It was not business as usual last week in New York City. My ride in from LaGuardia took 2 hours and streets were blocked throughout the city for global diplomats attending the UN General Assembly. Climate Week was just a part of the city’s mélange of activity, with events sponsored at every corner from Columbia University to the World Trade Center. Most of my sessions were small “invitation-only” gatherings of financial folks discussing how climate change could be managed and measured, as finance people like to do. Here are my top takeaways from the week:
- Climate change is not a weather problem. What the average public sees as climate change is the horrific hurricanes that blot out cities, homes and livelihoods. But what may have the most impact on companies are the slower encroaching changes to technology, products, consumer preferences and financial reporting – all driven by a changing climate. These market shifts will impact corporate and small business revenues, expenses, share prices and capital in profound ways.
- You can have anything for a price. If managing climate risks is not for you, then you can keep your investments and your company as is – for a price. Rating companies such as S&P are looking not so much to control climate risk, as to price it. Securities with little management of climate risks will be priced more like a junk bond to reflect the higher risk these companies are taking.
- Just because you’re not on the field, doesn’t mean the game isn’t on. More simply put – the game is on. Vanguard, BlackRock, State Street, S&P, JPMorgan are all assessing climate risk, pricing it, correlating it to performance and expecting their portfolio companies to follow suit. If you invest in a publicly traded company, this should matter to you. If you work for a publicly traded company, your strategies and internal financial management will eventually feel the heat of widespread investor expectations for understanding and managing climate risks and opportunities. This year, dormant shareholder proposals related to disclosure and management of climate risks finally started to pass. Never under-estimate the risk of doing nothing.
- Alpha is everywhere. Even in the dismal discussions of hurricanes, drought and flooded cities, there is room for optimism. Change always brings opportunity, and climate is no exception. There are the most obvious opportunities for investment and innovation around electric vehicles, energy storage, drones, digital solutions, lighting and infrastructure. But unlikely companies such as P&G and VF are also finding profitable new products driven by climate change, from cold-water washing solutions to new product lines. And climate analytics, climate-related healthcare and green products are new market categories.
- Thelma needs Louise. One of the biggest barriers to disclosing climate risk or to setting aggressive environmental goals, is the risk of going it alone. Companies see the downside of laying out all their risks to investors – what good can come from that? Businesses are hesitant to highlight risks they cannot manage – and the weather surely seems to be one. Yet the actions of Vanguard and BlackRock to push all their portfolio companies on climate helps everyone jump together into acknowledging what’s coming. These large asset managers can help drive a positive feedback loop – by encouraging companies to get ahead of risks, they can help bend the curve away from negative impacts and preserve strong operations and returns for everyone.
At the end of the week, I found myself at the World Trade Center’s new transportation center, dubbed the Oculus for its design and lighting. It is a glorious symbol of creative resilience, a bold show of determination to transform disaster into beauty and functional elegance. It seemed a fitting place to settle my thoughts after a week of climate discussions, swathed in the glow and bustle of innovation at its best. An inspiration for our persistence.
Photo credits: Photos of the Empire State Building and inside and outside of the Oculus taken by author during Climate Week 2017.