'Also dare to be an activist as an investor when it comes to sustainability'

Published on: 24 January 2020

Include climate risks and climate performances in your investment portfolio. That’s the urgent appeal Thom Wetzer makes to APG and the present pension fund directors during the annual APG event “With a view to tomorrow”.

The professor Law and Finance at the Oxford University presented a narrative with two chapters last Thursday in Oegstgeest: the optimistic part revolved around apparent small actions that may lead to large movements. An until then unknown student Gretha Thunberg who decides not to go to school one Friday in protest against the climate policy and who gradually succeeds in mobilizing millions of people. According to Wetzer, it is also possible to put such snowball effect in motion when it comes to investments. The more investors invest in, for example, solar panels, the cheaper they will become and the more often these will be purchased.



However, Wetzer started his presentation with the pessimistic chapter. If we continue on an equal footing, the average temperature on earth will rise with 4.1 to 4.8 degrees. That would be disastrous, he concluded. “If the temperature rises 3 degrees, millions would be forced to migrate to other areas. The bad news is that climate change also has a lot to do with snowball effects, yet in a negative sense. “Take the melting glaciers as an example. Less sunlight is reflected due to the disappearance of glacial ice. That leads to the earth’s surface heating up. And that, in turn, leads to glaciers melting faster.”

The physical consequences of that climate change already have a major effect on the production and trade. The forest fires in Australia is a striking example. The Panama Canal is a different example. Due to the increasing drought in that area, vessels cannot pass the canal or only with a less heavy load. That has an enormous negative impact on the normal course of trade and, therefore, on investments.


Value portfolio

Investors are well advised to already include those types of risks in their portfolio, says Wetzer. In addition to these physical risks, there are plenty of other climate-related risks that may impose major effects on the value of a portfolio. “The sharply declining demand for coal has a huge effect on the value of companies. In the past 10 years, coal-fired plants in the United States have fallen in value with 99 percent. According to experts, oil companies have to anticipate a future oil price of 20 to 35 USD per barrel. That while they need a barrel price of 60 to 80 USD in order to be profitable.”

In contrast to these major climate risks, Wetzer foresees equally large climate opportunities. Such as Tesla, a company dominating the market of electric vehicles. And Volkswagen that, in response, invests billions in order to grow rapidly in the field of electric transport.


Climate opportunities

However, both climate risks and climate opportunities are often not included when it comes to choosing certain investments, concludes the professor. Why is that? “Many investors don’t look further ahead than 10 to 15 years. They therefore overlook many climate risks as those will occur later on. In addition, we only had limited information about climate risks and the possible financial consequences.”

Fortunately, that provision of information is improving rapidly, Wetzer notices. A group of large companies, including APG, has developed the so-called Taskforce of Climate Related Financial Disclosures. A standard used to assign a certain value to risks. Banks and regulatory authorities are also in need of more information on climate risks. In addition, advancing insights also ensure more clarity on possibly promising technologies. 

Investors no longer have any reason to ignore climate risks and climate opportunities, says Wetzer. He is happy to provide investors with some tips. Have a good look at your current portfolio. Is it still balanced? Are the climate risks not weighing too heavily?



According to Wetzer, APG is one of the frontrunners in the field of sustainable investing. “A strong asset of APG, in my opinion, is the scenario analysis. That scenario also takes into account the consequences of possible future scenarios. Another strong feature of APG is the actual assessment it makes for companies in terms of their sustainable activities. “A company such as Shell is doing well on that part. By entering into a dialog as an investor regarding the non-sustainable activities, the oil giant is now making important steps in the field of sustainability.”

Be sure to engage in a conversation as an investor, but do not shy away from the role of activist if that doesn’t work, is Wetzer’s advice. “Threatening legal action or the sale of shares also is a powerful tool to set companies in motion.”