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  • Climate change and impact investing - a pivotal yet profitable solution

Climate change and impact investing - a pivotal yet profitable solution

19 June 2019

Departing Prime Minister, Theresa May, grabbed headlines recently by announcing that the UK will commit to achieving net zero carbon emissions by 2050. This came in spite of warnings from Philip Hammond that such a move would cost the UK in excess of £1 trillion.1 Whilst changes in lifestyle will be vital to reach targets, the way we invest could also have a notable impact.

Reaching the net emissions targets by 2050 will require a radical and concerted change in behaviour and lifestyle. A report from the committee on climate change outlined that people will need to reduce meat consumption by a fifth, decrease their car usage, fly less and turn down thermostats to 19°C in the winter. On top of this, three billion trees must be planted by 2050…perhaps we should just  turn the country into one big forest?

If you are suddenly worried about the prospect of swede and seitan rather than steak for dinner, luckily there are other ways to help reduce our carbon footprint, and arguably more effective than some of the committee’s suggestions. 

A recent study by Nordea, the Nordic financial services group, outlined that moving savings to sustainable funds can be 27 times more effective in reducing our carbon emissions than the combined effect of eating less meat, using public transport, reducing water use, and flying less.2

This is one of the reasons why impact investing is experiencing such rapid growth. Impact investing is a means of deploying capital to generate social and environmental impact, as well as financial returns. Returns shouldn’t be compromised by adopting this approach, and in fact, several studies have indicated that impact investing can result in above market returns. After all, investing in businesses which have a true purpose besides making money can enhance the longevity of the company, and a sustainable approach to investing reduces risk.

Climate change represents a huge risk to traditional investment portfolios but equally presents an opportunity for investors. There is money to be made from carbon capture technologies and new renewable energy sources as these become progressively mainstream. Impact investing can help to discover pioneering technologies which can be both pivotal and profitable in the fight against climate change.

As the trend in impact investing continues, which according to the GIIN has more than doubled from $228 billion to in excess of $500 billion in the past year, this should continue to benefit businesses which have a purpose rather than those which are purely profit focussed. Forbes estimate that the market could reach $1 trillion by the end of 2020. This will undoubtedly make a big contribution to solving the problem of climate change, but it’s likely that even more money will be need to be mobilised into the impact investing space both by financial institutions and individuals.

It’s tricky to ask people to change behaviours and there will no doubt be a significant proportion of individuals who dig their heels in, hence why we must explore different ways of solving the issue of climate change. This isn’t to say that people cutting down on car usage and going vegan isn’t hugely important. But for those meat lovers who are unable to compromise on certain elements of their lifestyle, the best way to tackle climate change may be with your wallets.

If you are a venture capital or private equity firm and would like to find out more about impact investing opportunities, please contact Will Tingle, M&A Associate Manager or Damian Ryan, M&A Partner.