What's going on?
ExxonMobil, the massive oil and gas company, agreed late on Monday to demands from a group of investors to spell out how climate change could affect its business. It’s being hailed as a big win for socially responsible investors.
What does this mean?
Back in May, a majority of Exxon’s shareholders supported a resolution calling for its board to produce an annual report on the risks to its business from extreme climate change and, relatedly, government policies that seek to reduce carbon emissions (e.g. policies that could lead to less demand for oil). The board initially put up resistance, claiming that it already accounts for climate change business risk in routine assessments. But it came around eventually – presumably feeling it was fighting a losing battle against its own shareholders.
Why should I care?
The bigger picture: It’s not just about staying woke – climate change poses real risk to corporate profits.
Socially responsible investing (SRI) has evolved in recent years from a largely altruistic approach to one more deeply rooted in mitigating the risks that climate change – and policy responses to it – create. For example, both Vanguard and BlackRock, two of the world’s biggest investors, focus on reducing climate change risk explicitly to protect the profits of the companies they invest in. It’s at least as much about being a smart investor as it is about being a responsible global citizen.
For you personally: SRI is becoming much more powerful – and easier for you to implement.
Most major investment providers now have some sort of SRI offering, and many investment funds are ranked based on sustainability criteria. There are also similar but different strategies emerging – most notably “impact investing”, which seeks to effect positive change by actively supporting particular companies. In other words, instead of simply excluding fossil fuel producers (for example) from an investment portfolio, impact investing seeks to actively invest in, say, companies working to develop renewable energy production.