Two new reports highlight the expanding adoption of Environmental, Social, and Governance (ESG) criteria among money managers, as well as the benefits to the bottom line that accrue to ESG-savvy investors.
The biennial Report on US Sustainable, Responsible and Impact Investing Trends from US SIF, the trade organization for the SRI industry, shows a continuation of the rapid adoption of ESG criteria among mainstream money managers that was noted in the previous Trends Report. In the last two years, the value of portfolios that include consideration of ESG factors has mushroomed by 69%, to over 8 trillion dollars, under the management of 777 money managers and institutional investors, and over 1000 community investing financial institutions. While the number of more active money managers who filed shareholder resolutions
In the face of continued grim climate news and disturbing societal trends, it is increasingly clear that governments cannot marshall the resources—or perhaps even the will—necessary to the tasks before us. Increasingly, though, forward-looking investors are stepping in to help lead the way forward. Two recent reports offer some encouraging signs that global finance does indeed include many actors who are committed to the changes that we need.
Domestically, a progress report on an impact investing initiative from the White House Office of Social Innovation and Civic Participation shows actual investments to be outpacing and outperforming the initial commitments and expectations. When this private-investment initiative was announced in June 2014, they had $1.5 billion in new commitments to impact investments from private funds, foundation programs and endowments, investment banks, small family foundations, and nonprofit organizations. By the time the dust settled on the first round of planning, that total had grown to $2.5 billion to be invested over the five years from 2014-2019. The recent report followed up and found that in just the first eighteen months, through December 2015, almost half of this total had already been invested, suggesting that in the long run the goal may well be exceeded. This is especially likely when we turn to the returns coming in on the early investments, which universally have exceeded expectations. It turns out—no surprise to the SRI community—that investing in projects with strong social and environmental impact is very good business! So far, about two-thirds has been invested for social impact and one-third for environmental impact, especially climate solutions. 81% has been invested here in the U.S.
Internationally, the news is also encouraging. A recent UN report outlines the challenges before us: to meet both the UN’s 2030 Sustainable Development goals and the targets in the Paris climate agreement, $90 trillion of investment is needed over the next 15 years. This amounts to about 8% of global GDP over this timeframe, a daunting but not unrealistic goal. But to get there, it will mean marshaling the same power of private financing. As former Secretary of the Treasury Hank Paulson points out in an op-ed entitled How to Raise Trillions for Green Investments:
“The good news is that there is a global abundance of private capital. To unlock these riches, governments must create conditions that encourage private investment in clean technologies and sustainable development. With smart, well-designed and coordinated policies, financing models and instruments like bonds and incentive programs, countries have the potential to solve some of the planet’s most pressing environmental challenges while still maintaining economic growth.”
Paulson is especially enthused about the explosive growth of green bonds, which nearly quadrupled from 2013 to 2015, up to $42 billion. Of this, 40% is being deployed in China, where the government there has set ambitious green energy and building targets. The Building Energy Efficiency and Green Development Fund is a public-private partnership that will bring leading-edge technologies from U.S. companies to China to increase the energy-efficiency of new buildings there. (One more reason to NOT start a trade war with China!)
All this investment is still just the first few drops in the $90 trillion bucket, but the rapid ramping up of these and other green investment commitments suggests that the financial powers that be are finally waking up to the scope of our challenge and are ready to put their massive wealth to work making the changes that are needed. Time will tell whether it will be enough, but we’re encouraged that it’s happening on a scale we haven’t seen before.
Did you know that despite the lack of any federal laws protecting LGBT people from discrimination, three-quarters of Fortune 500 companies have policies in place to do just that? The “S” part of corporate ESG (Environmental, Social, and Governance) standards and SRI (Socially Responsible Investing) has been coming alive in increasingly dynamic ways in recent years.
This year, as three southern states passed laws that actively codified anti-LGBT discrimination, some of the loudest—and most effective—voices raised against these initiatives came from large companies. As summarized by The New Yorker:
Last month, executives at more than eighty companies—including Apple, Pfizer, Microsoft, and Marriott—signed a public letter to the governor of North Carolina urging him to repeal the state’s new law. Lionsgate Studio is moving production of a new sitcom out of the state, Deutsche Bank cancelled plans to create new jobs there, and PayPal has cancelled plans for a global operations center. In Mississippi, G.E., Pepsi, Dow, and others attacked the law there as “bad for our employees and bad for business.” Disney said that it would stop making movies in Georgia, which has become a major venue for film production, if the governor signed the bill. Something similar happened last year in Indiana, after the state passed a religious-freedom law allowing businesses to discriminate against L.G.B.T. customers and employees. At least a dozen business conventions relocated.
The article goes on to look at the ways this leadership by corporate interests upends both progressive and conservative orthodoxy. Progressives often decry the influence of business on government decision-making, but this time it’s a welcome addition to grassroots voices against regressive new state laws. Meanwhile, as the New Yorker’s James Surowiecki notes, “to many conservative business leaders, today’s social-conservative agenda looks anachronistic and is harmful to the bottom line; it makes it hard to hire and keep talented employees who won’t tolerate discrimination.”
Though we’ve long been champions of the idea that business can play a key role in reshaping society in positive ways, this vocal leadership on perhaps the leading social justice issue of the day is a welcome surprise.
A fascinating and somewhat scary article from Jeff Masters at Weather Underground paints a very plausible picture of how climate change could trigger a confluence of weather-related impacts around the globe that, together, lead to an unprecedented shock to the global food system. He fleshes out a report put together by Lloyd’s of London, which posited several events around the world, including an El Niño-driven drought from India through Southeast Asia to Australia (triggering a 6-20% reduction in key grain harvests), along with floods in the Mississippi basin creating a 7-27% hit on US grain, and torrential rains and landslides causing a 10% drop in Pakistan and the Himalayan lowlands. The addition of a couple of plant-diseases in South America and western Asia add some more 10% reductions to regional harvests, with the cumulative result being a world-wide food crisis.
We’ve had hints of this in the past, as when US floods in 1993 (pictured above) caused US corn production to fall 33%, or the 60% spikes in global food priced during two Russian droughts (pictured below); the more recent one occurred in the same year as damaging floods in Canada and Pakistan, both of which also contributed.
What’s different in the Lloyd’s of London analysis is the idea that climate change could trigger several large impacts at once. Instead of 60% increases in food prices seen in the “bad” years within recent memory, they suggest we could see global food prices leap to 4 or 5 times the norm, which are likely to trigger all manner of social upheaval and tragedy of the sort that tends to trigger us to plunge our heads into the nearest hole in the sand. . . .
It will probably say something about your own comfort with risk to hear that Lloyd’s sees this worst-case scenario as having about a 20% chance of happening during the next forty years. Even if we dodge those odds, the chart above is a reminder that one or a few modest disruptions can have a huge impact on the global food system. It seems prudent for resilient investors to have at least an awareness of these risks, and, if possible, a plan in place for how to respond if food prices spike.
Once again, California is showing the way forward. This time, it’s more consequential than Hollywood’s entertainment, Silicon Valley’s new tech, or the Sixties’ social evolutions. California is road-testing large-scale public policies that face up to the profound threat of climate change, showing the rest of us that a shared social commitment IS possible. As fleshed out The California Code, published in the new west-coast quarterly journal, Boom:
California’s response to the drought is … nationally and globally significant. What state and local leaders did to reduce the risks, and how state residents reacted, was a very public demonstration of government’s capacity to act with reason and intelligence to a short-term ecological emergency, with a long-term vision.
California sprang to action in its fourth year of deep drought because water management professionals and state leaders recognized that California’s water-scarce condition could be the new norm. They accepted the scientific consensus that it could get considerably worse. The way out of the trouble was to convince state residents of the need for collective action and to instill behavioral changes in homes and businesses that would diminish demand and provide a higher measure of safety.
Perhaps that should not be surprising given California’s historical ability to set the national and global agenda in culture, technology, environmental restoration, and the like. It’s arguable, though, that what California is up to now in responding to global ecological disarray may be the most important contribution to human well-being that it’s ever made.
A series of remarkably astute and aggressive measures approved by Democratic and Republican lawmakers in Sacramento has systematically formed a model for dealing with Earth’s new conditions, and it is proving to be effective. Among the most significant measures:
Earlier this year, a new talk by Al Gore was posted on the TED site: The case for optimism on climate change. The 20-minute talk and subsequent short interview with TED-meister Chris Anderson is well worth a look. Much of his optimism centers on the rapid shift in electricity production:
The best projections 14 years ago were that we would install one gigawatt of solar per year by 2010. When 2010 came around, we beat that mark by 17 times over. Last year, we beat it by 58 times over. This year, we’re on track to beat it 68 times over. We’re going to win this. We are going to prevail. When I came to this stage 10 years ago, this is where (the growth curve for solar) was (see arrow on image at top of post). We have seen a revolutionary breakthrough in the emergence of these exponential curves.
Gore quotes economist Rudi Dornbusch, who said, “Things take longer to happen then you think they will, and then they happen much faster than you thought they could.” Importantly, the business community has been quick to jump onto the bandwagon, and in fact has been crucial to the rate at which its been gathering steam. “This is the biggest new business opportunity in the history of the world, and two-thirds of it is in the private sector,” notes Gore. “We are seeing an explosion of new investment. Starting in 2010, investments globally in renewable electricity generation surpassed fossils. The gap has been growing ever since.”
Beyond these trends, Gore stresses the underlying nature of humanity, and of fundamental social changes:
We’ve long highlighted the dearth of novels and films about how humanity might marshall our ingenuity and societal focus to get from here to a better/wiser/saner future. Most of the stories about the future seem to be set in post-breakdown dystopias or seriously degraded, “muddle-down” worlds. And the few “breakthrough” tales, like Star Trek, offer no sense of how the transition occurred.
One of our favorite next-gen futurists, Alex Steffen, is aiming to do something about that. He’s not shifting gears and becoming a novelist—that could be great!—but he is gearing up to weave together a story that points the way forward. At a time when every year of delay ups the ante on our game of chance with the climate, and during a season in which the US political world is being shaken from all sides, he reminds us:
When we can imagine no future we want, something far more dangerous takes its place in our minds: the future we fear. Without visions of progress worth coming together to fight for, crisis tears people apart. That’s no accident, either. Divide and rule. Where there is no vision, people are easy prey. … You’d think that this would be when the Very Serious People who’ve been running our countries, corporations and culture would step up and counter that fear-mongering with leadership and vision. You’d be wrong.
They can’t lead us because every good future is now a heroic one, and they’re not heroes. They’re managers and accountants and gatekeepers, (telling) us that all we can do is take small steps, support slow transitions, gradual improvements, incremental policy gains.
If you know Steffen at all, you know he won’t settle for that! Alex cut his teeth running Worldchanging, the crowd-sourced, solutions-oriented compendium that was a new-millenium grandchild of the venerable Whole Earth Catalog. He then moved on to write Carbon Zero, a look at what it will take to decarbonize our cities, along with a series of powerful clarion calls for change, including a profoundly thoughtful 50-year vision, Putting the Future Back in the Room, and a recent “here’s how we did it” talk framed as recollections from 2115.
Now he’s putting that same energy, and all he learned along the way, into a project he’s calling
A central underpinning of The Resilient Investor is the recognition that in our increasingly complex world, it’s nearly impossible to predict how the future will unfold. That remains true, but a team of researchers at Northeastern University is using complex non-linear math to try to shed some light on a key modern problem: predicting when a natural or social system will hit a “tipping point” that triggers rapid breakdowns in its natural resiliency:
Using statistical physics, Northeastern network scientist Albert-László Barabási and his colleagues Jianxi Gao and Baruch Barzel have developed a tool to identify that tipping point—for everything from ecological systems such as bees and plants to technological systems such as power grids. It opens the door to planning and implementing preventive measures before it’s too late, as well as preparing for recovery after a disaster.
Then, says Jianxi Gao, one of the researchers who developed the method, “you can begin to tackle how to manipulate that resilience—how to enhance resilience or restore resilience. These are not easy questions, but our theory, by giving us a picture of the entire system, paves the way to the answers.” A video about their work (embedded below) is especially evocative.
While this is only a start, it’s just the sort of previously unimaginable leap of understanding that will likely come more and more frequently as computing power increases, taps into the distributed data now gathering in the cloud, and moves inexorably, though at a still-uncertain pace, into increasingly functional artificial intelligences. Along the way, say resilient investors who favor the Breakthrough/Driver perspective, we’ll find that these kinds of complexity models will become more common, and offer practical insights that have been beyond our grasp.
The idea of a “circular economy” has been around since at least the 1970’s—at root, it’s a Recycle Everything vision—but it’s taken on new life in recent years as sustainability efforts have matured within governments, corporations, and academia. Now, as the EU begins to codify the concept and corporate titans collaborate to fund a rapid ramp-up of recycling capabilities, the linear economy (manufacture-use-trash) may become a thing of the past.
Joel Makower of GreenBiz.com summarizes the concept succinctly:
The term has no official definition, but at its core, the circular economy is about “keeping the molecules in play.” In such a system, products are made primarily from benign and nontoxic ingredients — “nutrients” that can be returned safely to soil or water or, in the case of more durable components, placed back into service again and again. Toxic ingredients are not verboten; they can be used as needed in products or processes so long as they, too, are continuously cycled back into productive use and kept out of the waste stream. And, of course, as much of this as possible should be powered by renewable energy.
That all sounds like a generations-old greenie dream, but in the past couple of years, it’s gained adherents among corporate giants looking to capture some of the lost value in their products and packaging materials—one accounting found $11 billion of value in trashed U.S. packaging materials alone (see image above). The 2015 World Economic Forum’s annual conclave in Davos, Switzerland, affirmed its commitment to a 2-year-old initiative called Toward a Circular Economy, which will work with policy makers and the financial community to spotlight and scale current circular economy efforts, especially in the developing world. Makower’s valuable overview continues:
OK, so you’re totally on board with The Resilient Investor‘s goal of being “ready for anything”—you’ve clarified your own idea of where the world seems to be headed, while also realizing that you don’t really know when or how one of the countless wild cards in play might change the game in fundamental ways. You get that focusing significant energy Close to Home will pay off no matter how the future unfolds; perhaps you’re also committed to pushing our society in those enticing Evolutionary directions.
And yes, you recognize that there is a chance of painful disruptions to life here on American Easy Street. Maybe you think any hiccups are unlikely to be severe . . . or you harbor a secret dread that’s too nebulous to really figure out how to address. You certainly aren’t into being a serious Prepper, stockpiling supplies, fine-tuning a “go-bag,” and overlaying that kind of dire filter onto your day to day life. If it comes to that, you figure we’re all toast, or we’ll all be in it together, and there are better ways to spend your time in the here and now. But you also have a niggling sense that you could be a little more prepared for a societal speed bump: it’s not so hard to imagine some sort of grid snafu (cyber-attack or solar flare) or regional weather or terror event that could make things rough for a week, or maybe even a few. Just-in-time supply chains, vulnerable water supplies, our reliance on fuels and electricity. . . yeah, there are a few weak links out there.
While we’ve pointed to writers and resources that aim to help you prepare for various Breakdown scenarios, if you don’t really identify as a “Doomer,” you’ve probably held off on digging into all that very deeply. Well, here’s a less-scary entry point for those of you that have been thinking you really consider doing something: a well-curated collection of The Best Emergency Preparedness Supplies from the good folks at Sweethome/Wirecutter.
With the world’s attention focused on the COP21 climate talks in Paris, there are encouraging signs that the business world is ready to get fully on board and become as much a part of the solution as the problem. Conservation International’s CEO Peter Seligman is encouraged:
If we are going to meet the challenges of a changing climate, we must accelerate nature-based solutions with deep involvement by the business sector. I am optimistic, because I see many companies recognizing that climate change is an economic issue — it affects sourcing, logistics and global markets. Sustainability is no longer an afterthought. It is an integral part of corporate operations and supply chains.
Meanwhile, Jeremy Leggett at Winning the Carbon War reports from Paris that “fully a thousand mayors announced that their cities were pledging to 100% renewable power targets” and that institutional commitments to fossil fuel divestment jumped by over 25% in just the past ten weeks. Even more encouraging is a move by the G20 countries to form a Task Force on Climate-related Financial Disclosures (TCFD) charged helping financial markets get a better handle on rapidly increasing climate change risks. It will be chaired by Michael Bloomberg, who laid down the gauntlet:
Alex Steffen recently gave a keynote talk at The Nature Conservancy’s annual trustees meeting that could serve as a statement of purpose for the Dreamers and Drivers among us who continue to believe that we can find our way through the eye of the historical needle. It’s in the form of a talk to a conservation gathering a hundred years from now, looking back:
We’ve lost so much. We came far too close to losing nearly everything. If things went on as they were, we might have.
Instead, we live today on a healing planet. Yes, much has been lost, but much was saved or restored or reinvented, and what was saved and healed and made anew has become a powerful legacy.
Those gifts became the seedbeds from which sprouted our new world. That we have so much left from which to coax a long and bountiful tomorrow is no accident. Those seeds of hope were saved and planted and tended to by people who made the decision that they would live as if the future mattered. As if nature mattered. As if we mattered.
These were visionary people. Responsible people. Courageous people. All around the world, our best ancestors took up the challenge of leaving a different, bolder legacy, one not of error and loss, but of leadership, stewardship, innovation.
Take five minutes to soak in Steffen’s vision of how we became the ancestors who, “when they understood the planetary crisis they faced, their answer was not cynicism or surrender, but to seek out others and together meet that crisis with action.” It’ll perk you up for another day of doing what we can today to assure that our descendants have a future worth living in. (That final link is another compelling essay, in which Steffen makes the moral case for not giving in to despair.)
Internationally, the news is also encouraging. A 
