Empowering the Individual: A New Dawn for Socially Responsible Investing

Susan Dreyer, Director DACH Region, CDP, and Mike Bellamente, Head of Consumer Engagement, CDP, discuss the Climate-KIC Innovation project, CLIMPAX

The hope for a global climate agreement at COP21 in Paris is drawing closer, and each passing month brings new efforts to mobilise individuals. 

Whether the call to action involves signing a petition or penning a letter to heads of state, there really are no bad ideas when it comes to pushing climate change further up the global agenda. 

But, putting aside the success or failure of Paris, the road to carbon neutrality will no doubt require a much deeper pledge; one that invites everyone to participate, one that ultimately changes how we, as consumers and investors, value companies that provide goods and services to satiate society’s  seemingly endless appetite for goods and services. 

The world of climate impact investing poised to reach new heights

CDP, South Pole Group and SP Climate Neutral Investments, along with research partners at the University of Reading (UK) and University of Hamburg (Germany), have recently embarked on a three-year journey to increase mutual fund transparency as a method for addressing climate change.  Supported as a Climate-KIC Innovation, the project aims to empower individuals to make investment decisions based not only on financial returns, but also on the impact those investments have on our earth’s climate.  

Under the working title CLIMPAX, our goal is to enable retail investors across Europe, representing 24% of invested assets (over EUR 2 trillion), to view and value potential investments with a more environmentally-comprehensive lens.  Research, experiments and testing will be undertaken to understand how to evaluate, rate and ultimately rank mutual funds by their climate impact, thereby empowering users to:  a) easily identify and understand every investment’s’ “climate score,” leading them to b) make climate-conscious investment decisions which, in turn, will result in c) a market signal that climate change is a priority demanding a reduction of greenhouse gas emissions across a company’s value chain, from resource extraction and product manufacturing, to consumer end use.  In this way, CLIMPAX aims to provide a revolutionary level of transparency to a market of over 25,000 mutual investment funds across the European Union representing an emission reduction potential of possibly 36+ million tCO2/year.

CLIMPAX and the growing divestment movement

Over 30 years ago, a global divestment campaign helped tip the scales of justice toward dismantling South Africa’s racially divisive Apartheid system.  Now, amid steadily growing concerns that environmental policy alone is not enough to curb greenhouse gas emissions (GHGs) and its deleterious effects on the earth’s climate, divestment is once again appearing as part of the narrative in how future generations will judge the past.

For those unfamiliar with the concept, divestment (or dis-investment) is often seen as a symbolic, if not potentially transformative, effort by individuals and large institutions to harness investor authority as a lever of change.  In the case of 350.org’s Fossil-Free campaign, the idea is applied specifically to the divesting of university endowments and city government pension funds from fossil fuel-related assets. In the run-up to Paris, powerful divestment initiatives like The Portfolio Decarbonization Coalition have been formed under the lead of the UN, CDP and other climate organisations, within which large investors commit to report and ultimately reduce the carbon footprint of their portfolios.

The CLIMPAX project builds on these movements, yet intends to go beyond: in a) assessing the full climate impact of portfolios beyond the direct footprint alone and b) reaching out to the individual, the retail investor, we will hopefully cross a bridge that will lead to comprehensive transparency and understanding on the one hand, and ultimately climate action in a large scale on the other. Climate change affects all of us, and everybody has the means to contribute a little to preventing it – and, as a saying goes, many little steps taken by many people can add up to large transitional change.