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Climate action has changed investing forever

The reality of climate change is challenging business models

john HeadshotsTRY sq John Berry 3 minute read

Turkeys wouldn’t vote for Christmas, so why would companies generating profits from burning oil ever support a low-carbon world?

The answer is complex, but the reality is real – more and more global corporates accept the science of climate change and the need for strategic business change.

Take the largest Western oil company, ExxonMobil. After no enthusiasm for changing the way it does business, it has now adopted a 2050 net-zero target for its operations.

Its change was swift.

In a startling move last year, an activist shareholder had new board members with renewables experience voted on to ExxonMobil’s board. Change was coming, and it was driven by ExxonMobil’s shareholders.

While Darren Woods, ExxonMobil’s chief executive, had previously dismissed net-zero targets by rivals as a “beauty competition”, he is now committed to absolute reductions in carbon emissions.

The company has a new worldview. In his words, ExxonMobil is “committed to playing a leading role in the energy transition”. This doesn’t mean it goes as far with its commitments or investment in renewables as Shell or BP, but we’ve just seen a big strategy shift.

The reality of climate change is also challenging business models close to home. Warmer sea temperatures are significantly increasing fish mortality and reducing earnings for New Zealand-listed ocean farmer NZ King Salmon.

It’s a direct impact of global warming.

While shareholders pushed ExxonMobil into changing, they simply reflect wider social pressures.

Government regulation is creating a global structure that will ultimately penalise high emitters, and consumers are demanding change. From a pure long-term profit and financial-risk perspective, large global businesses know they need to change to stay relevant.

Banks, which are the globe’s financial plumbing, are also part of this shift. They are driven by shareholders, governments, consumers and their own desire to been seen as sustainability leaders.

Citigroup, one of the largest global funders of the fossil-fuel industry, has announced how it will lead change through its lending. It has set a 2050 net-zero target, and it wants to help companies it finances to also achieve this.

As a last resort it would consider dropping clients if all else failed in the bank’s push to curb its climate change impact. Essentially, it recognises a warming planet is not simply a threat to a long-term profitability, it’s a threat to society, ecosystems and prosperity globally.

“The existential threat posed by climate change will be with us for generations, but we know that it is this generation’s time to act … we will act with urgency.”

Those are not the words of a crazed environmental activist, they’re the words of Jane Fraser, chief executive of Citigroup, a company worth more than all shares listed on New Zealand’s stock exchange.

Climate change has irreversibly changed business plans and corporate thinking, which inevitably impacts investment strategies. One of the key reasons my co-founder and I manage an ethical investment firm, and launched a KiwiSaver devoted to ethical investing, is our desire to help change the “business as usual” model.

More and more investors and executives see we can’t sit back and wait for someone else, like the activist shareholder at ExxonMobil, to drive change.

Every investor, including every KiwiSaver investor, should be asking themselves this question: are my investments helping fund climate change or are they focused on reducing its impact?

This commentary is general information only – it is always a good idea to seek professional financial advice for your personal circumstances. Disclosure: Pathfinder KiwiSaver does not invest in the companies mentioned in this article.

-John Berry is co-founder and chief executive of ethical fund manager and KiwiSaver provider Pathfinder Asset Management.

Originally published in Stuff 24/2/2022

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