The firm made the case to investors following their research which compared US companies and allocated them climate scores. The study found that those with higher scores tended to be more profitable, ultimately generating higher returns.
In order to take advantage of this, BII suggested that investors integrate environmental measures such as fossil fuel consumption, water usage and carbon intensity into their appraisal of securities.
“The pace of change and the contours of the transition to a low-carbon economy may create risk for some portfolios. But, investors who understand these issues will be able to exploit the opportunities resulting from these developments,” BII senior director Ewen Cameron Watt said.
“We believe climate risk factors have been under-appreciated and under-priced because they are perceived to be distant.”
The BII report concluded that the onus now lays with investors to consider factors such as extreme weather, rising social pressure for climate awareness, technological disruption and regulatory efforts.
“Climate-aware investing is possible without compromising on traditional goals of maximising investment returns,” the report said.
“Curbing carbon emissions requires significant spending on green infrastructure and a reduction in fossil fuel subsidies. This creates large investment opportunities in areas that attract capital or industries at risk of disruption.”
Global head of impact investing Deborah Winshel said climate-aware investing is no longer just an ethical issue.
“Assessing climate risk has transitioned from a discussion reflecting investors’ values to an analysis of the risks and opportunities,” she said.
“An awareness of climate-related issues makes investors more informed and better risk managers. As regulatory and technological changes unfold, investors who anticipate these issues will be more likely to deliver competitive performance over the long term.”