“If you don’t pay attention to climate-related risks in your portfolio, you may not actually see an exposure that you have in terms of a physical asset,” Keyes told WP. “If you’re invested in a coastal hotel chain, for example, rising sea level and coastal erosion and more extreme weather events raise the risk of flooding those assets. You could take an impairment or see an increase in operating costs just to try and keep these assets safe from these growing physical risks.
“If you have not factored that in, you may be taking on a risk within your investment portfolio that you’re not getting paid for.”
Keyes sees ESG investing as a means to protect yourself and your portfolio from the risks of climate change. Her view of ESG investing, though, is not about excluding firms that might contribute to climate change. Rather, she looks at ESG as a way of assessing how firms are preparing for the looming risks of climate change. She flips the old exclusionary formula of “impact investing” and Corporate Social Responsibility (CSR) towards and inclusionary formula, taking on companies that are minimizing their exposure to climate-related risks.
Keyes wants more investors to take this view of ESG investing and push the companies they’re buying to get ready for climate change-related risks. She’s seeing a push for enhanced disclosure, companies fully explaining their own exposure to climate-related risks. She looks for signs from company governance around these risks, and whether the board has identified them and made someone responsible for managing them. Investors can use disclosure calls as a “lever” to push companies to better prepare for climate change.
If companies aren’t disclosing enough, Keyes thinks investors should push them and engage with high-level leaders at the company. That can even take the form of proxy voting and shareholder proposals, like the climate-change driven shareholder proposal Suncor faced. In that case Suncor worked with its advisors and turned a confrontation into a “win-win”, that saw the company begin to minimize its climate change-risk exposure.
