Can capital markets stave off climate change?

BlackRock and Brookfield executives say they're already making a difference

Can capital markets stave off climate change?

Renewable energy won’t solve the climate crisis problem, but at least one CEO in the alternative investment industry was optimistic about its contribution when speaking on a recent Portfolio Management Association of Canada conference panel where there was a broad divergence of opinion on how much impact investing in the capital markets can have in addressing climate change. The range of comment was particularly notable as the three panellists summed up.

“We’re quite optimistic about renewables,” Craig Noble, Managing Partner and CEO of Alternative Investments for Brookfield Asset Management, said. “While renewable energy won’t solve the problem and not fast enough, I think it’s a huge part of the answer.

“One of the reasons I’m more optimistic is I think there’s been a tremendous shift, more than shift, in the last years, where this is now the political will. Corporations and the broader society recognize that this is imperative, and it’s good if we remain concerned about the timing because that will keep us all very focused on it. I’m generally optimistic, but there’s a lot of work to do.”

Jessica Huang, Director and Head of Sustainable Investment Solutions for the Americas at BlackRock, echoed Noble’s optimism “when we look at the flows into sustainable funds, the company assets.

“It’s actually been quite shocking in terms of what we’re seeing in terms of investor appetite. While, at the micro-level, these funds are not actually going to achieve the net zero objective at the macro level, if you’re moving billions or trillions of dollars, you can have a real impact on the cost of capital as companies can bring down the cost of green premiums for new technologies,” she said. “We’re already seeing some of this in some of the research that we’ve done. Companies that were better prepared for the net zero transition saw their cost of capital fall, and companies that were worse prepared saw their cost of capital increase.

Huang noted that several other parties are also researching this and finding that companies with a low carbon footprint are generally outperforming because of flows. “So, I’d just echo some of the points that I made earlier that the private capital market systems are not going to solve everything, nor should they, but they are an important player in order to move the broader economy to net zero,” she said.

Simon Kuper, the Financial Times columnist, was the pessimist through much of the friendly international debate with the panellists and moderator beaming in online from Canada, California, Madrid, and Singapore.

“Nobody expects it to save the world,” said Kuper. “I submit that it’s not going to do that if you’re betting on green and growth at the same time. If you are an investor who wants to help save the world, then you need to be more radical. You need to look at impact investing where you say, ‘I’m willing to lose money. I’m willing to not get returns.’

“Then, you need to say: ‘I will invest enormously in hydrogen or getting solar panels to everyone in Africa or building a massive solar panel network in the Sahara’. You’re going to do these crazy Manhattan Project style things. And then you can do a little bit to save the world. Right now, the investment industry is full of many good people.”