April 22 is Earth Day, and for more than five decades, people around the world have celebrated in various ways. From committing to a new environmentally friendly habit to taking part in a community clean-up, these activities remind us to focus on helping the Earth.
Earth Day also calls on both individuals and investors to use longer-term strategies to move companies toward more sustainable practices.
Investing Through Spending
Individuals can have an impact beyond recycling or taking public transportation. Many consumers choose to vote with their dollars by supporting companies that are committed to climate change efforts. The power of the consumer’s voice has been credited with driving change at everything from cookie companies to car manufacturers.
In addition, many companies were founded on the principle of providing a product or service more sustainably. Entrepreneurs have used innovative solutions to develop products and manufacturing processes that didn’t exist just a few years ago.
In this same way, an investor’s impact isn’t limited to investing in “green” companies. Many large investors are using their power to engage with companies in all industries on climate change issues. For asset owners, the drive is to reduce risk in their portfolios. Companies that aren’t mitigating for climate change could be vulnerable to risks ranging from reputational damage to regulatory fines.
Long-term investors like CalPERS understand that divesting from companies doesn’t solve climate change. It simply means another investor will buy the shares, and their focus might be on quarterly returns rather than the longevity of the company. Our power to create change is through staying invested and engaged—pushing companies to develop solutions.
Fortunately, we aren’t alone. Public pension funds like CalPERS aren’t the only investors that understand the importance of engagement over divestment. We are part of organizations like Climate Action 100+, which includes 700 public and private global investors responsible for more than $68 trillion in assets under management across 33 markets. Working together, we engage with companies on issues including transitioning to a low-carbon economy.
Engagement by Individuals and Investors
Companies are nothing without consumers and investors. As more individuals support brands that are shifting to more sustainable practices, more innovation will take place. The same is true for investors. When shareowners unite on important issues that improve the health of the climate and the company, meaningful changes occur.