At the time the trend was alarming. The largest 500 U.S. companies’ natural capital costs — the unpaid cost to the economy from pollution, natural resource depletion and related health costs — were up 22 percent since the economic downturn. For more than 1,600 companies listed on the MSCI World Index, natural capital costs were up 26 percent.
The challenge was clear: Identify successful business models that decoupled revenue growth from environmental impact.
Is this the year that we can say we turned a corner?
This year’s analysis shows that prior to 2013, the average annual growth in natural capital costs was 5 percent, which slowed to 2 percent in 2013. In 2014, this growth slowed further, to 1 percent for the U.S. companies and decreased by 8 percent for the global companies.
These are positive signals, but it may be too soon to determine whether we have reached a turning point and are headed in the direction of sustainable growth.
With less caution, we can say that 2015 was the year that the investment community made critical commitments to finance sustainable growth.
There was collective action. The Montreal Pledge, which commits investors to measuring and disclosing the carbon footprint of their portfolios on an annual basis, attracted 120 signatories representing just over $10 trillion in assets under management.
And the Portfolio Decarbonization Coalition, formed to help cut greenhouse gas emissions by mobilizing institutional investors committed to decarbonizing their portfolios, smashed through its initial target of $100 billion, and is now overseeing the decarbonization of $230 billion in assets under management.
There were also independent statements. U.S. public pension giant California Public Employees’ Retirement System (CalPERS) — responsible for $274 billion in assets — announced it would start to engage more companies on climate change to ensure underlying companies in its portfolio are “aligned with the transition to a low-carbon economy.”
And PGGM — the heavyweight Dutch pension asset manager with $199 billion in assets — said it would “take considerable first steps towards halving the carbon footprint of investments in 2020.” These are strategic shifts that have the potential to create change across the entire investment industry.
And a wealth of innovative financing vehicles began to boom, from “carbon-efficient” indices and funds to green bonds. According to the Climate Bonds Initiative, the green bond market soared to almost $42 billion in 2015, tripling over the past two years. And in December, China became the first country to issue rules on issuing green bonds, aimed at kick-starting a thriving green bond market to raise the $330 billion annually to invest in the country’s transition to a green economy.