Environmental stewardship is a shared responsibility. Furthermore, corporations with poor or short-sighted environmental policies may face fines for environmental violations, supply-chain issues, or higher operating costs due to changes in environmental regulations. As such, environmental and climate-related factors may have adverse impacts on the Treasurer’s investment portfolio. Accordingly, we at the Treasurer’s Office recognize we must consider the following factors to mitigate our risk exposure.
- Climate Change – Climate change has serious risk implications for investors and the businesses in which they invest. Shifts in temperature, weather patterns, and rising sea levels impact supply chain, consumer demand, physical capital, and communities. Extreme weather events are occurring on a more frequent basis and with increasing intensity. Events such as droughts, floods, and storms may lead to scarce resources and disruptions in operations and workforce availability.
- Sustainability – Companies should consider how the environment and related regulation will impact operations and vice versa. Routine assessment of the nexus of operations, natural resource dependency, and the environment may be communicated to investors through sustainability reports. Quantitative reporting on environmental risks, policies, performance, and goals assures investors that companies are aware of potential risks and seeking to mitigate them appropriately.
- Environmental Innovation – A company’s awareness of environmental risks and opportunities may have a significant impact on its operational capacity, financial position, and long-term sustainability. With new environmental technologies, regulations, and business strategies rapidly developing (e.g., carbon pollution regulations and energy efficiency opportunities), it is important that companies maintain the knowledge and innovation to capitalize on these evolving changes. This may include, among other strategies, maintaining a board member or senior executive with expertise or ample experience with environmental science and technology.