You know a sea change is here when hard-nosed CEOs of America’s biggest companies issue a formal statement of purpose that, for the first time since the organization was formed in 1997, places efforts to fight climate change over shareholder gains.

Whether this is simply window dressing (“greenwashing”) or a true pivot toward sustainable business remains to be seen. However, the statement is a recognition that climate change is also an economic issue and, by doing business better, a company may reduce its financial risks and increase its opportunities to attract investors.

According to a 2018 investor opinion survey commissioned by the Responsible Investing Association of Canada (RIA), 71 per cent of respondents associated companies with sound ESG (environmental, social, governance) practices as better long-term investments. Responsible mandates are a fast-growing category with over $2-trillion in investments.

In the Information Age, more companies are asset-light; their value relies less on tangible assets such as factories and machinery and is based more on intangible assets like intellectual property — and reputation. Investor activism, abetted by social media, has increased reputational risks for companies who attempt to “greenwash” their reputations or refuse to disclose their ESG practices.

The corollary is those firms who are helping to fight climate change are more likely to attract investment dollars—from both large institutional funds who have environmental mandates and individual investors alike. As an article in Barron’s noted, “Values and valuation can go hand-in-hand.”

Next Generation Investors

Demographic changes are driving interest in responsible investing and this will only accelerate as wealth passes from Baby Boomers to Gen X, Y, and Z, who are more likely than their predecessors to pay the price of climate change. An Environics poll found that 31 per cent of millennial investors consider ESG (environment, social, or governance) factors – double the number of Baby Boomers. According to the RIA, although most investors indicate an interest in responsible investing, the highest engagement comes from women, the university-educated, those with children, and those between the ages of 18-34. And, even though Millennials are in the ESG spotlight, it’s actually the more moneyed Gen X between ages 39-54 who are driving sustainable investing into the mainstream.

Get Woke, Make Money

The stock market has delivered strong gains over the past decade and it may still have “gas in the tank”; however, most analysts say the probability of outsized gains going forward is muted given currently high valuations. And, despite generous monetary and fiscal policies, growth has been modest in developed countries. Investors may have to adapt to lower returns going forward—except in the sectors fighting climate change.

In a widely read whitepaper, co-founder and chief investment strategist Jeremy Grantham of GMO LLC, a respected Boston-based asset manager, outlines the business rationale for investing in green energy. One of his main points is that energy-efficient companies don’t require booming economic growth in order to generate profits. These companies are better protected from changing government regulations and rising costs of decarbonization.

Both private and public sectors are investing in promising startups as well as ‘green economy’ enterprises. In the past, some of these investing opportunities have only been available to institutional and high-net-worth individuals but, as demand grows, retail investors will have access to green infrastructure projects and green bonds which add diversification to a portfolio, protecting it from market risks.

Rita Silvan, CIM™️, is personal finance and investment writer and editor. She is the former editor-in-chief of ELLE Canada magazine and is an award-winning journalist and tv media personality. Rita is the editor-in-chief of Golden Girl Finance, an online magazine focusing on women’s financial success. When not writing about all things financial, Rita explores Toronto’s parks with her standard poodle.

Rita Silvan is a paid spokesperson of Sonnet Insurance.