Once a year, the CEO and Chairman of BlockRock, Larry Fink, sends a letter to the CEOs of the world’s largest and most influential companies. BlackRock is the world’s largest asset manager with over $7 trillion in assets, so the annual letter always attracts a great deal of attention.

In the letter, sent on January 14, 2020, Mr. Fink argued that climate change is driving a “fundamental reshaping of finance,” and that “In the discussions BlackRock has with clients around the world, more and more of them are looking to reallocate their capital into sustainable strategies. If ten percent of global investors do so – or even five percent – we will witness massive capital shifts. And this dynamic will accelerate as the next generation takes the helm of government and business.” 

For BlackRock to announce that it is placing sustainability at the center of its investment approach, and to argue that investors and businesses would be wise to follow suit, it is nothing less than a seismic shift with enormous potential implications. This isn’t some small company announcing that it’s placing a renewed focus on sustainability; BlackRock is a financial colossus, and when they say that they are rethinking their investment strategies because of climate change, investors around the world should sit up and pay attention.

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It should go without saying at this point that climate change poses a singular threat to mankind and the Earth’s biodiversity. The World Economic Forum’s 2020 Global Risks Report, which annually identifies the most pressing global challenges, ranked “climate action failure” as the top global risk in terms of overall impact, and, for the first time in the report’s existence, the top five risks in terms of likelihood are all climate-related. 

There is growing public pressure on governments and businesses to do more to address the threats, and an increasing number of Americans rank it as a top policy priority for the Federal Government.

Climate change is a problem that is so large and complex that it simply cannot be tackled by one group acting alone; as such, governments and businesses need to work together on the transition to renewable energy. As the BlackRock letter makes perfectly clear, the private sector can no longer afford to ignore climate change. 

There are promising signs that this message is finally sinking in, as evidenced by recent announcements from several powerful companies detailing bold new climate action plans. Amazon, for instance, recently launched a new initiative called The Climate Pledge, which promises that the company will transition completely to renewable energy by 2030, order 100,000 electric delivery trucks, and invest $100 million in reforestation projects around the world. 

In addition to this initiative, Amazon’s CEO, Jeff Bezos, recently announced that he was committing $10 billion of his own money combat climate change. 

Not to be outdone, Microsoft made headlines recently with its own bold pledge, announcing that it would work to become carbon negative by 2050, in that it would “remove from the environment all the carbon the company has emitted either directly or by electrical consumption since it was founded in 1975.” Microsoft simultaneously announced that it was investing $1 billion in a “Climate Innovation Fund.”

These recent announcements, coupled with the ground-shaking BlackRock letter, make it clear that the risks posed by climate change are beginning to disrupt traditional investment practices. For the savvy investor who understands the magnitude of the changes that are beginning to occur, there is tremendous opportunity in combating climate change.

For those interested in the investment potential of this critical issue, there are a few important points to understand.

What is climate change?

The United Nations explains the problem of climate change thus: “Greenhouse gases occur naturally and are essential to the survival of humans and millions of other living things, by keeping some of the sun’s warmth from reflecting back into space and making Earth livable. But after more than a century and a half of industrialization, deforestation, and large scale agriculture, quantities of greenhouse gases in the atmosphere have risen to record levels not seen in three million years.”

As greenhouse gasses concentrate in the atmosphere, more of the sun’s heat is prevented from radiating out into space, which slowly drives global temperatures up and creates a whole host of serious problems. According to the NOAA 2019 Global Climate Summary, “the global annual temperature has increased at an average rate of 0.07°C (0.13°F) per decade since 1880 and over twice that rate (+0.18°C / +0.32°F) since 1981.” 2019, the year that saw the devastating Australian wildfires and destructive Atlantic hurricanes, was the second-hottest year on record since record keeping began in 1880.

Efforts to bring together a solid, international coalition committed to tackling climate change have proved difficult thus far, with meetings such as the 2019 UN Climate Action Summit concluding without making much in the way of significant progress. 

However, millions of young people in cities around the globe walked out of school on Friday, September 20, 2019, to express their anger at climate inaction and demand substantive, swift change. These young people are energized, politically active, and highly motivated – they represent the groundswell that will richly reward those who turn away from fossil fuels and toward innovative, renewables. 

Why invest in climate change?

Technological innovation is key to fighting climate change. 

No matter how much we legislate, protest, and conserve, we need technology to help get us out of this mess. Thankfully, humans are nothing if not resourceful, and our desire to keep the planet safe and healthy for future generations means that the market for innovative, clean technology is going to continue to expand. 

One challenge currently facing startups focusing on climate change is a lack of venture capital (VC) interest. For VCs, why put your money in a risky startup with moderate short-term returns when a software startup’s short-term return could be enormous? The answer to this question is rather simple: because the world is in trouble and the power of the almighty dollar can help. 

Matt Rogers, co-founder of Incite Ventures, a fund that supports mission-driven enterprises, puts it another way: “Sitting on your pile of money while the oceans are rising may not help you stay dry.” 

How to invest in climate change

However, supporting a topic as broad and all-encompassing as climate change isn’t as simple as buying a few stocks. The issue crosses industry lines, investment segments and even international borders. That’s why it can be more impactful to invest in fund that are involved in a number of different businesses working on solutions related to climate change.

A search on Magnifi suggests that there are a number of different ETFs and mutual funds available to investors who want to get involved in climate change technology without having to invest in dozens of different companies directly.

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