How Sustainable Investing Could Reduce Climate Change

A G7 summit in Germany just concluded, and during the 2-day meeting, the leaders of the U.S., France, Germany, the U.K., Japan, Canada, and Italy reaffirmed their commitment to reducing carbon emissions and eliminating their respective nations’ dependence on carbon-based fuels by the end of this century.

Overall, that’s a positive step, one that lays the groundwork for the UN meeting in Paris, scheduled for later this year, where the world’s leaders will discuss climate change in earnest. However, the lack of specificity in the G7 statement and the long timeline have also drawn criticism.

Shifting a nation’s energy infrastructure away from carbon-heavy fossil fuels presents all kinds of challenges, from the politics to infrastructure and of course public awareness and attitudes toward sustainability.

The economics of such a radical change is arguably the largest hurdle. Companies need funds to do research and invest in viable new technology, to build infrastructure that supports the switch to renewable energy. More than that, traditional companies need to see that sustainability is economically sound, even prosperous.

To that end, financial giants such as Goldman Sachs, Citi, and Morgan Stanley are stepping up to the plate. Goldman Sachs is committing $40 billion to investments in renewables by 2021, while Citi has promised $100 billion to put toward clean energy by 2025. Even Berkshire Hathaway has contributed $15 billion to investments in solar and wind energy.

Then, of course, there’s Morgan Stanley, which just issued a $500 million green bond, its first bond of this type issued by the company. In addition, Morgan Stanley has created its own Institute for Sustainable Investing, and JP Morgan has its Environmental and Social Risk Management division.

This shifting away from traditional investments is crucial to combatting climate change and other environmental problems. Rising temperatures pose all sorts of threats, from damage caused by severe weather to health epidemics, not to mention threatening all sorts of plants and animals, as well as human life. And, of course, the continued use of fossil fuels depletes our reserves of them, which poses another problem.

In short: the world needs sustainable investing. Fortunately, it’s becoming easier than ever to get involved. Public attitudes are shifting in favor of “green investing” and corporate efforts to become sustainable.

A Morgan Stanley study from May 2015 found that 72% of respondents believed that companies that show responsibility in regards to environmental, social, and governance (ESG) practices are better long-term investments and can yield greater profits. The same study also showed that investments in sustainable initiatives have typically performed as well as, or better than, traditional investments.

While big financial institutions are pouring money into these projects, there is plenty that individuals can do, too, from purchasing your own green bonds to talking with your investment advisors about finding green companies to add to your portfolio. Do your research and look for companies that are actively addressing any number of challenges the world faces. To learn more, check out this interview with Mathew Kiernan, a pioneer on socially aware investing and an advocate of corporate responsibility.