, there's plenty of work left to do in reducing emissions, boosting efficiency, and building sustainable portfolios, companies, and economies.

When big-time climate-change skeptics like Richard Muller start rethinking their previous public convictions, change is definitely afoot. The investment climate is changing, too. Those who put their money in stocks of companies that fail to address this important and economically threatening issue -- or even make the situation worse -- are likely to be left out in the cold over the long haul.

Are you here for Apple, regardless of whether it's a non-responder with the Carbon Disclosure Project? Check out our free report outlining the opportunities and risks Apple currently faces.

Check back at Fool.com for more of Alyce Lomax's columns on environmental, social, and governance issues.

Alyce Lomax owns no shares of any of the companies mentioned in her personal portfolio. The Motley Fool owns shares of Amazon.com, Apple, PepsiCo, and Bank of America. Motley Fool newsletter services have recommended buying shares of Spectra Energy, Amazon.com, PepsiCo, and Apple, creating a bull call spread position in Apple, and creating a diagonal call position in PepsiCo. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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