Maybe you’ve heard the one about bankers’ hearts being in strong demand by transplant patients… because they’ve never been used.
It might be time, however, to ditch the banker jokes. Michael Sabia, President and CEO of Canada’s second-biggest pension fund, the Caisse de dépôt et placement du Québec, and Bertrand Badré, the former Managing Director and Chief Financial Officer of the World Bank Group, are among a new breed of investors putting serious money (and their hearts) in the right places, betting big on reversing climate change. And they’re winning.
But to update the Earth’s operating system, we have to discuss money.
Profit or planet — why choose?
As head of the Caisse, Michael steers clear of using the term “doing well by doing good” because, well, “it sounds the way it sounds.” Instead, he simply sees sustainable investing as making good business sense.
“Too many investors today think of climate change as a sacrifice. We’re trying to develop a perspective that says, ‘Wait a minute, there’s a world of opportunity out there.’” – Michael Sabia
Today, the Caisse has roughly $18 billion invested in low-carbon assets, with plans to add $8 billion more by 2020. Those investments weren’t made while sitting around a campfire singing Kumbaya or, as Michael says, with “Robin Hood or Florence Nightingale hats on.”
“We made those investments for sound commercial reasons. So far, they are performing in a manner very consistent with our expectations at the beginning.”
One of North America’s largest investors in wind power, for instance, the Caisse’s portfolio in that sector has been highly profitable, delivering significant returns for the fund’s depositors, the people of Quebec. A few years ago, that would have been unthinkable.
“In the past, you had to make a choice between investments that generate good returns and those lower in carbon,” Michael says. “That’s over.”
Ready to trim carbon from your organization? Here’s how the Caisse de dépôt et placement du Québec does it:
- Listen to the people: Climate change is increasingly rooted in consumers’ choices. So, give ’em what they want. To meet clients’ greener demands, the Caisse will lower its carbon footprint by 25% between now and 2025.
- Enforce a carbon diet: Investors at the Caisse have a carbon budget they’re required to stay within. That means analyzing each investment based equally on its risk, return and climate impact.
- Less carbon, more cash: Make sustainability a key factor in how people get paid. Hitting carbon targets is now an important part of the Caisse’s compensation program.
Hacking the system to solve climate change
Bertrand Badré, for his part, literally wrote the book on rescuing the planet with money. The author of Can Finance Save the World? says, “Money, depending on how you use it, can be a poor master or a great servant.”
Through his Blue like an Orange Sustainable Capital investment firm, Bertrand aligns funding with United Nations Sustainable Development Goals, helping scale companies in areas from affordable and clean energy to poverty reduction and education.
When it comes to climate change, he says the good news is that we know how to solve it: the 2015 Financing for Development Summit in Ethiopia, the UN Sustainable Development Summit in New York City and COP 21 in Paris have given us a clear roadmap.
Now, all we have to do is decide how to adapt the system: What kind of economy do we want and how are we going to finance it? What is the role of the market, the banks, the pension funds and life insurance?
The challenge we haven’t addressed yet, says Bertrand, is about money. “We need to define what comes after the neo-liberal cycle. It’s important to have a vision,” he says.
All this, he adds, is happening in the background of the terrifying reality that, “we have all moved to OHIO instead of going to CA.” (OHIO stands for “own house in order.” That is, the Brexit, America First, Chinese Dream mindset, which has countries believing the world’s problems are too big, so they focus on what they think they can control. To address financial, refugee or climate challenges, we need CA, which stands for “collective actions.”)
So what needs to happen next to spark change?
- Return to basics to build trust. Bertrand says a lasting consequence of the 2008 recession is a crisis of trust. To get it back, the fundamental principles underlying fiscal actions — simplicity, transparency, accountability — must be enshrined in business schools, banks and governments. “We have to rehabilitate ethics.”
- Go mainstream. Green and social bonds need to become the norm. Period.
- Cooperate. We must encourage various silos — namely public, private and civil society — to cooperate. “Everybody suspects everyone else, and it’s bad,” says Bertrand. “We have to work together and respect each other.”
Pave the way forward
We are at a crossroads, says Bertrand, and we have to choose to build the road we want.
“It must lead to accessible technology for all, sustainable development and responsible finance,” he says. “If we don’t get there, we are fooling ourselves.”
Yes, money does make the world go ’round. But, as this new tribe of conscious investors is showing us, it might just hold the key to cooling it down as well. This is one investment opportunity we can’t afford to miss.
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