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Sustainable Investing

Earth Week 2022 Highlights Risks of Changing Climate for Investors

It’s critical to address the food industry, which makes up one fourth of greenhouse gas emissions.

Earth Week is here, and not a moment too soon.

The annual attempt to take stock of the state of the climate comes just a few weeks after the Intergovernmental Panel on Climate Change reported that greenhouse gas emissions, which cause global warming, are climbing sharply.

Indeed, the IPCC says that by 2030, greenhouse gas emissions need to be cut by at least 43% to forestall the worst ravages of climate warming.

The report also coincides with Russia’s invasion of Ukraine, which has raised concerns about Europe’s dependence on Russian gas, and the world’s dependence on fossil fuels in general. Use of the latter is the biggest producer of emissions.

The world is moving, albeit slowly, to address the warming climate—an existential risk that crucially has financial and economic repercussions. That means it’s important for investors to act, even as they grapple with the consequences of the Ukraine invasion.

“This year, Earth Week is an important reminder for the capital markets that we must reexamine our own business models and continue to pursue our collective commitment to fund the transition to a low carbon economy," says Michael Jantzi, founder of Sustainalytics, a Morningstar company that provides sustainability research.

"The consequences of climate change are creating new and growing forms of financial risk that investors need to consider when choosing how to prudently allocate capital," wrote Michael Panfil and David Victor of the the Brookings Institution.

The IPCC also found that “extreme events and climate hazards are adversely affecting multiple economic activities across North America and have disrupted supply-chain infrastructure and trade.”

In the last two years alone, the U.S. suffered more than 40 weather disasters that inflicted at least $1 billion in economic damage each, according to the National Oceanic and Atmospheric Administration.

For Earth Week, Morningstar is shining a spotlight on the risks and opportunities for investors in this changing landscape, and the wide applications of sustainable investing. For starters, you can see our Sustainability Atlas, which examines the sustainability profiles of Morningstar's 48 country-specific equity indexes.

We have a special report about ways to invest in the future of food production—which accounts for one fourth of greenhouse gas emissions, 80% of deforestation, 70% of water use, and 78% of ocean and freshwater pollution, according to Sustainalytics. Making food supplies secure is especially important, given that Ukraine and Russia together produce one fourth of global wheat exports. Food scarcity already afflicts parts of the world—expect that to expand this year.

Other articles in this food series include a closer look at Beyond Meat BYND and Tyson Foods TSN; shareholder proposals this proxy season aimed at making packaging more sustainable; and the food industry innovators on our Best Companies to Own list.

"Earth Week takes on greater meaning every year, as we move closer to the point of no return on climate change," says Jon Hale, director of sustainability research for the Americas at Morningstar. "It’s a reminder that bringing global warming under control is an all-hands-on-deck global challenge that includes investors making climate-aware decisions throughout their portfolios and greater investments in climate solutions."

Climate change is one of the thorniest challenges confronting investors. Our atlas shows how Europe has led the way on sustainability, partly because it's been at the forefront of climate policy. We also offer an important report on investing in a time of climate change. In addition, you can hear from Sustainalytics' global network of analysts as they share their insights on climate solutions and Earth Week.

Here are some articles that can help provide clarity: International Earth Week content The SEC's Proposed Climate-Risk Rule Helps All Investors It will also help public companies come to terms with their climate-related risks.

Climate Funds Dig Deeper Roots As the focus on climate change increases, the investing landscape continues to grow. The Morningstar Sustainable-Investing Framework Clear terminology leads to greater understanding of an evolving area. What Is Greenwashing, and Answers to Your Other Questions Sometimes it's an exaggeration of ESG intentions, but greenwashing can also stem from different definitions of sustainability.

Yes, Fancy Climate Summit Means Small Investors Must be Vigilant Too Vote your shares, make sure your fund manager has a net-zero plan, and look at opportunities in climate solutions, experts say. Fund Managers Struggle With Portfolio Decarbonization You and your fund have a critical role to play in helping reduce greenhouse gas emissions—once your fund manager figures it out. 4 Steps to Add Sustainable Investing Strategies to Your Portfolio Your guide to uncovering what your sustainability goals look like and how to put them into practice. Read This Before You Start Investing in Sustainable Funds Understanding the basics of sustainable investing, Part 1 Finding the Right ESG Funds for Your Portfolio, Part 2 By taking the time to explore the different approaches to sustainable investing, you can find the right investments for your situation.

Why ESG Investing is About More Than Feeling Good Values-based investing is ultimately up to the investor.

Why Become an ESG Investor? The question is not rhetorical.

Not All Sustainable Funds Are Equally Sustainable Morningstar's ESG metrics reveal the standout funds in the space.

How to Build an ESG Portfolio Consider your ESG focus, goals, and asset allocation, for starters.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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