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Climate Change Moves From Risk to Reward

America's biggest financial institutions make a big move to invest in a low-carbon future.

Climate Change Moves From Risk to Reward

America's biggest financial institutions make a big move to invest in a low-carbon future.

The future is green.

Photographer: Christopher Furlong/Getty Images

Photographer: Christopher Furlong/Getty Images

As the effects of climate change loom ever larger, financial markets are embracing sustainability. Long a marginal concern at best, it has become a central component of any successful investment strategy.

It’s no wonder the financial industry is starting to incorporate global warming in its risk assessments and requirements for transparency: Recent natural disasters, like the fires in California or storm surges in the U.S. southeast, have caused billions of dollars in damage, a record $306 billion last year alone. The ruined crops, broken supply chains and rising insurance costs have made investors and the business community painfully aware of the danger to the bottom line and future economic growth.

I tried to help investors understand and price these developing threats when I served as chairman of the Securities and Exchange Commission, which provided guidance to help public companies begin to make disclosures related to material climate-change risk. Now in the private sector, I have continued to focus on the issue as vice chair of the Sustainability Accounting Standards Board, which has created the first industry-specific sustainability reporting standards in the U.S. I also lead the work of the Task Force on Climate-related Financial Disclosures -- an initiative of the Financial Stability Board, Bank of England Governor Mark Carney and Michael R. Bloomberg, the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News – which has developed a voluntary, global climate-risk disclosure framework endorsed by more than 500 international companies.

These and other efforts are helping companies identify, manage and disclose the material climate risks they face. These data allow investors to make informed capital allocation decisions. Currently, $12 trillion in assets in the U.S. goes to sustainable investment. That represents about a quarter of the total under management, and a 38 percent increase in just two years. That’s progress, but there’s more to do.

Financial players and their investors have much to gain from the shift toward greater sustainability. These investments offer a dual benefit: they lower emissions, speeding the transition to a low-carbon economy, and they can make (or save) money. People are increasingly aware of the first two pillars of sustainable investing -- risk identification and transparency. Now we need to inform them about the third: the need to drive capital toward sustainable opportunities, both at home and internationally.

To achieve that goal, major financial institutions have joined together in the U.S. Alliance for Sustainable Finance under Bloomberg’s leadership. Its members will provide the resources and expertise to identify and streamline existing climate-finance initiatives and, ultimately, help drive more capital to sustainable investments.

The U.S. must be at the forefront of this effort if it wants to remain the global leader in financial innovation. The new alliance will help American companies do just that by enabling them to take advantage of the trillions of dollars in investment opportunities needed to make the shift to a low-carbon economy. Risk assessment has always been central to the calculation behind sustainable investment; reward can finally be part of the equation, too.

    This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Mary Schapiro at

    To contact the editor responsible for this story:
    Max Berley at mberley@bloomberg.net

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