Many people would like to see the U.S. government do more to combat climate change, but private investors are leading the charge regardless of whether the government makes progress or not.
Last week, 450 global investors representing tens of trillions of investment dollars met at the Investor Summit on Climate Risk and Energy Solutions at the United Nations, underlining continued progress in tackling climate change. In fact, clean energy investment hit a record $260 billion last year.
Problems yield progress
According to Bloomberg New Energy Finance, that $260 billion in total clean energy investment represented a 5% increase year over year, and is five times the total invested in the area seven years ago. In addition, the U.S. raced past China in clean energy investment for the first time since 2008, directing $55.9 billion in this area (a 35% increase), compared to $47.4 billion invested by China (a 1% increase).
The summit brought together individuals from various organizations that clearly view climate change as an economic factor rather than a political one. Deutsche Asset Management's Kevin Parker surmised that climate change could be "the biggest investment factor of our lifetimes." General Electric
Investors are increasingly aware of the serious risks climate change poses to their portfolios. However, another takeaway is that proactively tackling the issue represents profitable opportunities. At the summit, Ceres, a coalition of environmental groups and investors that seek to lead sustainability, released an Investor Action Plan (PDF file, Adobe Acrobat required) to address the risks and opportunities at hand.
The Investor Action Plan includes many ways investors can address the issues at hand. These include actively managing climate risks and opportunities in portfolios, encouraging better corporate disclosure and practices related to sustainability, investing in low-carbon solutions, putting a greater emphasis on energy efficiency in investment decisions, and supporting international, national, and other policy actions.
In one specific example, the Investor Action Plan homes in on investor assessment of water-related risks and opportunities. For example, evidence that climate change contributes to disasters like floods and droughts also affects municipalities, agriculture, and industries that rely on water for their operations and supply chains. Water scarcity is a growing risk worldwide, too; McKinsey recently prognosticated that we could face a 40% shortfall in necessary water supplies by 2030.
Not only can investors address water risk analysis, but they can also invest in infrastructure and technologies to replace old, inefficient infrastructure and business methods. These new water-saving investments would also create much-needed new jobs. Investors can also direct their portfolios to include companies that are actively addressing these problems in their operations.
For example, last October, Ceres launched its Aqua Gauge, which helps investors assess corporations' water risk management. Ceres also included several case studies of huge companies that are working on their water usage, hoping to be part of the solution rather than the problem.
Gigantic multinational food company Nestle uses methods such as water risk maps, a Water Resources Review program, and other analytical tools to gauge its water usage, impact, and risks across 450 facilities around the globe. Since 2000, Nestle has managed to reduce its water withdrawals by 32% despite the fact that its production has increased by 73%. It also aims to reduce water use by another 10% to 15% over the next five years.
There's plenty of progress left to make when it comes to encouraging more efficient business methods that also mitigate climate change and environmental damage. Still, investors are already leading the charge to act before it's too late. We small investors can participate, too, by taking a look at our own personal portfolios and making sure they're invested in forward-thinkers that are realistically addressing these future risks, or even looking for positive opportunities in a cleaner world.
These days, there may be quite a dichotomy between the concept of Washington and "doing the right thing." Fortunately, many investors are stepping up to the plate because it's the right, responsible thing to do -- and includes profit opportunities, too.
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Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on environmental, social, and governance issues.