Wednesday, October 04, 2006

Investment Climate

The concept of "reasonable investment-backed expectation" is a cornerstone in U.S. law. In what may mark a significant development in the public acceptance of global climate change, a group of institutional investors with more than $1.6 trillion in assets under management have now issued a statement linking their investment decisions to future expections of global climate change. The Institutional Investors Group on Climate Change just released their "Investor Statement on Climate Change," which begins as follows:
As institutional investors, cognisant of our roles as major shareholders and bondholders in many of the world’s companies and as significant investors in other assets such as real estate, we accept the broad scientific consensus that greenhouse gas emissions from human activities are a critical contributor to changes in the world’s climate. Further, we recognise that climate change is likely to result in profound negative consequences for human society, the global economy, and the world’s natural systems. As such, climate change presents a series of material business risks and opportunities - for investors and companies - to which investors must respond.
What strikes me most about the IIGCC's statement is that it stresses the threat that global climate change poses to investments. It makes clear that reasonable investors must wake up to the threats that their current and past investments pose to their future investments. Yes, there are also nods to social responsibility and ethical practices. Nevertheless, the core of the IIGCC's message is a recognition that current investment decisions must internalize the risks of future global climate change externalities. In other words, combatting global climate change is both the right and the rich thing to do.


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