The climate emergency is impacting the globe in manifestly disastrous ways. For decades, we have not heeded the warnings and opted to cope with the resulting crises rather than address the causes. But the threat has become existential. Now we must act.
The recent Intergovernmental Panel on Climate Change report is a sobering, grim read. The extent of human-induced climate change is worse than we thought and could create permanent consequences sooner – and more intensely – than initially projected.
As if to provide more supporting evidence for the report, immediately after its release, many parts of the world were hit by catastrophic extreme weather events. The situation is beyond urgent. As individuals, we are experiencing the dramatically increased regularity of life-threatening weather events. It is the greatest challenge of our generation – and possibly, the greatest challenge humanity will ever face. To prevent calamity, we must come together to forge innovative solutions and map out a plan of action. We need leadership to step up, fast.
Around the world, leaders increasingly understand the implications of the climate crisis and recognise the need to act. The Paris Climate Agreement of 2016 united some 200 countries in the race to mitigate global warming. An increasing number of major companies are committing to becoming carbon neutral. Many in the investment community have started to prioritise ‘net-zero’ as a prominent investment goal as well.
But we have reached the point – a tipping point, according to many scientists and climate experts – where understanding the problem and making promises without following through to achieve results is wholly insufficient. Five-and-a-half years after the agreement was signed, not a single developed economy is on track to meet its Paris targets – goals which, in the context of the IPCC report, now seem to be set too far ahead. We need to reduce carbon in the atmosphere, not just stop adding more. To do this, we must change the status quo of investing and forge a ‘next normal’ that safeguards our planet.
Bigger thinking, multi-faceted approach
Our ‘next normal’ requires us to invest in a new paradigm of climate action: we must direct expertise, energy and significant capital into scalable solutions that improve the climate.
Three investment frontiers should be prioritised. First, we need more investment in renewable forms of energy. Renewables are clearly gaining traction in many parts of the world. But we need to press for sustainable energy sources to become adopted and integrated everywhere. We need clean energy to be accessible for all people.
Second, we need more investment in climate technologies – the novel advancements that will accelerate emissions reductions and even pull carbon from our atmosphere with enough speed and scale to move the needle. These technologies will take time to test and launch, but if we want to rely on them in the future, we must prioritise investment in these innovations today.
Third, we need more investment in the world’s natural capital. Nature holds the answers to restoring the planet – meaning, starting immediately, we must drive more investment into nature-based solutions and treat nature with far more respect. The global community must shift from a mindset of extraction and depletion to one of regeneration. Impact investors can catalyse this change in mindset.
The climate crisis requires every approach we can muster. By pushing these three investment frontiers, and adopting a patient and risk-tolerant approach to returns, investors will be contributing towards an economy that exists in harmony with our natural systems.
However, if we accept the need to tackle this challenge from different directions, with all sectors of society playing their part, we should also understand that there is no panacea or quick-fix, simple solutions. The time for conventional or narrow thinking has long gone.
Climate change also has a clear domino effect on society. In fact, the entirety of our economic lives – our earning, saving, spending and investing decisions – affects the planet. In other words, we are all climate investors, and always will be. If we view the entirety of our economic activity through that lens, it raises the bar for our level of consciousness and accountability regarding how we allocate capital.
But we also need new ideas about fundamental changes to our economic system. The climate emergency is directly tied to issues of social inequity for marginalised communities. For that reason, we must address our climate and ecological crises in ways that also advance equity – pushing the entire system towards a new and better way of doing business that works for all people.
Every investment has the potential to contribute to environmental and social improvement. This raises questions regarding our responsibility as investors to integrate impact into all decisions – a principle at the heart of impact investing. The world needs more of what impact investing offers. Ultimately, we are working towards a holistic approach to maximising the impact of investments. We can transform the role capital plays in nurturing prosperity and sustaining, protecting and developing the world and all its people.
If we act together, and immediately, we can bring the power of finance to bear in addressing the critical problem of our lifetimes: to protect the planet for future generations. There is so much more investors – impact investors, in particular – must do to forge a ‘next normal’ that is sustainable, just and regenerative. This requires a shift in how we define capitalism and how we view its role. The time to act is now.
Amit Bouri is chief executive and co-founder of the Global Impact Investing Network. GIIN is the global champion of impact investing, dedicated to increasing its scale and effectiveness around the world