According to the EPA, “Carbon dioxide (“C02”) is the primary greenhouse gas that is contributing to recent climate change”. Trends show significant increases in C02 levels (see Figure 1) caused by human activities such as fossil fuel burning have increased Earth’s surface temperature1. As the Earth’s surface temperature has increased, many climate shifts such as dwindling ice cover, rising sea levels, ocean acidification, and weather extremes (see Figure 2) have occurred2. This has caused a dynamic across many industries where companies are looking for ways to either adapt to changing conditions or mitigate them (e.g. emissions reductions)3. For example, scarcity of water availability is threatening to reduce yields within agricultural production and increased surface temperatures have increased energy demand for business cooling solutions4.
Figure 1 – Historical CO2 concentration (top) and Antarctic temperature (bottom) Estimates1
Figure 2 – Billion-Dollar Disaster Event Types by Year (CPI-Adjusted)2
In recent years, the conversation about climate change responsibility and impact has centered around governments, non-profit organizations, and corporations that are directly impacted by or directly impact climate change. Responsibility for addressing climate change should be everyone’s responsibility especially those that can facilitate change across many companies and industries. To make a real impact, companies that are less directly exposed to climate change can embrace finding solutions that combat climate change trends, not just companies who have a large carbon footprint (e.g. energy businesses such as Chevron and ExxonMobil5) or companies whose businesses are negatively impacted by climate change (e.g. ski area operators6). One company that has begun to increase its involvement in battling climate change alongside its clients is Morgan Stanley.
Morgan Stanley is a large finance organization focused on advisory and capital markets business. At the surface, Morgan Stanley isn’t among the first corporations that comes to mind when thinking about climate change. However, Morgan Stanley’s serves in a financial and capital markets advisory role for the largest companies across every major industry. Long-standing clients across industries will be directly impacted by climate change and its associated regulatory changes, which creates an opportunity for Morgan Stanley to innovate creative solutions that will allow its clients to pursue business initiatives that will adapt to and mitigate climate change. In addition, being at the center of markets exposes Morgan Stanley to drastic changes in capital markets (equities, commodities) that are caused by events caused by climate change (e.g. natural disasters, changing food production, water availability, etc.). As the center of capital markets, Morgan Stanley, and other large capital providers, are uniquely positioned to lead the climate change conversation.
Recently, Morgan Stanley’s CEO, James Gorman, has seen an opportunity to use the company’s platform as a critical private capital provider to roll out initiatives that have begun to change the conversation. In November 2013, Morgan Stanley started the Institute for Sustainable Investing with a goal of reaching $10 billion in client assets invested for social and environmental impact within five years7. In addition, Morgan Stanley has been active in issuing and facilitating the issuance of so called “Green Bonds” that are used to fund environmentally beneficial projects. According to former Treasury Secretary Hank Paulson, the market for these securities has grown to $42 billion in 2015, up approximately 280% from 20148. A highly publicized example of a Green Bond occurred earlier this year when Apple raised a $1.5 billion to improve energy efficiency throughout their supply chain and innovate more sustainable materials into their products and processes9.
In June 2015, Morgan Stanley issued its own corporate Green Bond10, which ultimately helped finance seven different projects promoting the development of renewable energy and energy efficiency. Several of Morgan Stanley’s Green Bond transactions have included notable industry landmarks, including the first-ever corporate Green Bond and the first-ever U.S. university green bond11. These actions contributed to Morgan Stanley winning an Achievement in Corporate Social Responsibility Award last year12.
While Morgan Stanley and other businesses have made strides in creating opportunities for businesses focused on solving climate change issues and for investors focused on generating social profit as well as financial returns, there remains a large gap in funding for the projects necessary to shift us to a low-carbon infrastructure. Capital providers like Morgan Stanley as well as peer finance organizations will need to increasingly generate opportunities to match investors seeking to support environmentally friendly causes with those companies that can execute projects against those goals. In closing, I wanted to leave you with one question about the role of for-profit, private capital providers like Morgan Stanley. Does Morgan Stanley not only have a responsibility to create programs like the Institute for Sustainable Investment but also to self-select out of traditionally profitable parts of its business that help fund projects that work against solving climate change issues?
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1 EPA – Climate Change Science. 2016. Causes of Climate Change. [ONLINE] Available at: https://www.epa.gov/climate-change-science/causes-climate-change. [Accessed 4 November 2016].
2 Harvard Business School Business & Environment Initiative. 2016. Climate Change & Business. [ONLINE] Available at: http://www.hbs.edu/environment/resources/climate-change-101/Pages/Climate%20Change%20and%20Business.pdf. [Accessed 4 November 2016].
3 Harvard Business School Business & Environment. 2016. CLIMATE CHANGE 101 – Responding to Climate Change. [ONLINE] Available at: http://www.hbs.edu/environment/resources/climate-change-101/Pages/responding-to-climate-change.aspx. [Accessed 4 November 2016].
4 Dave Grossman (Green Light Group), Jeff Erikson (SustainAbility); Neeyati Patel (UNEP). 2013. GEO-5 for Business – Impacts of a Changing Environment on the Corporate Sector. [ONLINE] Available at: http://web.unep.org/geo/sites/unep.org.geo/files/documents/geo5_for_business.pdf. [Accessed 4 November 2016].
5 Heede, R, 2014. Tracing anthropogenic carbon dioxide and methane emissions to fossil fuel and cement producers, 1854–2010. Climatic Change, Volume 122, Issue 1, p 229–241.
6 Scott, D, 2006. Climate change adaptation in the ski industry. Mitigation and Adaptation Strategies for Global Change, 2 December 2006.
7 Morgan Stanley. 2013. Morgan Stanley Establishes Institute for Sustainable Investing . [ONLINE] Available at: http://www.morganstanley.com/press-releases/morgan-stanley-establishes-institute-for-sustainable-investing_a2ea84d4-931a-4ae3-8dbd-c42f3a50cce0. [Accessed 04 November 2016].
8 Paulson, H, 2016. How to Raise Trillions for Green Investments. The New York Times, 20 September 2016.
9 Mike Cherney. 2016. Now You Can Own A Green Bond From Apple – MoneyBeat – WSJ . [ONLINE] Available at: http://blogs.wsj.com/moneybeat/2016/02/16/now-you-can-own-a-green-bond-from-apple/. [Accessed 04 November 2016].
10 Morgan Stanley. 2015. Morgan Stanley Green Bond Program . [ONLINE] Available at: http://www.morganstanley.com/articles/green-bond-program. [Accessed 04 November 2016].
11 Morgan Stanley. 2015. Morgan Stanley Extends Commitment to Sustainable Investing with Its Inaugural Green Bond . [ONLINE] Available at: http://www.morganstanley.com/press-releases/0e12646f-4334-4152-a308-2ef86a3affe3.html. [Accessed 04 November 2016].
12 Snowden, C, 2015. Achievement in CSR Award: Morgan Stanley. Euromoney., 8 September 2015. p1.