Climate Finance as an Investment Option

logo-cop-21-carr-After the COP21 Climate Negotiations in Paris, we would like to discuss the role of Dominican Sisters in responding to climate change, particularly how we begin to implement the recent DSC commitment to explore and advance climate finance within our own investment portfolios. Dominican Sisters in the U.S. have long worked at the intersection of climate change and our financial system, starting with shareholder engagement in the late 1980’s. We have worked faithfully through the decades with major carbon polluters across multiple sectors, including electric utilities, automotive companies, and oil and gas companies. This work has yielded major breakthroughs, with automotive companies Ford and GM turning from climate denial to science-based greenhouse gas reduction goals, and traditional coal utilities opening to solar, wind and energy storage. Much work remains, especially with the oil and gas sector, to move towards a low-carbon future.

About two years ago, Dominican Sisters and other members of the Interfaith Center on Corporate Responsibility began adding “climate finance” – direct financing of solutions to climate change—to our socially responsible investing strategy. Unlike community investing, climate finance primarily involves market rates of return, but in a similar way to community investing entails a conscious choice to seek out both financial and social or environmental returns on investment. Research at the organization Ceres popularized the “Clean Trillion” concept, which refers to the amount of financing needed each year for climate solutions like clean energy, energy efficiency, sustainable infrastructure, and sustainable land management. Recognizing the gap in financing – hundreds of billions of dollars per year—we began to explore how we could contribute to climate finance.

This exploration encouraged by the Earth Council and the Justice Committee of the Dominican Sisters in Committed Collaboration, resulted in a study day sponsored by the Tri-State Coalition for Responsible Investment in June 2013, which featured three speakers discussing opportunities to invest in climate solutions. This was followed by a day-long national climate finance roundtable at ICCR, organized primarily by the Tri-State Coalition. The roundtable included three panels, including perspectives from CFOs, investment consultants, analysts, and asset managers on the challenges and opportunities of investing in climate solutions across asset classes. The day also featured a “clearinghouse” in which around a dozen financial managers offered educational materials on their approaches to climate finance. Videos from this event are available from Tri-CRI and are a valuable resource for our Congregations.

After reflection, study and education the 19 congregations of the Dominican Sisters Conference all committed in October 2015 to developing an “appropriate strategy to promote investment in climate solutions.” This commitment reflects a social mission to provide needed capital to transition to a low-carbon economy, but coming just months before the Paris COP21 Climate Conference, it also represented a prescient investment thesis: the worldwide economy is decarbonizing at an increasingly rapid pace, presenting significant opportunities for profitable investment, but cautions that poor and indigenous communities, and the earth herself must hold a priority position in receiving benefits.

COP21 established the clear market signals and political will needed to move the investment agenda on climate solutions forward. While advocates of climate justice, may not have found that COP21 was a complete success, the outcomes and agreement from 195 countries to this global framework are monumental. The key outcomes of the conference, including a long-term goal to limit global warming well below 2 degrees C, a “ratchet” mechanism to increase ambition every 5 years, and a framework for transparency, monitoring and verification, cement this investment thesis. Michael Liebrich, head of Bloomberg New Energy Finance, summed up the implications of Paris for investors and businesses:

Paris is not posturing. Paris is not the world saying it wishes it weren’t trapped in an abusive relationship with the fossil fuel industry; Paris is the world’s economy serving divorce papers. […] a key point has passed, an irreversible process has started. Which sensible businessperson or investor can ignore the clear signal?

After Paris, climate risk for investors is a short-term consideration. The influential investment consultant firm Mercer has now added the question “What is our approach to climate change?” to its 2016 to-do list for investors. BlackRock, the world’s largest asset manager, concurs, stating that “The Paris summit sent a powerful signal to the private sector that the global economy is moving toward a low-carbon world,” and global markets seemed to validate this, with stocks in solar, wind, and biofuels all surging after Paris.

Actualizing the Paris climate accord will require trillions of dollars in investment, and alongside the provisions of the Paris agreement itself, national governments, multilateral banks, and the private sector all made significant finance commitments in Paris. Amid all this mainstream investor enthusiasm, there is a responsibility among us, poised to consider the priorities looming before us, including for example the needs of indigenous communities, to ensure that financing goes where it will have great impact for communities and where it is critically needed. On the public side, national governments and multilateral development banks pledged $41 billion in new funding for climate mitigation and adaptation, greatly increasing North-South and South-South finance flows. This will substantially contribute to the commitment enshrined in the Paris Agreement for $100 billion in annual North-South climate finance by 2020. Additionally, governments of key developing nations, such as India and the nations of Africa, made substantial commitments to renewable energy, opening up significant investment opportunities. India unveiled a 120 country solar alliance to help mobilize financing for solar energy access for the poor, and India itself committed to install 175gigawatts of renewable energy by 2022, compared to a current electric grid of 300 gigawatts. Meanwhile the heads of African nations launched the African Renewable Energy Initiative, which aims for 300 gigawatts of renewable energy by 2030, which is twice the size of Africa’s current electric grid.

Beyond the opportunities of today’s technologies, new private and public sector commitments to energy innovation made in Paris represent major investment opportunities. On the public side, 18 countries including the United States committed to doubling public clean energy innovation funding, in an initiative called Mission Innovation. Closely connected to this is a private sector initiative called the Breakthrough Energy Coalition, led by Bill Gates, which will invest billions in innovative clean energy companies. A number of other high profile climate finance commitments by institutional investors, such as New York State’s commitment to move $2 billion to a new low-carbon fund, were announced at Paris, and in the lead up to Paris corporations with market capitalization of $7 trillion supported American Business Acts on Climate, an initiative of the Obama administration to support the Paris Agreement. Already, new investment products are emerging after Paris, including a sustainable Exchange Traded Fund (ETF) from Blackrock and the securitization of off-grid solar in Africa, allowing investors to buy project bonds that will help finance the 300 gigawatt commitment of the African continent. These opportunities will only expand in the coming months, especially as domestic policy decisions, such as the extension of the Investment Tax Credit for Solar and Wind in the US, cement the gains made in Paris. Nonetheless, as faith based investors, we need to be cognizant of the needs that will not be met and commit ourselves to direct our capital in those directions.

Moving forward, Dominican Congregations can channel their climate finance pledges into these new opportunities, or expand and focus their community investment commitments to climate adaptation and mitigation. Now is the time for investment committees and CFOs to actively educate themselves on climate finance, and to demand the same of their investment consultants and managers. Luckily, opportunities for climate finance span all asset classes, including public and private equity, mutual funds, venture capital, fixed income, real assets, and beyond. Numerous resources have been developed to guide investors on their journey. The task now is for each congregation to determine how their portfolio can capitalize on these opportunities within comfortable risk parameters. Paris has unleashed trillions of dollars of climate finance opportunities over the coming decades, and with the Dominican Sisters’ commitment we can be part of the solution.

IGF012-patricia-daly-opPatricia A. Daly, OP / Executive Director
Tri-State Coalition for Responsible Investment
40 South Fullerton Avenue  Montclair, NJ  07042

About opreach

I am Sister Pat Farrell, OP, a Dominican Sister of San Rafael. We are known as the Order of Preachers, and the Dominican charism of Preaching is very real in my life. The words of St. Paul resonate within me: “Woe to me if I do not preach the Gospel!” (1 Corinthians 9:16) The quote on the header of OPreach is from the Dominican Saint Catherine of Siena. "Preach as if you had a million voices. It is silence that kills the world." I live at St. Luke Convent - a House of Hospitality - in River Forest, Illinois with another sister. I enjoy walking, hiking, and photography. The Chicago area has some great places for all of that!
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