Updated: Dec 12, 2022
We have been inundated with the know-how on how to combat Climate Change, whether that be by taking clean methods of transportation, changing our diets, producing less water and food waste, and utilising renewable energy.
Although this all helps and adds up in the end, how can we address Climate Change in the most impactful way? (Pun intended) Cue Climate Impact Investing.
What are Impact Investing and Climate Impact Investing?
Many people don’t realise that they already possess something that ultimately could change the world for the better.
It’s sitting in your bank account, your wallet and between your couch cushions: your money.
The quote “Every dollar you spend . . . or don't spend . . . is a vote you cast for the world you want”, coined by L.N. Smith, seems to ring ever so true these days: where and how we spend our money is vouching for how we want the world to be.
So it comes as no surprise that now more than ever, we are becoming more conscious of the brands, businesses, and companies we invest our money into, whether that be for consumer goods, services or investment. Impact Investing, however, not only allows us to invest in businesses and companies but also allows us to support causes that impact the world as we know it, such as Climate Change.
So what is impact investing exactly?
"Impact investments are investments made into organisations, projects or funds with the intention of generating measurable social and environmental outcomes, alongside a financial return." (Impact Investing Australia, 2021)
Impact Investing can additionally contribute positively to many, many industries. According to “The GIIN”, industries that benefit from Impact Investing include “sustainable agriculture, renewable energy, conservation, microfinance, and affordable and accessible basic services including housing, healthcare, and education.”
With all of this in mind, Impact Investing can contribute to the fight against Climate Change. Like Impact Investing, Climate Impact Investing is the investment "into organisations, projects or funds with the intention of generating measurable environmental outcomes” by decreasing global glasshouses emissions alongside creating a financial return.
Why does it matter?
So you may be thinking to yourself: why does Climate Impact Investing matter? How much of a difference is it going to make towards Climate Change, or is it even going to make a difference at all?
To avoid the severe consequences of climate change, it is recommended by The United Nations that 1.5C is the ideal temperature to attain in order to restrain global warming. Although this may sound scary, there is hope. Luckily for us Aussies, Australia is in a prime position to transition to a manageable supply cycle that is entirely sustainable and cheap due to our access to renewable sources. This means that Australians could greatly benefit financially from the clean energy transition (Yay!)
At Bloom, we know Australians shouldn’t have to choose between doing well and doing good.
Fortunately, our choices align with the change that we are seeing in the world today. Across the globe, governments are making impactful commitments in order to attain a Net-0 economy within the next 20 to 40 years, while the oil and gas industry is subsiding and the cleantech industry is booming with the opportunity for growth.
This shift is showcasing a great opportunity for investment in companies that have controlled their emissions. For instance, for 7 years in a row*, the Australian Deloitte Cleantech index (tracking cleantech stocks listed in Australia against the ASX200) has outperformed the ASX200.
*Source: Deloitte Australia CleanTech (DACT) Index - October 2022
*"As of October 2022, according to Deloitte DACT Index. Please note past performance is not an indicator of future performance, and this data is provided solely for educational purposes. Before making any decisions affecting your financial situation you should consult a professional advisor."
Can Climate Impact Investing contribute to solving global issues?
Impact Investing can leverage the “17 Sustainable Development Goals”, set forward by the United Nations. Such goals include improving areas such as (but are not limited to) Clean Water, World Hunger, Clean Energy and Sustainable Communities.
Addressing these issues can all be tackled through Impact Investing, especially Climate Impact Investing. According to the IPCC, the world is required to invest about 2.4 trillion USD 2010 every year until 2035 into the energy system (which is about 2.5% of the world GDP), to be able to limit global warming to 1.5°C.
A more recent study done by the International Renewable Energy Agency (IRENA) found that energy transition investment will have to be even greater and “increase by 30% over planned investment to a total of USD 131 trillion between now and 2050, corresponding to USD 4.4 trillion on average every year.”
Key findings by the IRENA include:
“Proven technologies for a net-zero energy system already largely exist today. Renewable power, green hydrogen and modern bioenergy will dominate the world of energy of the future.”
“A combination of technologies is needed to keep us on a 1.5°C climate pathway. These include increasingly efficient energy production to ensure economic growth; decarbonised power systems that are dominated by renewables; increased use of electricity in buildings, industry and transport to support decarbonisation; expanded production and use of green hydrogen, synthetic fuels and feedstocks; and targeted use of sustainably sourced biomass.”
USD 4.4 trillion on average is required every year to limit global temperature rise to 1.5°C and avoid catastrophic damage from climate change - that’s a lot of coins! To achieve this shift, Australians must move their money out of the fossil fuel industry and make deliberate choices to invest in options that will help grow renewable energy industries.
Climate Impact Investing Can Super-Charge Your Positive Climate Impact
We all do our best to address climate change - but did you know that your personal finances could be even more powerful than eco-actions such as recycling and living car-free?
Take your superannuation, for example - Future Super, which specialises in fossil-fuel-free Super, has measured the impact you can have when you switch your Super to a sustainable option (see Figure 3):
Other climate impact investments include banking, energy retailers and giving companies you already invest in a little shove to do better with their climate targets by voting at Shareholders' AGM. And if we collectively demand more sustainable options for our finances - imagine the systemic change we can drive!
What could that mean for you?
Not only will Climate Impact Investing allow you to positively impact the planet, but it also has more perks specifically for you!
Similar to any act of Impact Investing, Climate Impact Investing will allow you to grow your wealth through the generation of substantial returns.
The S&P Global Clean Energy Index is a great example. Measuring the performance of 30 companies from around the world that are involved in clean energy-related businesses, comprising a diversified mix of clean energy production and clean energy equipment and technology companies, has displayed a 33.05%* annualised 3 years return (*as of 30 March 2021)
Not too shabby if you ask us!
Another not-too-shabby advantage is the opportunity to align your money with your values. A 2018 survey conducted by the PEW Research Centre shows that Climate Change is viewed as a global threat globally, with 60% of surveyed Australians viewing it as the most significant threat to Australia. The survey indicates a great possibility that many Australians would be motivated to invest in the cause. With Climate impact investing, you can grow your wealth with 0 guilt - you are doing well while doing good.
Lastly, but certainly not least, Climate Impact Investing allows you to challenge the long-held perceptions that you can only make a difference and be charitable by donating. Climate Impact Investing allows you to invest in projects and companies that address Climate Change directly.
If you are curious to know of companies that target Climate Change directly, then check out Bloom’s watchlist (they may even end up in Bloom Impact Investing’s portfolio!) These companies include Tesla, Mercury, Nio, Meridian, Bingo Industries, Bluglass, and Canadian Solar.
If we invest in companies that offer climate solutions, they will grow and make less-climate-friendly solutions redundant (like solar and wind power are slowly making coal obsolete). The goal of Climate impact investing is to do this across all sectors of the economy.
Such sectors include but are not limited to renewable energy generation, clean water and ocean, green transport, green construction, land solutions, agritech and foodtech. If we do invest in these sectors, we can create a pathway towards a new Net-0 carbon economy.
How can you get started with Climate Impact Investing?
First things first, we have written a complete guide for you to get started with green investing here.
You can also download our Bloom Impact Investing app linked here. The app makes Climate Impact Investing easy and accessible.
You can start investing in green portfolios in minutes with the Bloom app.
Simply decide how much you want to invest, and set up a monthly contribution. Then, choose between our balanced and high-growth portfolios according to your risk profile.
And that’s it. From there, your money is automatically invested in a diversified portfolio of companies solving climate change globally and green bonds.
You have full visibility of the companies you invest in, and you can track your impact. We will send you updates from the companies you invest in and measure your carbon savings.
So what are you waiting for? Take a step towards making the world a better place today and join the climate impact investing movement by attending our impact investing community events here and downloading the app here. We can't wait for you to join us! 🚀
The information on this website is prepared by Bloom Impact Investment Services Pty Ltd (ACN 651 965 098 AR 001294778), who is an authorised representative of Cache Investment Management Pty Ltd (ACN 624 306 430 AFSL 514 360) (Cache). Bloom’s financial products are issued by Melbourne Securities Corporation Limited (ACN 160 326 545 AFSL 428 289), as disclosed in the relevant PDS. All information provided in this article is general information only and does not take into account your personal circumstances, financial situation or needs. Before making a financial decision, you should read the relevant product disclosure statement and target market determination consider whether the product is right for you and whether you should obtain advice from a professional financial adviser.