What can we do to address climate change? You may think it’s about driving an electric car, putting solar panels on your home, or eliminating meat from your diet. But the biggest lever to address climate change may not be pushed by your individual actions, but by how the private sector manages its money.
The private sector can catalyze environmental change by embracing responsible investing. The Paris Agreement directs nations to limit global warming to 1.5℃, and investment decisions that consider environmental factors can get us closer to that goal.
To get a sense of what responsible investing looks like in practice, I spoke with Yili Wu, a Research Analyst II at the World Resources Institute. Our discussion centered around the organization’s research on sustainable finance and Yili’s thoughts on the field’s potential to enact change.
WRI is a global non-profit research organization that looks at a broad range of environmental challenges and opportunities. Its Finance Center uses research as a tool to guide companies to center sustainability in their investment decisions. The Center produces reports, engages in discussions with private and public sector actors, and “walks the walk” by ensuring that its own investments align with Paris Agreement goals.
A few years older than I, Yili came to WRI from the world of asset management—a bustling universe of its own where the investment process takes place. She first encountered Environmental, Social, and Governance (ESG) investing in a rotation for a corporate internship. She knew it was an area of both personal interest and global importance.
I wanted to know exactly how we can hold companies accountable and draw them into the greater climate movement. Yili seemed like the right person to tell me.
Yili and the Finance Center team investigate just how sustainable funds are. Throughout our conversation, Yili kept repeating a term, “Paris-aligned,” to explain WRI’s standard for a sustainable portfolio. The goals laid out in the Paris Agreement ground the Finance Center’s work, offering a standard by which progress can be measured.
Just how “Paris-aligned” are most funds?
Well, let’s just say that there’s a lot of work to do.
WRI is getting the work done, showing that investments can, and should, reflect organizational values. WRI uses multiple strategies to manage its own $40 million endowment to generate both monetary and social returns. The organization made its first ESG investments in 2015, aligned around 70% of its assets with ESG factors by 2018, and divested from fossil fuels in 2020.
While many organizations like WRI have divested, some still engage with the fossil fuel industry as a means to pressure them to change. Yili explained that these continued relationships allow for conversations about change since investors hold significant leverage over companies. Companies are responsible to their investors; if investors support reducing emissions, it is in a company’s best interest to do just that.
As someone fully immersed in the world of sustainable investing, I was curious to hear Yili’s vision of the path ahead. This curiosity brought me to the question I was most excited to ask: “How do we ensure that corporate sustainability commitments actually have an impact?”
Consumer pressure on companies is certainly important, but Yili emphasized that investor pressure is even more effective at pushing for change. Investors can demand that corporate boards and management reduce emissions in order to be included in their investment portfolios. WRI works with asset managers to pressure them to invest more sustainably and increase the pressure on corporations.
Yili emphasized the importance of turning data into action. Investor pressure on corporate boards and management is critical to ensure that data aren’t just numbers on a page but are used to generate an impact. Data on risks and opportunities can pave the way for divestment from fossil fuels, new investments in solar and wind power, and sustainable development.
It’s not enough to have a flashy “Sustainability” webpage aglow with unfurling leaves and utopian images of a green future. My conversation with Yili confirmed some of my assumptions about the self-serving interests of corporate investors, but it also showed me that many opportunities exist to make the private sector a catalyst for change.
Yili’s enthusiasm for sustainable investing was palpable, even over Zoom on spotty café WiFi. Far from the world of asset management where profits are the bottom line, Yili has found a community at WRI of researchers with the environment’s best interest at heart.
“Everyone is extremely passionate about sustainability and climate,” Yili remarked. “This is everyone’s lifeblood.” Hearing just how passionate Yili and her team are about sustainable investing gave me hope for the future of the sector.
Yili and WRI are showing us the way. It’s time to align our portfolios with our values.
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