Not so long ago, market participants debated whether investors would need to sacrifice returns to make investments that better the world. Investors soon discovered they did not have to choose one or the other—in fact, these objectives are complementary. And now, increasingly, certain areas of sustainable and impact investing are becoming highly sought-after investment strategies because of their ability to deliver attractive investment returns and positive impact concurrently.
Climate change is one of the most significant and pressing issues facing the global economy today. Governments, companies, investors and lenders are all increasingly aligned to tackle global warming. Around the world, businesses that are on a path to decarbonisation are increasingly viewed as more competitive and lower risk and, therefore, more valuable than their peers.
Investing in decarbonisation, therefore, is a clear opportunity to create significant value and make a positive societal impact at the same time.
Yet, achieving both forms of return – financial and environmental – requires the alignment of two distinct practices. In the climate investing world, a set of standards is being established to bring consistency to the measurement and disclosure of emissions. In the impact investing world, other frameworks are being developed that aim to proactively integrate impact into each step of an investment lifecycle.
“We believe that the transition to net zero is not only a social imperative, but also one of the largest commercial opportunities existing today”
Connor Teskey, Brookfield
At Brookfield, we are seeking to bring these two disciplines together within our own climate transition strategy. Investments in this strategy will be subject to quantitative targets that are grounded in scientific metrics. Notably, measurement practices in climate, including scientific targets, are becoming more rigorous. These practices will allow us and others to align investments with a net-zero future using transparent, verifiable and objective information. Leading investors will not just measure and report these metrics; they will also set carbon reduction targets aligned with industry benchmarks to hit net zero. And since the foundation for reliable metrics rests on the quality of the underlying data, calculations are only as good as the measurements used in them. We believe it is critical to commit to industry-leading standards for measuring, accounting and reporting on GHG emissions as they continue to evolve.
We are fortunate to already have robust processes in place to collect this data – and will leverage it in our transition strategy. We have been measuring Scope 1 and Scope 2 (direct and indirect) emissions in our renewable power portfolio since 2018, and we began measuring certain Scope 3 (indirect corporate value chain) emissions in 2019. But throughout Brookfield, we have committed to track and report on our emissions in a manner consistent with leading practices.
We believe that the transition to net zero is not only a social imperative, but also one of the largest commercial opportunities existing today. Collectively, we will have the greatest success in tackling climate change if investors have the best information and managers are held accountable, as capital will and should flow to the opportunities and solutions that provide the best results, both financial and environmental.
By holding ourselves to a high standard on impact management and measurement, and thereby encouraging the industry to do the same, we will collectively make better impact investment decisions – and create more value. And by monitoring and reporting impact in a consistent and transparent manner, we will be able to provide investors with the information they need to allocate their capital to the most impactful investments.
Committing to these high standards is not easy, and following through will be the greater challenge. But we believe it will lead to better investment performance – while also helping to drive the world to net zero.
Connor Teskey is a managing partner, head of Brookfield’s renewable power group and chief executive officer of Brookfield Renewable Partners