Jeremy Grantham, the legendary value investor who successfully predicted the 2000 dot-com bust and the 2008 Financial Crisis, is arguably the most influential figure in ESG (environmental, social and governance) investing and SRI (socially responsible investing), a pair of terms coined to describe an investment strategy that values a company’s environmental and social impact as equally as financial returns.
In recent years, Grantham has been working tirelessly to warn the finance community of the danger of climate change and promote an environment friendly investing approach, such as divesting from fossil fuel companies and placing an emphasis on the clean energy sector.
Last week, ahead of this year’s Earth Day, Grantham’s investment firm, GMO, published a white paper, in which the 80-year-old billionaire and his co-founder Lucas White argued that investing in the climate change sector can not only help solve the direst challenge facing the human species, but can also produce lucrative returns over the long term.
“Hurricanes, typhoons, droughts, wildfires, and other extreme weather events are causing record damage. Increasingly, climate change is impacting the economy and our daily lives and has come into focus as an existential threat to the world as we know it,” Grantham and White wrote. “We are rapidly approaching a time when the world will be forced to act aggressively in an attempt to overcome decades of inaction. As return-oriented investors, we see this effort providing the backdrop for decades of secular growth in the climate change sector, along with the potential for strong returns.”
In addition, Grantham and White argued that a climate-friendly strategy offers some degree of diversification and downside protection for investors, especially as more and more governments introduce anti-carbon regulations.
“If climate change is a drag on the economy, companies focused on mitigation will see their products and services in high demand,” they wrote. “As the world moves to decarbonise, regulation and carbon taxes loom as a risk for virtually all sectors. Green energy industries, however, will uniquely benefit from increased government intervention, not to mention from the ever-improving technology.”
The white paper is an extension to Grantham’s famous 2013 paper titled “Race of Our Lives,” a discussion on how green energy innovation, along with the trend of falling fertility rates, can address the challenges global warming poses on the economy and public health.
Grantham has pledged more than 98 percent of his net worth, or about $1 billion, to fight against climate change. Every year, he and his wife, Hanne, donate more than $30 million to 38 nonprofit and educational institutions.
“I don’t really view it as philanthropy but as a necessary defense action for my children, grandchildren and their descendants,” Grantham said during a keynote speech during the 2019 Higher Education Climate Leadership Summit earlier this month.