What can investors do about climate change?

The complexities of climate change

A few months ago, Antonio Brufau, chairman of Spanish oil & gas company Repsol, wrote to the Financial Times about the complexities of reducing global greenhouse gas emissions:

“The path to success…is anything but straightforward. Not only does each country have its own needs, energy mix and development priorities, but what one region does may not be enough to solve a global problem”..1

Complexities at the government level trickle down to individual companies. Gudrun Cartwright, environment director at Business in the Community, recently lamented how “the lack of a stable policy environment in the UK has made it challenging for business to plan and take decisive action [in relation to climate change]”.

If countries and businesses are finding it difficult to respond to climate change, what hope do investors have?

We believe that there are steps responsible investors can take to construct investment portfolios that support solutions to the world’s great challenges, such as climate change.

Below, we propose a roadmap based on our experience of investing in quoted Small & MidCap companies.

No fossil fuels

Some believe in a course of action that is relatively straightforward: divest from companies involved in the extraction of fossil fuels.

The divest movement has gained traction, particularly in the years following the Paris climate agreement. According to research from the environmental campaign group 350.org, “assets committed to divestment have leapt from $52 billion in 2014 to more than $11 trillion today”.2

According to 350.org, this staggering drain of capital has resulted in “banks such as Crédit Agricole…cutting financing for fossil fuel projects, particularly high-risk projects
such as coal and tar sands…insurance companies such as Axa…ending underwriting for coal projects worldwide…[and] the divestment movement…drying up investment capital to the companies perpetuating climate chaos”.

A consequence is that “without bank loans, insurance and investments — the fossil fuel industry hits a wall”, or so the divestment theory goes.

Yet measuring the materiality of this movement is difficult. Bill Gates, the billionaire philanthropist, recently estimated that “divestment, to date, probably has reduced about zero tonnes of emissions. It’s not like you’ve capital-starved [the] people making steel and gasoline”.

So while we recognise the importance of the divest movement – and Montanaro excludes companies involved in the exploration and production of fossil fuels from its investment universe – we think that investors must do more than simply divest.

Beyond divestment

A recent conference at Oxford University – run in collaboration by the Oxford Martin School (a research facility dedicated to finding solutions to the world’s most urgent challenges) and Victoria Wellington University – focused on how to go beyond divestment and work towards Achieving Net Zero”.

A range of stakeholders participated: government ministers; climate scientists; technology specialists; policy experts; and climate activists. We were proud to be one of only two asset managers in attendance, the other being P1 Investment Management, represented by Dr Quintin Rayer who kindly invited us.

There were debates about emission reduction policy, discussions about carbon capture and storage solutions and analysis of carbon pricing methodologies.

Particular focus was given to the everyday changes in behaviour needed to achieve climate change targets. Such emphasis on “individual action” was also evident when we attended a meeting of the All Party Parliamentary Fuel Poverty & Energy Efficiency Group3 earlier in the summer.

Across sector

This marks an important shift: discussions about how to limit climate change have traditionally focused on headline grabbing renewables such as solar and wind power.

While these clearly remain important, there is growing recognition that global warming can only be limited if changes are made to the cogs of everyday life, from smart meters and home insulation, to induction hobs rather than gas cookers, new farming techniques and adjusted diets.

This presents real opportunities for investors. Divested capital can be reallocated across sectors into companies offering solutions to the problems associated with climate change (and by extension to companies providing products and services supporting the wider aims of the UN Sustainable Development Goals).

The potential impact of such capital allocation is recognised by Mr Gates: “when I’m taking billions of dollars and creating breakthrough energy ventures and funding only companies who, if they’re successful, reduce greenhouse gases by 0.5%, then I actually do see a cause and effect type thing.”

Towards Net Zero

Directing capital towards companies whose products and services are helping to tackle climate change is an important step in the battle against climate change.

Investors can go further still, however. There is no point selling a “sustainable widget” if making it damages the environment. Through constructive engagement, investors can use their voice to ensure the sustainable manufacturing and delivery of products and services that are tackling the world’s greatest problems.

Such engagement allows investors to transition from being passive owners of a company’s shares – indirectly supporting the products and services the company provides to society – to an active owner influencing a business’s wider environmental and societal impact to deliver tangible results.

In our opinion, a target of such engagement should be to encourage companies to set and meet Net Zero Carbon targets.

“NZC10” – Our public pledge

In collaboration with other asset managers4 and the UK Climate Impacts Programme at Oxford University, Montanaro has launched the “NZC10” project.

This sets a target that 10% or more of the Montanaro Better World Fund by value will be invested in companies that have achieved net zero carbon emissions by no later than 2030.5

The date of this target is ambitious, recognising that sustainable funds must demonstrate leadership and encourage businesses to reduce their environmental impact well ahead of government targets (which in the case of the UK is 2050).

The initial target of 10% is just a starting point. We are engaging with all of the companies within the Montanaro Better World Fund and our engagement roadmap is explained below.

Engagement roadmap:

We believe that sustainable funds have a responsibility to set an example and demonstrate leadership when it comes to tackling the pressing issue of climate change.


In collaboration with P1 Investment Management and the UK Climate Impacts Programme at Oxford University, we have agreed to use PAS 20606 to define carbon‐ neutrality and carbon‐offsetting standards. This framework advises companies to meet carbon neutrality via:

  • Measurement: assess greenhouse gas (GHG) emissions based on accurate and complete raw data;
  • Set targets to reduce emissions: implement a Carbon Management Plan by declaring the commitment to carbon neutrality by adopting several reduction strategies;
  • Offset: at the end of the reduction phase, GHG emissions will be offset by high quality, certified carbon credits;
  • Document and validate: standard-compliant declaration of achievement of neutrality, through a set of statements known as Qualifying Explanatory Statements (QES). There must be a public disclosure of all the documentation that supports the carbon neutrality claim.


We will continue to collaborate with other investors and the UK Climate Impacts Programme at Oxford University. We propose to take the following steps:

  • Advisory Board: the Montanaro Better World Fund has an independent Advisory Board of sustainability experts. We have discussed our engagement strategy with members of the Board and we will report on progress to them at bi-annual meetings;
  • Company engagement: we will engage with every company within the Montanaro Better World Fund to explain the aims of the “NZC10” project. This will allow us to identify “Net Zero Leaders” and “Net Zero Laggards”. Every company will be asked to propose strategies for achieving carbon neutrality;
  • Collaboration: we will continue to work with other stakeholders, such as policy makers. For example in July 2019 a member of our ESG Committee attended the All-Party Fuel Poverty and Energy Efficiency Group and the All-Party Climate Change Group7 parliamentary meeting. We wish to keep abreast of developments in this space, which are likely to be fast moving;
  • Certification & offsetting: we will seek expert advice on the options open to our companies in achieving Net Zero, such as Renewable Energy Certificates and Carbon Offsetting. We have already discussed options with ECOHZ, one of the world’s leading companies of renewable energy certificates, headquartered in Oslo;
  • Reporting: progress will be reported annually in the Montanaro Better World Fund’s Impact Report, starting with the 2020 issue.

1 “Politicians must take practical action on climate change”, Financial Times, 14 July 2019

2 $11 Trillion and Counting, 350.org, September 2019

3 A coalition of cross party MPs and industry stakeholders. This was a meeting of the group on 17 July 2019 and focused on a recently published report by the Climate Change Committee on the UK’s ability to meet its Net Zero Carbon target of 2050. Also discussed were: “Reaching net zero carbon and improving home energy efficiency: Overview of Ten Minute Rule Bill” and “Overview of the BEIS Committee Inquiry on energy efficiency report” and “Latest briefing on Energy Efficiency as an Infrastructure Programme”.

4 Coordinated by P1 Investment Management

5 The full target states: that 10% or more of the Better World Fund by value will be invested in companies that are carbon neutral, or have net zero carbon emissions, or have realistic, credible strategies using currently available technologies to achieve net-zero carbon emissions by a defined target date no later than 2030.

6 http://co2balance.com/media/technical-documents/PAS_2060_Technical_Review.pdf

7  https://www.nea.org.uk/fpeeg/


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