Evaluating Climate Change Critical In ESG Integration

William Blair profile picture
William Blair
579 Followers

Summary

  • Climate change, if left unchecked, will likely have such widespread implications that it could threaten the stability of the global financial system.
  • Tracking the reality of the environmental implications will be critical to companies mitigating risk and capitalizing on opportunity optimally.
  • As investors, tracking the emerging and evolving best practices and solutions across sectors is critical to developing insights.

Environment social and governance in sustainable and ethical business. Hands holding crystal globe with ESG icons. Using technology of renewable resource to reduce pollution.

Galeanu Mihai/iStock via Getty Images

Climate change, if left unchecked, will likely have such widespread implications that it could threaten the stability of the global financial system.

Transcript

Climate change is a critical theme in environmental, social, and governance (ESG) integration. It’s a sophisticated issue encompassing many material trends that are critical for both investors and the companies we invest in to understand.

The primary issue I would highlight for anyone in thinking about climate change is that its impact, if left unchecked, will have such widespread implications in society that it would be a threat to the stability of the global financial system, as outlined by the Financial Stability Board and increasingly by central banks around the world.

At a high level there are two parallel themes for investors to track on climate change. The first is related to how the corporate sector participates in the mitigation of climate change through emissions reductions. The second is about understanding the delta between the ideal temperature-change scenario, which is achieving net-zero emissions by 2050, and the actual trend line of emissions reduction and temperature change.

Tracking the reality of the environmental implications will be critical to companies mitigating risk and capitalizing on opportunity optimally. Investment analysis includes tracking best practices, sustainable solutions, regulation, and risks and opportunities.

In the tech sector, data-center technology that is developed to produce significant energy savings could enable customers to lower their value-chain carbon emissions. The energy savings could result in reduced energy costs, and those savings could also get passed through to the consumer as a competitive advantage.

In the consumer sector, a company could set a science-based target to reduce its emissions, and in measuring the company’s carbon footprint the management team could realize that one of the key contributors to emissions is in its packaging. That would trigger the company to rethink the materials it uses in packaging.

In the industrial sector, a building materials company could track the reality of climate change and identify that the temperature change will be more severe than the 1.5 to 2 degrees targeted in the Paris Accord. The management team could identify that as an opportunity to develop roofing products that are significantly more resilient to severe weather, creating a competitive advantage for that company over time.

As investors, tracking the emerging and evolving best practices and solutions across sectors is critical to developing insights. This is a new and exciting area of analysis and will produce a broad range of both risks and opportunities to incorporate into investment analysis.

Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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William Blair profile picture
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William Blair is committed to building enduring relationships with our clients and providing expertise and solutions to meet their evolving needs. We work closely with the most sophisticated investors globally across institutional and intermediary channels. We are 100% active-employee-owned with broad-based ownership. Our investment teams are solely focused on active management and employ disciplined, analytical research processes across a wide range of strategies. We are based in Chicago with resources in New York, London, Zurich, Sydney, Stockholm, and The Hague, and dedicated coverage for Canada.

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