The IPCC Summary Report on Climate Change: Impact Investing as a Powerful Tool

Read the first part of this post, The IPCC Summary Report on Climate Change: What it Means for Impact Investing.

By Marta Maretich, Maximpact

On 27 September 2013, the United Nations Intergovernmental Panel on Climate Change (IPCC) published the first of three volumes of its fifth Assessment Report (AR5). The first part of this two-part post discussed the findings in this report, what it means for impact investing and government policy response, leadership and where they could do more. This second installment addresses more businesses going green, reducing carbon emissions, public perception and using impact investing to combat climate change.

Mainstream businesses go greener

Large multinational corporations and mainstream business will also feel the effect of the new climate change policies at ground level—and this will have a knock-on effect for impact investors and the businesses they capitalize.

All businesses will need to respond to the international regulations that grow out of the new IPCC report findings. More directly, they will need to meet national and regional standards set locally, and these, too, will be affected by the report. There also seems to be a feeling in the corporate sector that an upturn in the economy will leave them freer to take steps toward carbon emissions reduction. Many see a “green” profile as key to their corporate image. A growing number of organizations in the developed world are making sustainability a core value in their operations and employing sustainability professionals to help them achieve it.

All this will drive the market for services that support sustainability and carbon emission reduction in companies—for example, consultancies that help organizations shrink their carbon footprint and conserve resources. This will create a possible growth area for impact business-to-business providers, offering services that embed sustainability and carbon-thrift into corporate operations practice.

CSR, now a norm for business, will continue to play a key role in the business/government/climate change triangle. Already an important factor, CSR will become more central as the need for businesses to meet emissions targets increases under new regulations—and new, very real resource pressures anticipated by the IPCC report. A closer relationship between CSR and impact investing could open new avenues for corporations to use their considerable resources for good. Supports like the impact business CSRHub, which helps track the effectiveness of CSR efforts, will help businesses hone their choices and give the public information about the real effect of corporate claims.

Beyond this, there’s a trend toward mainstreaming businesses that once were considered alternative. Words like "sustainability," "clean" or "green" technology, renewable and clean energy—all important areas for lowering carbon emissions—already feature prominently in the reports of large multinational companies. General Electric invests in renewable energy projects, while ExxonMobil has programs for reducing its greenhouse emissions and innovating carbon capture technologies and biofuels made from algae. This is largely a result of earlier government regulation on emissions. But it’s partly due to public pressure and, for some of the companies, canny strategic positioning for a future where business will have to be energy efficient to be successful.

The fact that these companies continue non-climate friendly business practices alongside these progressive ones leaves them open to the accusation of greenwashing from some quarters. Nonetheless, these examples are evidence of a mainstreaming of climate-friendly technologies and approaches in business. This trend suggests that the demand for them will continue and increase, especially as resources, such as fossil fuels, arable land and water become more scarce, as the IPCC findings seem to indicate they will.

This “greening” trend among multinationals could create opportunities for impact intermediaries, dynamic impact enterprises and engaged impact investors. Those who successfully bridge what’s been called the “pioneer gap” and manage to scale up socially and environmentally beneficial businesses to the point where they can join the mainstream, will be able to attract investment by multinationals and a wider pool of “neutral” investors—those for whom positive impact goals are not a motive for investment. This could increase the flow of capital into beneficial enterprises exponentially—and finally establish impact investing as a normal way to do finance.

Reducing carbon emissions: Key sectors for impact investment

Agriculture
Agribusiness
Cleantech
Biotech
Renewable Energy
Energy Efficiency
Forestry
Waste Reduction
Land Remediation
Water
Sanitation

The public demands change

Another important consequence of the IPCC report will be its influence on public attitudes toward climate change—this, too, will have consequences for impact businesses and for the practice of impact investing.

Some recent surveys of public attitudes in developed countries have recorded a shift toward a more skeptical view of human-generated climate change. Pro-climate-change commentators put this down to the success of well-organized media campaigns by special interest groups opposed to more government regulation.

But there is also a common-sense issue: people doubt the science when they don’t perceive significant climate change around them. Extreme weather events, such as the last year’s heavy snowfall in the U.S. and the high temperatures in Australia, have been shown to produce large swings in public opinion in favor of belief in climate change. As events such as these become more common, as the IPCC report suggests they will, it’s likely that the climate will make its own case for action.

Still, there’s plenty of evidence that suggests that the public already accepts the idea of anthropogenic climate change and wants to see governments, businesses and individuals do something about it. The IPCC report will strengthen the convictions of many who already feel that we need to change tack. As impact investing becomes more accepted as a means of effecting positive change, this group will be supportive, buying products and services from impact businesses and providing funding through micro-lending and crowdfunding platforms. The popular movement for divestment from fossil fuels could create a whole generation of small investors looking for more climate-friendly ways to deploy their capital.

People in developing countries—some of whom will be the worst hit by the effects of climate change—may need more convincing. As mentioned before, the governments of countries like China and India look on moves to limit carbon emissions as curbs to their growth by developed nations. Similarly, people in the developing world focus on the need for economic growth and view the talk of controlling emissions and resource consumption with suspicion.

There is some evidence that this is beginning to change. As in the developed world, people in economically emerging countries are beginning to see the effects of climate change for themselves—often in disastrous forms. Extreme weather events such as droughts and floods have the power to change opinions there, too. And there is anecdotal evidence that those who work on the land are seeing the changes firsthand. These local observations, plus the hard lessons of extreme natural forces, may shift world opinion in time to make a difference.

For people in the developing world, the impact investing model could offer a middle way between economic development and climate stewardship. Its market-based approach encourages economic growth, while its commitment to positive impact has the power to channel that growth in climate-friendly directions. In this sense, the multiple bottom line of impact investing holds out hope for developed countries, too, who also need to find new ways to thrive economically without further damaging the planet.

Impact: a powerful tool to counter climate change

It looks likely that the IPCC report will generate a new groundswell of activity around the issue of climate change and this could be a boon for the growing, diversifying impact investing sector.

Impact investing’s pragmatic approach to finance, and its commitment to capitalizing impactful businesses, make it a powerful weapon in the fight to save the planet from the effects of global warming. Its market methods translate across borders and geographies, providing solutions for developed and developing countries alike. Its flexible techniques can be used in many contexts to support the kind of businesses, processes and technologies that can help minimize climate damage while supporting economic development.

All this means that it’s time to for the impact sector to get to work. There are still market infrastructure issues that need to be solved: impact metrics and the lack of exits are two important examples. More research is needed; investment models need to be tested, honed and replicated. Education for impact professionals, now in its early days, still needs to be developed as the sector expands, professionalizes and becomes, in time, part of mainstream finance.

However, if some of these limitations can be overcome, impact investing could play a key role in helping mankind develop an effective response to the threat of climate change. Let’s all hope the warning has come in time—and we are up to the job.

Marta Maretich is Maximpact’s Chief Writer and Blog Editor.  Maximpact is a free global portal for ventures / deals that assist the social, impact and sustainability sectors in fund raising and collaboration of different kinds. It operates as a secure web-based listing service that allows sustainability, philanthropy & CSR professionals, as well as entrepreneurs, intermediaries, and funds to share information about initiatives and impact investment deals, online.

[image credit: kakela: Flickr cc]