When investing in a company, ask yourself, “where will this business be in 100 years time, or even 20 years?” A major challenge facing businesses around the world is climate change. Advanced economies like Germany are moving to a renewable energy future, while solar technology companies, are ‘hot’ right now in a way that coal mining companies aren’t. At a broader investing level, you may wish to consider investing in companies that are adapting to a lower emissions, more environmentally-sustainable future.
A major driver of action to address climate change within the world’s largest companies is the Carbon Disclosure Project (CDP). Eighty-one percent of the world’s 500 largest public companies are participating in this project where they report their environmental impacts and strategies to investors. Under the CDP system, companies are given a rating out of 100 depending on their responses to questions on emissions reduction targets and actual results. Any disparity between what they said they would do and what has occurred is measured and represented by a letter A to E. It is a measure of the positive actions that the company has demonstrated through their CDP.
Using the CDP rating, I can invest in companies with a long term commitment to environmental responsibility and ultimately, financial stability. Businesses that are already deep into planning and even operating in a low emissions framework will have a strategic advantage to those companies that do nothing. Google Finance includes the CDP rating on participating companies. Sectors that have the highest number of companies without emission reduction targets are Utilities, Energy and Materials. Sectors that have a low carbon footprint or a high CDP score are Financials, Healthcare, Industrials & Information technology.
Investment opportunities should emerge at a national level. For example, in South Africa, there is the Nedbank Green Index or the BettaBetaGreen exchange traded fund (ETF). Units in an ETF can be bought and sold like a company share. In this case, the BettaBetaGreen ETF has taken equity positions in “a selection of shares from the top100 South African companies listed on the JSE. Constituents are selected and weighted based on both environmental and liquidity criteria”.
ETF’s like this fund should begin to emerge on other Stock Exchanges around the globe.
