Climate-conscious investing is a hot topic in today’s economic environment. High-net-worth individuals (HNWIs), in particular, are keyed into this issue because climate change directly impacts them. They are uniquely positioned to address climate change, and the market is highly lucrative.
Climate Change’s Effects on HNWIs
Climate change is affecting the areas the affluent frequent. While some may debate the present effects of climate change, its impact is undeniable in the financial world. The increasingly powerful and damaging storms in Florida have caused a number of insurers to leave the state. California wildfires and storms like Hurricane Hilary of August 2023 are presenting major issues, too. These kinds of events, which are happening more frequently, are costing insurers billions of dollars and increasing premiums for those who are insured.
One option is to set aside personal funds to pay for losses instead of purchasing insurance from carriers. However, self-insurance is risky for even HNWIs, and so they, too, are facing challenges. Do they remain in these states and risk catastrophic losses? Do they need to move? Is there a way they can help affect change? More importantly, perhaps, they face the same legacy questions that everyone who is affected by climate change does: what kind of world are they leaving for their heirs?
Environmentally Conscious Investing as a Solution
HNWIs are experiencing the effects of climate change firsthand, and many are proactively seeking investment and finding solutions to mitigate this challenging problem. This dynamic accelerated, particularly in 2020.
When COVID-19 was in full swing, family offices had to navigate precarious economic circumstances and make choices about how generational events could change their portfolios. Whether that was a catalyst for change or reflective of a broader undercurrent already happening, there was an uptick in investments and focus on environmental impact investing. Eighty-three percent of high-net-worth investors agree that climate change is a global problem. These individuals are particularly keen to impact change with their social and financial capital.
HNWIs and Organizations Can Uniquely Promote the Economic Benefits of Sustainability
There can be a certain FOMO among high-net-worth individuals, organizations, and those aspiring to join their ranks. People look to standard bearers like Warren Buffet or organizations like the Harvard Management Company for inspiration and guidance. These kingmakers have the gravitas to influence people by simply seeking out and putting serious thought into investing in environmentally conscious investments. By showing others both how to invest in sustainable companies and the potential upside of doing so, they can create significant momentum.
Unlike startups, which are focused on raising capital and seed funding, HNWIs and organizations have access to equity and debt resources that many others do not. While there is a need for investors to weigh the returns and be good stewards of the fund’s capital, there are benefits to these types of investments — such as low correlation to traditional asset classes and, therefore, an opportunity to create diversification. When a company has a sound plan and can produce a compelling pitch, HNWIs should strongly consider the benefits of providing their portfolios with added stability by investing in them.
Of course, not all the benefits of environmental impact investing are reflected on a spreadsheet. HNWIs really do care about the planet. A survey of global companies with more than $1 billion in assets found that 53% invest in climate change initiatives due to the scientific need to act.
Firms That Are Creating a Positive Impact on the World
For examples of how environmental impact investing looks in the real world, consider these three companies doing impressive work with impressive impact:
1. Arbol
Arbol is a global climate risk coverage platform offering full-service solutions for businesses looking to analyze and limit exposure to climate risk. The fintech company offers parametric coverage, which pays out based on objective data triggers instead of subjective loss assessments.
Arbol’s key differentiator over conventional insurtech or climate analytics platforms is its complete ecosystem that addresses climate-related risk. This ecosystem comprises a large climate data infrastructure, scalable product development, automated, immediate pricing using an AI underwriter, blockchain-powered operational efficiencies, and nontraditional risk capacity bringing capital from noninsurance sources. By merging all these factors, Arbol brings scale, transparency, and efficiency to parametric coverage.
Applied Bioplastics supplies economically sustainable plant-based plastic alternatives. Its product variety delivers countless use cases, transforming plastic as we know it. The company’s products reduce petroleum dependency, pollution, and habitat destruction. Through its supply chains, it supports eco-friendly agriculture in developing countries.
Producers Trust unlocks authentic sustainability data to derisk supply chain stakeholders and to drive its farmers and suppliers toward net zero. The organization offers a SaaS platform subscription to offer critical data ground-truthing to organizations seeking to be informed, accurate, and responsible with their ESG reporting. Furthermore, Producers Trust serves as an advisor for enterprise and government organizations to future-proof their agriculture and food systems.
Investors interested in supporting companies like these and finding other compelling investments should contact Ascend Venture Capital to begin the conversation about how they can build a better portfolio while building a better world.
Image by Nikolett Emert