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Special Report

Special Report: On Eve of Climate Week, Patagonia’s Founder Gives Company to Trust Fighting Climate Change

Focusing on renewable energy and the energy transition.

In an unprecedented move, the founder of outdoor wear company Patagonia recently announced he would give away his company to two nonprofits that will continue to operate the company while fighting climate change and pursuing nature conservation.

Privately held, Patagonia is valued at $3 billion. Under the new ownership structure, Patagonia will distribute roughly $100 million to the nonprofit to prompt environmental causes. And it will function as a B-corp—a for-profit corporation mandated to meet high standards of audited social and environmental performance and transparency.

“Earth is now our only shareholder,” Yvon Chouinard wrote, in a statement distributed on Patagonia’s website.

Chouinard’s environmentally minded move garnered global headlines. To be sure, there were significant tax benefits for him and his family. But nonetheless, the transfer serves as an important reminder of the reality of climate change and the role companies can play in tackling the threat.

It also occurred as intense flooding in Pakistan has killed nearly 1,500 people, likely attributable to rainfall that was worsened by climate change. Meanwhile, this summer marked one of the hottest on record, suggesting more climate-related disasters lie ahead.

“Frankly, these are the early days of climate change,” said Rohan Hamden, CEO of XDI: The Cross Dependency Initiative, which provides infrastructure risk analysis.

It’s against this backdrop that the Climate Week summit, held concurrently in New York City with the U.N. General Assembly, is taking place this week. The climate crisis continues to be of strong interest to investors and consumers: According to a new study by the journal Nature Communications, an overwhelming majority of Americans want action to address global warming.

For our special report about Climate Week, we chose to focus on the risks and rewards of investing energy.

Fossil fuels will remain a huge source of the emissions that cause global warming—but they also are critical to the energy transition. And there are plenty of opportunities, too, as the Inflation Reduction Act shows. As Stephanie Mah of DBRS Morningstar writes, “efforts to improve affordability of clean energy and strengthen resiliency to climate change [have] come front and center.” Indeed, thanks to the new law, the costs of renewable energy are expected to decline dramatically over the next decade.

In our report, Morningstar’s Jon Hale looks at the largest renewable energy funds. Analysts Allen Good and David Meats, who follow the oil sector, discuss in a Q&A how oil companies are preparing for the carbon transition. (Oil giant Shell, incidentally, just named its renewables chief as its new CEO.) Adam Fleck, director of equity research, ESG, shares a trio of promising climate-action stocks. And in the coming days, we’ll take a closer look at appealing investments in renewable energy, promising climate-action technologies, the pitfalls of thematic investing, and the world of carbon credits.

You should also flip over to our sister site, Investable World, a Morningstar data project that looks at a variety of sustainable investing themes— such as energy—and how to invest in them. For example, you can see which funds have exposure to nuclear power.

And of course, keep an eye on Morningstar Sustainalytics site for Climate-Week-related updates, including a look at what you need to know about physical climate risks and their potential impacts on your investments.

Here’s a roundup of other Morningstar pieces that you may find interesting:

Demand for Oil Will Stay High. What’s an ESG Investor to Do?

The answer involves lots of uncomfortable tradeoffs.

Wanted: Low ESG Risk, High Sustainable Impact, and a Moat. We Have 3 Companies.

We highlight a trio of promising climate-action stocks.

5 Clean Energy Funds to Consider

Comparing your options for investing in clean energy and electric vehicle ETFs.

Are Carbon Credits Ready for Their Close-Up?

We believe they have potential, but design flaws limit their current reach.

How Much of Your Portfolio Is Addressing Climate Change?

Use Morningstar’s new impact metrics tools to find out.

Electrification of the Economy Presents Risk, Opportunities

An increasing number of companies have made ambitious, science-based commitments to eliminate their carbon footprints by 2050. Innovations in electricity generation will play a pivotal role in meeting net-zero objectives by 2050.

Construction-Related Stocks See Risks and Opportunities Amid Tightening Carbon Policies

As the planet warms, decarbonizing of our buildings and infrastructure is coming into sharper focus.

When It Comes to Air Travel and Sustainability, Flyers Aren’t Walking the Walk

Less than 1% of flyers buy carbon offsets. What that means for airline stocks.

Venture Capital Investment Trends in Emissions Reduction Technologies

Two areas in climate tech that are worth watching this year.

Investing in Climate Action: 2 Renewable Energy Stocks to Consider

These companies are poised to benefit from U.S. climate legislation.

Thematic Funds Are Popular—and Risky

What to know about managing those risks.