Six Climate Investing Myths Debunked

Source: Morgan Stanley, September 18, 2019

Investors have come to terms with the reality that climate change is no longer a theoretical threat. The effects of extreme weather, rising sea levels, resource scarcity and pollution are rippling across every continent with dire consequences for individuals, governments and businesses.

Yet, climate investing is still burdened by many preconceptions and myths, according to Morgan Stanley Investment Management’s Vikram Raju, Head of Impact Investing for Alternative Investment Partners Private Markets, which manages $11.2 billion in partnership investments, limited partnership secondaries, co-investments and impact investing strategies.

Many investors may be overlooking opportunities that can meaningfully address a range of climate issues—and potentially deliver compelling risk-adjusted returns, Raju says.

Here are the six biggest myths about climate investing, according to Raju:

Myth #1: The climate problem is all about global warming.

For many, global warming evokes images of melting icebergs in the Arctic Circle, but there are aspects of the climate issue that are more mundane and tangible:

Pollution: From smog-choked Beijing and New Delhi to leafy London, where nitrogen oxide levels routinely exceed safe norms, air-quality issues can be all too visible in our daily lives.

Resource Scarcity: Drought is a growing problem that affects communities and farmers around the world. Lakes in many parts of Africa, for example, are shrinking, leading to social conflict, mass migration and refugee crises.

Waste Management: Many of our cities are running out of landfill and other solutions to dispose of waste. An increasing amount of the plastics that make up that waste flows into the oceans, contaminating marine life and our food chain at alarming levels.

Eco-diversity: Pristine stretches of natural environments home to the planet’s most biodiverse ecosystems are threatened, from rainforests in Southeast Asia and South America routinely razed for agriculture and timber to remote wildlife refuges being opened for commodities exploration.

Myth #2: An ESG strategy addresses climate solutions.

ESG, or the incorporation of environmental, social and governance risk factors, is increasingly becoming a core part of any investment strategy.

Creating positive climate impact, however, requires more than ESG hygiene. It involves actively investing in businesses, typically putting primary capital to work in a private equity context, where core business activities create new positive effects on the environment, be it a reduction in CO2 emission, pollution or resource consumption.

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