UN climate report pushes for green investment funds

Dire warnings about climate change are a call to action for investors who put their money into helping the environment. But the news also heightens a debate about how to make these strategies effective, financial executives said.

A UN climate report on Monday found that global warming is dangerously close to spiraling out of control. Even the most severe carbon emission cuts are unlikely to prevent global warming of 1.5 degrees Celsius above preindustrial temperatures by 2040, a level that many scientists believe must be achieved to avert catastrophic climate change.

Green investing has attracted a flood of cash and boosted companies like electric car maker Tesla Inc and clean energy company NextEra Energy that promise to help a transition away from fossil fuels.

But sustainable investment managers are confronting a two-sided challenge for ESG, or environmental, social and governance, funds.

Fund managers want to convert public enthusiasm into dollars invested while simultaneously allaying suspicions that some funds are “greenwashed” as skeptics claim.

“Not all ESG funds are created equal and investors must do their research to determine whether their investments are making a real impact or are simply feeding into an ESG-centered marketing push,” said Green Century Capital Management President Leslie Samuelrich.

New Green Fund

Globally, sustainable funds hit a record high of US$2.24 trillion in assets in the second quarter, Morningstar data showed, up 12per cent from the end

of March. Many of these funds choose their investments in part on ratings of portfolio companies’ sustainability assigned by outside firms, but these grades can diverge widely.

An association of global market regulators took the first step last month towards governing the ratings.The UN report will further pressure funds to make their climate disclosures more transparent, said R. Paul Herman, chief executive of sustainable ratings agency HIP Investor.