Institutional investor vs. individual investor – who is the climate adaptation actor?

Calvert Investments, CERES and Oxfam have just released a splendid guide for companies and investors dealing with disclosure and management of climate impacts entitled “Physical Risks from Climate Change.” I had the pleasure of speaking recently on a panel with Matthew Alsted, Calvert’s vice president of Channel Marketing and Brand Strategy at the LOHAS Forum 2012. He noted that, 50 years ago, individual households owned an estimated two-thirds to three- quarters of publicly traded stocks (U.S.) whereas institutional investors held the balance. Today that ratio has flipped.  This shift is remarkable and reminds me how much we must rely on the good minds at places such as Fidelity and Vanguard (I invest in both mutual fund houses) to encourage corporations to make good climate adaptation decisions.

The guide includes sets of key questions for different sectors that should be required reading for fund managers. They, in particular, should study them since passing along risk decisions to companies isn’t sufficient anymore, in my opinion.  I believe mutual fund investors have an important role in magnifying the opportunities and minimizing the risks of climate change.  As they have with corporate-governance issues, such as favoring the splitting of the chairman and CEO roles, perhaps financial houses could serve as part of the market solution to climate change by expecting responsible climate-risk avoidance.

Why are investors important?  Because from their questioning and probing, they help make climate adaptation material to companies.  The CERES/Calvert/Oxfam report makes clear that information related to long-term climate risks aren’t mandatory disclosures since these long-term risks aren’t deemed material to investors interested in the short term.  Regrettably, as the Colorado fires illustrate, the increase in adverse climate impacts will have a material effect on companies’ assets and operations.

ISC Corporate Services  “Disclosing Climate Risks: How 100 Companies are Responding to New SEC Guidelines” indicates that investors concerned about physical climate risk have actively pursued disclosure from the companies in which they invest and are using tools that track and evaluate companies’ climate-risk disclosures.

That’s encouraging!  I’ll be looking for ways to help more companies do the same.