Shift to sustainable finance
At the beginning of the year, it’s always a good idea to look around and see what has changed in the past twelve months. In mid-December, Amy Myers Jaffe wrote an article titled “This year is a year for investors and companies to bet big on the climate: many individuals, institutional investors and companies want to profit from reducing emissions. “
This is not surprising. My Columbia University colleague Professor Satyajit Bose created and led our sustainable finance certification program. He and our students, alumni, and faculty in this field have been committed to the development and development of this field for about ten years.This piece Author: Amy Myers Jaffee made several notable data points:
“In the past few years, investor demand for climate-friendly stocks has surged. For example, as of Friday, Tesla’s market value exceeded $1 trillion, up from $300 billion in the summer of 2020. Plug power company The market value is 19 billion U.S. dollars, higher than 2018’s 270 million U.S. dollars. First Solar company, An American integrated solar company, close to a five-year high, is $97 per share, a steady rise from only $30 at the beginning of 2017.Clean energy ETFs have total assets of more than $25 billion in the first half of 2021, making it the dominant ownership in transactions, just as technology stocks did during the Internet boom (although I am certainly not implying the inevitable Collapse). ”
Of course, some of these growth must be seen as part of the overall market rise. Nevertheless, investors are not only interested in these green stocks, but also in fossil fuel companies. I firmly believe that the only way for a fossil fuel company to survive is to redefine itself as an energy company and gradually divest itself of fossil fuels. The organizational capabilities of these companies should be used to enter the renewable energy business as soon as possible. I believe an oil company executive will think that I am some kind of naive environmental scholar when reading this article, maybe I am. But they may want to remember Kodak, a company that helped invent electronic photography, but went bankrupt because it was unable to bring its photo technology invention to the market and did not understand changing consumer preferences. Contrast with AT&T: the monopoly was broken by the federal government but survived to this day because it moved from the telegraph to the fixed telephone and then to the mobile phone-defining itself as a communications company and surviving multiple technological revolutions. Fossil fuel companies can lobby Congress as much as they want, but in the end, they will either adapt or eventually go bankrupt. They don’t need to believe me, but they should pay attention to what the financial markets are saying.
As Amy Myers Jaffe (Amy Myers Jaffe) in Magazine:
“This shift is even more pronounced when investing in real non-financial assets. Private equity firms that previously focused on traditional oil, gas, and coal assets are turning to green portfolios as a selling point for institutional investors, especially pension funds. These companies raised US$52.2 billion for new renewable funds in 2020, up from US$44.6 billion in 2019. This is in stark contrast to traditional oil, gas and coal funds, which raised US$8.3 billion last year, down from 2019 $20.9 billion in the year… Compared with the money made in this climate change mania, fossil fuel company stocks have fallen out of favor. Even if oil is $70, oil and gas stocks account for only 1% of the S&P 500 index, down from 4% a year ago and more than 11% a decade ago. ”
The financial movement shows that climate science has been accepted by smart people who have decided to bet their livelihoods (or at least their customers’ money) on the need to tackle global warming. Investors reflect the trends of the entire society; they are not leading anything here. Pension funds and university endowments have been used to invest in the green economy. Some companies are under pressure to divest into fossil fuels, but the market performance of fossil fuel companies will discourage institutional investors anyway.
One would think that the recent terrible super tornadoes in Kentucky and several other Midwestern states and the wildfires triggered by the drought in the suburbs of Colorado in late December might make climate skeptics at least barely admit that something new is happening here. And disturbing things earth. The grim and terrifying image of destruction will not disappear from memory. The human suffering of thousands of Americans will affect our conscience and our politics.
Efforts to decarbonize the world economy will be a generation’s struggle, but it is clear that 2021 represents some kind of turning point. President Biden’s green procurement policies within the US government and the trillion-dollar bipartisan infrastructure law have embedded large amounts of investment in renewable energy and climate adaptation. These actions mark a radical departure from the climate denialism of the Trump era. The US government has tremendous influence and can create an investment environment that strengthens market trends. I think we see it now.
As a sustainability educator, I am shocked that professionals in this field need to receive multidisciplinary education in order to successfully understand investors and advise them on environmental risks and opportunities. The typical finance major in our business school often knows little about science. Sometimes you will see business school students with engineering or computer science backgrounds, but they don’t know much about climate science, climate modeling, ecology, and earth system science. Even people with engineering backgrounds may not understand renewable energy and microgrids. Unlike standard investment analysis, it is not enough to focus on consumer demand, debt structure, income, income, return on investment, production process and even political risks. Environmental risks are complex. And no professional can understand all the scientific knowledge they need to provide advice and investment correctly. What we need are professionals who know what they don’t know and are good at using the expertise needed to assess the environmental impact and the usefulness and feasibility of emerging green technologies. In Colombia, we are working hard to educate these professionals in our sustainability management, environmental science and policy, and sustainable financial programs.
Efforts to reduce greenhouse gases from energy production and consumption are only the first stage of our efforts to eliminate man-made climate change. More challenging jobs will follow. Methane and other greenhouse gases are partly produced by landfills and livestock. They will need to be controlled. Carbon dioxide is produced by cement manufacturing, and other industries that emit greenhouse gases also need to be addressed. In addition, green technologies are increasing the demand for minerals that are mined in a destructive manner. Unlike energy production, some of these production processes have not received much attention, but once the momentum behind green energy is established, we should see these key environmental issues receive more and more attention.
In the next few decades, the transition to an economy based on renewable resources will require substantial capital injections. This goal can only be achieved if financial market professionals understand enough scientific knowledge to navigate uncertain conditions and new technologies. A clear regulatory environment is needed to assure investors that we are serious about mitigating climate change. The United States plays a key role in leading climate policy. My hope is that even if the conservative U.S. national government relinquishes climate leadership again, the market forces we see in 2021 will be deeply entrenched and cannot be stopped.
