Ceres Blueprint Outlines Action Steps for Sustainable Investing

Institutional investors and their investment managers must integrate the financial risks from climate change, resource scarcity, supply chain failures and tighter water supplies into their investment practices if they are to be successful in the 21st century, according to a new Ceres report.

The 21st Century Investor: Ceres Blueprint for Sustainable Investing outlines the urgency and long-term competitive advantages for investors that incorporate sustainability across all aspects of their investment practices. It includes 10 action steps for integrating sustainability into investment beliefs, asset allocation strategies, corporate engagement, proxy voting and other areas.

Ceres says the financial risks of climate change and other sustainability threats will have profound effects on investment returns in the years to come; however, traditional methods of financial analysis used by most large investors ignore these factors. The Blueprint provides a clear path for integrating sustainability challenges into investment strategies and shifting from short-term thinking about earnings and profits to longer-term, risk-adjusted returns mindful of the present as well as the future.

The report comes amid escalating sustainability challenges around the world, including population pressures, rising demand for resources and energy and a changing climate that could cause severe economic disruption if not addressed.

“The nature of risk facing investors, communities and businesses in the 21st century is different — even unprecedented,” the report concludes. “These emerging risks will almost certainly have more severe and longer lasting economic consequences than the recent financial crisis.”

The report says investors cannot afford to ignore these risks, and there is a growing body of evidence linking strong sustainability focus to strong investment performance. What’s more, there is a growing arsenal of analytic tools for analyzing these risks, which makes it easier for investors to act.

“Sustainable investing will require investors to think far more broadly about risk and opportunity across all asset classes,” said Chris Davis, director of Investor Programs at Ceres. “No investor can ignore the impacts of climate change on the food and agricultural sector, for example, or the economic costs of increasingly common severe weather events. But it’s not all about risk.”

“There’s an estimated $6 trillion market for global clean energy investment that smart investors are taking advantage of,” he added.

The report was done in close collaboration with a dozen leading investors, including the New York, California and Florida public pension funds, State Street Global Advisors and key SRI funds, which are part of Ceres’ Investor Network on Climate Risk.

Last month, Ceres released another study that showed energy efficiency could be a multi-hundred-billion dollar investment opportunity in the United States, but better policies are required to unlock broad-based financing from institutional investors.