Key Points:
- Climate risk is financial risk, and understanding this connection is essential.
- Companies must incorporate climate change’s economic implications into decision-making processes.
- Investors can engage with companies to set emissions reduction goals.
- Bringing together stakeholders is crucial for addressing climate risk.
- The politicization of climate issues hinders progress.
- Collaboration and consensus among stakeholders are key to driving change for a sustainable future.
After a long hiatus, The Sustainability Story podcast from CFA Institute is back. In the first new episode, Paul Andrews, head of Research, Advocacy, and Standards at CFA Institute, speaks with Ceres president and CEO Mindy Lubber about the critical connection between climate risk and financial risk.
Mindy Lubber believes that climate risk is financial risk and that understanding this relationship is crucial to addressing the threat.
“Our job is to make the case that, whether it’s climate change or water shortages or, frankly, a number of social issues, that they have economic implications as great as any others,” she said. “They need to be part of the financial framework.”
According to Lubber, companies must recognize the economic implications of climate change and incorporate them into their decision-making processes. Investors can help by engaging with companies to set emissions reduction goals. Lubber says the top 100 companies globally are responsible for 80% of emissions, making their actions particularly significant if climate change is to be addressed.
Uniting Stakeholders for Change
One of the challenges in mitigating climate risk, according to Lubber, is bringing together and building consensus among the various stakeholders involved. She identifies four critical cohorts: investors, the investment community, corporations, and governments and authorities.
Aligning these disparate interests will not be easy, but given the stakes, it is imperative. “If we don’t address climate, the implications are indeed frightening from an economic and societal perspective, for the future we’re building for our kids,” she said. “We really have to do it and look at the problems and solutions.”
The Ceres Accelerator for Sustainable Capital Markets, according to Lubber, can play a significant role in creating lasting, positive change by ensuring equitable and consistent regulations across the entire economy.
Overcoming Politicization
Lubber acknowledges that climate issues have been politicized, which presents a significant barrier to further progress. She believes that corporate board members and investor trustees must analyze risk as their first job, and ignoring climate risk could lead to poor decision-making. However, politicization only worsens the problem. “The politics of hate, the politics of division, the woke capitalism charges that somehow investors ought not to be looking at all the data at their fingertips — it’s insanity,” she said.
To address this issue, Lubber believes that fostering collaboration and consensus among stakeholders is key to driving change for a more sustainable future. “The role of analysts and financial players is absolutely crucial,” she said.
Look for new episodes of The Sustainability Story podcasts each month. You can also subscribe for free to the audio version wherever you get your podcasts.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
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