Pat Miguel Tomaino
Director of Socially Responsible Investing

Download a PDF of this Impact Brief

Climate change risk is a real concern for the world. Last year, scientists approached a consensus that our opportunity to reach the ambitious goal of curbing emissions to avoid global warming of 1.5 degrees Celsius beyond pre-industrial levels has come and gone. In the current climate, coral reefs are dying, deforestation is proceeding rapidly, and Australia has succumbed to a continental rash of fires.

The scary thing is that two-degree warming is just around the corner, and that scenario will be even worse than the status quo. A recent analysis in Vox laid it out:

Severe heat events will become 2.6 times worse, plant and vertebrate species loss 2 times worse, insect species loss 3 times worse, and decline in marine fisheries 2 times worse. Rather than 70 to 90 percent of coral reefs dying, 99 percent will die. Many vulnerable and low-lying areas will become uninhabitable and refugee flows will radically increase. And so on. At 2˚C, climate change will be devastating for large swathes of the globe.

This reality drives much of our investing and shareholder advocacy at Zevin Asset Management. We research whether companies in our clients’ portfolios are mobilizing fast enough to reduce their contributions toward climate change and respond to shifts in the market, policies, and technologies that will be critical in a (hopefully) low-carbon world in the future. According to the analysis of The Bank of England, one of the leading thinkers in this area, these are known as the “transition risks” of climate change.

To address transition risks, we have worked closely with the Science Based Targets Initiative, pressing portfolio companies like PepsiCo and UPS toward greenhouse gas reduction targets that are in line with the Paris Climate Accord and international efforts to avert catastrophic warming.

But as indicated above, climate change is coming home to roost right now. What the increasingly frequent forest fires, floods, and ecosystem destruction have in common is that they are real-time impacts of climate change that are manifesting in the material world. Economists call these the physical risks of climate change. We research these risks and how they play out in various sectors. This process produces insights for portfolio construction as well as priorities to push companies to improve. Unlike other types of climate risk that might harm sales or implicate regulatory fines in the future, physical climate risks endanger companies’ people, plants, and equipment right now.

There are two major types of physical risks associated with climate change: acute risks that are driven by events (like extreme weather phenomena) and chronic risks linked to long-term climate patterns. Companies’ financial performance might be harmed by direct damage to assets, indirect impacts from supply chain disruption, changes in water availability and quality, food security, and extreme temperature changes affecting employees.

Physical climate risk presents differently in different sectors:

Having assessed client portfolios against physical risks of climate change, our research methodology is more informed for the future, and we have a framework for shareholder advocacy. We press companies, especially those in the above sectors, to change by:

• Urging new climate change risk disclosure. This includes analyzing the full range of people, equipment, and operations at risk.

• Urging companies’ investment in new equipment and systems that mitigate physical climate risks for their own operations, as well as provide potentially positive impacts for the surrounding communities.

• Continuing to press companies to address longer-term factors that exacerbate physical climate risk. We remain focused on encouraging large companies to adopt rigorous greenhouse gas reduction targets that are based on the science of the Paris Agreement, and we are working with the Climate Action 100+ group of large investors to tactically engage fossil fuel companies and other major emitters.

• Encouraging companies to play a constructive role in advocating for progressive public policy around climate to guard against physical risk and deliver a green economy.

There is much work to do.

Thank you for reading. Zevin Asset Management and our partners are still shaping this work, and we welcome your thoughts at pat@zevin.com.