Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Innovation Investing Conference
    • 2022 Defined Contribution East Conference
    • 2022 ESG Investing Conference
    • 2022 DC Investment Lineup Conference
    • 2022 Alternatives Investing Conference
Breadcrumb
  1. Home
  2. INDUSTRY VOICES
February 10, 2021 08:30 AM

Commentary: Carbon’s elemental role in the future of impact investing

Bill Peressini
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Bill Peressini
    Bill Peressini

    "Tell me the one about the virus again, and then I'll go to bed." So begins "The Great Realization," a popular video poem from Tomos Roberts chronicling how in the years after enduring a deadly pandemic, the world emerged a better place. Ironically, despite the suffering caused by the virus, it somehow brings life back into sharper relief.

    2020 was supposed to be the "super year for nature;" yet even as the United Nations passed its resolution declaring so, COVID-19 was spreading undetected around the globe. Human encroachment on wildlife habitats as well as tropical deforestation have since been linked to emerging zoonotic diseases like COVID-19. Nature had a very strong voice at the table when disaster struck, and we learned the hard way that public health depends on planetary health.

    If there is a silver lining, it is that COVID-19 has shown us in fast forward what will likely happen more gradually but with far worse consequences if we fail to act on climate change. Five years after the Paris Agreement, we're falling woefully short on progress. We know the risk of climate change. We know how to mitigate it. And we have not acted decisively. Yet."

    Groundswell of support

    Indeed, a groundswell of corporate climate (and nature) commitments, alliances, disclosures, reporting frameworks and accounting standards has emerged. On top of pre-existing frameworks such as the Task Force on Climate-related Financial Disclosures, the Science Based Targets initiative, and the Net Zero Asset Owner Alliance, we're seeing the launch of numerous new initiatives. In the past year alone, the number of companies setting their sights on net-zero carbon targets has roughly doubled to more than 1,500, according to a 2020 Data-Driven EnviroLab and NewClimate Institute report. With the foundation for private-sector climate action firmly in place, companies are responding in kind — and investors are taking notice.

    In particular, we're seeing rapidly growing interest in natural climate solutions and nature-based solutions — initiatives grounded in functioning ecosystems that deliver value not only by addressing challenges faced by society, but also by benefiting nature through enhancing biodiversity and ecosystem services.

    Natural climate solution land management decisions increase carbon storage or prevent greenhouse gas emissions in global forests, wetlands, grasslands and agricultural terrain. These "natural sinks" occupy the low end of the carbon sequestration cost curve and can provide more than one-third of the cost-effective climate mitigation needed between now and 2030 to stabilize warming to below 2 degrees Celsius. How fitting that nature itself would provide the solutions key to mitigating climate change.

    According to the United Nations-backed Principles for Responsible Investment, nature-based solutions will generate nearly $7.7 trillion through 2050. The PRI believes that land sector carbon policy will move toward valuing carbon stored in vegetation and soil, creating an entirely new industry driving economic growth and investment. It is an industry that needs to grow more than fifteenfold by 2030 to deliver the 1.5 degrees Celsius reduction pathway, according to estimates from the Taskforce on Scaling Voluntary Carbon Markets.

    That's a tall order. So the question is, how do investors get there?

    Seeing return through the trees

    As the impact of climate change becomes clearer and the need for mitigation and adaptation through NCS becomes more emphatic, investment managers must provide opportunities to invest in a stable and resilient natural world. A new class of impact-first investors is growing, who themselves invest with a view to fighting climate change and nature loss. These institutions see value in carbon sequestration and ecosystem services; in fact they may even prioritize these goals over financial returns. Valuing carbon more than society at large and putting their own proprietary price on carbon, they may invest in forests or strategies that seem to offer suboptimal rates of return today — but perhaps a windfall later.

    While this view on carbon may be new, the strategy derives from classic mispricing. When investors value carbon the way we believe society at large should, their investment calculus is seen in a different light. Forests may be more valuable to impact-first buyers because they value carbon more than traditional timber revenue. These investors often account for the value of carbon in their underwriting, and when financial returns include the avoided costs of a carbon price, the returns may become more attractive. The higher the carbon price, the higher the potential for financial returns.

    Getting in early

    If governments implement the inevitable policy response levers required to limit global warming to 1.5 degrees Celsius, investors will soon value carbon more highly than we do now. Portfolios that valued carbon more highly to begin with — portfolios that invested in carbon removal before it made financial sense — will then win the day.

    There is the risk that this doesn't happen — but this is the nature of investing. Let's bear in mind that if we're not dealing with transition risks on the horizon, it's because we're dealing with physical risks related to extreme warming, risks that science warns will lead to far greater value destruction than we can imagine.

    Only time will differentiate bona fide climate and nature commitments from empty promises that fail to deliver. We believe the difference lies in who values carbon higher, first. Our assessment going forward: Go long on the Earth and your downside may be negative a few basis points; short the Earth and your downside may be limitless.

    The verdict is still out on 2020. Will it be the super year for nature that never was, or the year when everything came into 20/20 focus, the year of the Great Realization? We are going long. Join us, the forest is waiting.

    Bill Peressini is Boston-based CEO of Hancock Natural Resource Group, a company of Manulife Investment Management. This content represents the views of the author. It was submitted and edited under Pensions & Investments guidelines but is not a product of P&I's editorial team.

    Related Articles
    Agriculture could help investors reach carbon-reduction goals – report
    Investors offer advice to ministers for U.K.’s low-carbon ambitions
    Investors push alternative managers closer on ESG
    Recommended for You
    Charles E.F. Millard
    Commentary: Finding common ground politically with ESG
    Jo Holden
    Commentary: Inflation looms large over investor sentiment
    Eng Teck Tan
    Commentary: New opportunities emerge as China transitions
    OCIO, Anchor in Rough Seas
    Sponsored Content: OCIO, Anchor in Rough Seas

    Reader Poll

    May 9, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Are Factors a Thing of the Past?
    Q2 2022 Credit Outlook: Carry On
    Leverage does not equal risk
    Is there a mid-cap gap in your DC plan?
    Out of the Shadows: The Revolution in Shadow Accounting
    The pivotal role of fixed income markets in the ESG revolution
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    May 9, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Innovation Investing Conference
      • 2022 Defined Contribution East Conference
      • 2022 ESG Investing Conference
      • 2022 DC Investment Lineup Conference
      • 2022 Alternatives Investing Conference