Historically, most investment strategies led with a profit-seeking mentality. Investors sought to invest in companies that would yield the highest return.
Today, a new investor philosophy—environmental, social, and governance (ESG) investing—has emerged to challenge traditional methodologies.
With the mounting specter of climate change threatening the planet, producing ROI is no longer a strong enough justification for investing, especially not if it funds projects that accelerate the problem. Instead, the thinking goes that investments should produce ROI and seek to create a positive social and environmental impact.
To that end, let’s talk about climate change investing and how it will change the world.
What Is Climate Change Investing?
Climate change investing focuses on promoting solutions that hasten a “green” transition to a carbon-neutral and environmentally friendly society. As a subset of ESG, it seeks to achieve profits and positive social change.
In short, it’s an investment portfolio management style that emphasizes ethical wealth creation. And the industry is booming. In Q1 of 2021, more than $178 billion spilled towards “green” investment funds globally.
Typically, the primary investment targets are companies, climate fintech, technologies, or SaaS providers that are likely to gain prominence as the world transitions away from harmful industries (or companies that champion responsible and sustainable business practices).
Many of these organizations were created to mitigate the main contributors of green gas or GHG emissions, which include:
- Electricity and heat production (25%) – The burning of natural, gas, oil, and coal for heat and electricity.
- Industry (21%) – The GHG and carbon emissions from a facility’s energy demands, industrial processes, and waste management processes.
- Agriculture, forestry, and other land use (24%) – The emissions from the cultivation of crops and livestock combined with deforestation.
- Transportation (14%) – The emissions from fossil fuels burned for road, air, rail, and naval transportation.
- Buildings (6%) – The emissions from onsite energy generation, whether commercial or residential.
- Other energy (10%) – The secondary GHG emissions from the energy sector from processes like fuel extraction, refining, processing, or transportation.
How to Invest For Climate Change Action — The Three R’s of Ethical Investing
So, what eco-friendly initiatives do investors tend to favor? Dr. Sarah Kapnick, Sustainability Strategist and Senior Climate Scientist, divides it into three overarching categories she terms the three R’s: reduce, remove, and retrofit.
The first initiative seeks to find investments that help in greenhouse emissions reduction. Sustainable investing subsets include:
- Energy supply decarbonization by focusing on promising renewable energy options like solar, wind, geothermal, and tidal.
- Energy demand reduction by increasing the efficacy of energy storage and usage and reducing the operating costs.
- Process transformation by developing novel processes and formulations, optimizing existing carbon-intensive processes, and improving resource efficiency.
The next category primarily focuses on removing excess greenhouse gasses from the atmosphere. There are one of two ways this can be done:
- Natural-based carbon removal by investing in natural processes inherently combat greenhouse gas emissions, including forestry, agriculture, and aquaculture management.
- Mechanical carbon removal by investing in technologies that capture greenhouse gas emissions and remove carbon from the water or air.
The final category emphasizes retrofitting buildings and systems to combat the impacts of climate change. Primary investment opportunities for retrofitting include:
- Updating existing infrastructure by rebuilding, retrofitting, or adding new structures to withstand future climate and weather events.
- Water enhancement by augmenting water treatment, production, and recycling processes.
- Food enhancement by developing agricultural technologies and processes that can withstand climate change shocks.
Climate Change Action Initiatives in the Redwood Fund
Yes, climate change poses a significant long-term risk. At this point, this should be no surprise to anyone. But time and time again, when we band together, we improve our ability to adapt and innovate.
Today, investors can play a significant role in fighting climate related risk by investing in funds that help make a difference as well as being aware of climate change and the banking impact. To that end, are you looking for an investment channel that champions companies who lead with sustainable environmental, workplace, and governance practices?
Meet the Aspiration Redwood Fund—an A-rated 100% fossil fuel-free index.
It was expressly designed to identify, invest in, and support companies poised to scale and make a positive impact on the world. The Redwood Fund seeks to highlight market leaders driving the “green” transformation.
So how does Aspiration Redwood Fund identify suitable candidates?
By conducting ESG audits, we can identify companies whose values and practices align with their profit potential. Since its inception, our fund has sought to meet or beat the S&P 500 total return index.
2021 was the first year it surpassed that benchmark. To that end, The Redwood Fund is diversified into six primary categories:
- Information technology (24%)
- Financials (21%)
- Industrials (16%)
- Healthcare (14%)
- Consumer discretionary (13%)
- Other (4%)
- Energy (1%)
Investing in Responsible Climate Change Solutions with Aspiration
Whether you want to open a taxable account or an IRA, Aspiration empowers retail investors to fulfill their climate investing pursuits with as little as $10.
Backed by the industry experience of UBS Asset Management, the Aspiration Redwood Fund is designed to focus on profits and the planet. Furthermore, Aspiration provides automated ways to invest in climate change. Consider opening an eco friendly debit card or green credit card, both of which aim to help the planet and your wallet.
So, are you ready to invest in climate solutions? Explore our sustainable financial services and start investing in the Aspiration Redwood Fund today.
IPCC. Climate change widespread, rapid, and intensifying – IPCC. https://www.ipcc.ch/2021/08/09/ar6-wg1-20210809-pr/
Forbes. Ways to Invest to Slow Climate Change. https://www.forbes.com/sites/nextavenue/2021/08/13/ways-to-invest-to-slow-climate-change/?sh=75d0e1961b56
EPA. Global Greenhouse Gas Emissions Data. https://www.epa.gov/ghgemissions/global-greenhouse-gas-emissions-data
JP Morgan. How can I invest for climate change? https://www.jpmorgan.com/wealth-management/wealth-partners/insights/how-can-i-invest-for-climate-change