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Markets Rising temperatures due to climate change providing new opportunities for investors

This year is on pace to be one of the hottest on record, again, and the trend may only accelerate as U.S. President Donald Trump loosens policies meant to combat climate change.

That has some investors feeling anger, but others are seeing dollar signs. They’re envisioning profits made by companies targeting opportunities wrought by the changing climate. Perhaps more important, investors are also seeing big, potential losses to be avoided.

Consider the recent bankruptcy filing of PG&E Corp., the California utility owner facing mountains of potential liabilities due to wildfires that devastated northern California. Some funds that take environmental, social and corporate-governance factors into account when making their investments long ago decided to avoid PG&E, which meant their investors didn’t take losses from the bankruptcy.

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That’s one reason why demand is continuing to grow for such funds, often called “ESG” investments in the industry, John Streur says. He is chief executive of Calvert Research and Management, one of the largest families of responsibly invested mutual funds. The conversation has been edited for clarity and length.

John Streur, chief executive officer of Calvert Research and Management.

The Canadian Press

Question: ESG investing has been getting more popular for years, but was there any pickup specifically because of Trump? Like after he announced the U.S. withdrawal from the Paris climate agreement or last month’s announcement to help coal-fired plants?

Answer: We certainly have had significant inflows in new business since Trump became president. There’s a secular, big trend occurring that’s favourable for ESG, but if the government were doing everything it possibly can from a regulatory, policy perspective, investors would be less likely to take special action. When the government is going backward on these issues, investors are much more likely to say, “We need to deal with this ourselves. We need to make sure they are managing these risks properly, because the regulatory framework is not as helpful as it could be.”

Q: Are investors specifically mentioning him when they bring money to your funds?

A: Trump is the proverbial elephant in the room against which governors, mayors and asset owners are all trying to create their own strategy to protect physical assets and financial assets. Very few people say, “I track this back to Trump."

Q: Is climate change the No. 1 thing on the mind of investors coming to Calvert?

A: It’s been the No. 1 issue for a period of time, and it’s attracting more attention and rigour. So much information, aside from Trump, is becoming available about the risks to physical assets, plants, property, equipment, the risks to businesses in terms of just conducting their business during severe weather events, risks associated with wildfires.

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Five years ago, people thought this was something that the next generation was going to deal with. Today, they realize this is something we have to deal with right now.

Q: You wrote something recently highlighting what the president of the Federal Reserve Bank of Dallas said recently about climate change, and how Texas may not be the place where ESG investing is most welcome. Are your investors all along the coasts?

A: What we’re finding around the country is people who might not have come to this form of investing previously have recognized that these issues really matter to the long-term success of the companies they invest in. And that’s bringing everybody to the table.

While in the past, you might have said this is coastal, or this is liberal, that’s just not the case any more. Institutions, as well as individuals, from every background around the country are sitting up and taking notice that their portfolios need to be managed in a way that deals with these risks and, in some cases, opportunities.

Q: How about the companies you invest in: Have you found them to be more open to talking with you about environmental and other issues?

A: Companies are much more receptive. We’ve even got some companies pro-actively coming to us, where we are beginning a dialogue.

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Q: Is that across the board, or only in some industries or in some countries?

A: I have to say, really across the board, even in China, which is almost a different system.

Q: Part of that is because your funds can hold their investments for a long time?

A: Our big growth fund, Calvert Equity, has turnover below 30 per cent and in some periods even lower than that. I think with ESG engagement, done the right way, you’re really facilitated by being a long-term investor. You can’t have engagement with a company if you’re going to sell the company in three months.

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