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Climate Change Interest Isn’t Ideology, It’s Economics

Economics is the new driver of climate change initiatives, according to Reusable Packaging Association. Attention to packaging selection and management can not only help reduce negative sustainability impacts, but also create new value streams.

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When it comes to what institutional investors think about climate change and how it impacts the valuation of companies, there are two ways to view it. The first approach is to limit the risk associated with current business models. The growing rejection of the carbon economy could leave fossil fuel-intensive companies on life support – “stranded assets” in financial vernacular. Therefore, climate change risk transparency is increasingly becoming an expectation for investors. With the second approach, investors are also drawn to the compelling potential of new sustainable business models that might one day come to dominate their sectors.

The appeal of most institutional investors for climate-friendly portfolio companies is not altruistic. It is just a profitable business approach. Take Vanguard, the largest U.S. mutual fund by assets, regarding its response to sustainability-related shareholder proposals. “Our support for these proposals is not a matter of ideology, it’s a matter of economics,” Glenn Booraem, Vanguard’s investment stewardship officer, stated in an interview. “To the extent there are significant risks to a company’s long-term value proposition, we want to make sure there is long-term disclosure of those risks to the market.”

Institutional investors have considerable clout in shaping corporate direction, and a recent survey suggests that more investors will be exerting their influence in the years ahead. As reported in the peer-reviewed article, The Importance of Climate Risks for Institutional Investors, researchers found in a survey of 439 investment professionals that only 7% of institutional investors said they had done nothing to manage climate risks in the last five years.

On the other hand, many institutional investors are new to the approach. Over one-half of them have only incorporated climate risk into their investment plans within the past five years. The implication is that they are still getting their feet wet. Expect more climate-related pressures in the years ahead.

Other findings of note from the survey included the following:

– The risk of new (environmental) regulations is already having financial consequences for 55% of respondents.

– Within two years, 66% fear physical impacts on their assets from extreme weather, rising sea levels or wildfires.

– Within five years, 78% expect technological effects, as greener technologies unseat carbon-burning ones.

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INTRODUCING! The Latest Trends for Life Sciences at PACK EXPO Southeast
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INTRODUCING! The Latest Trends for Life Sciences at PACK EXPO Southeast