A fascinating new study is seeking to recast the debate on how best to combat climate change, identifying a handful of financial institutions that could play an outsized role in preventing the Earth’s climate from tipping into runaway warming.
The study, published in the latest issue of Global Environmental Change, determined that a relatively small number of financial institutions — from American investment firms to Norwegian sovereign wealth funds to Swiss banks — can help build the resilience of some of the main geographic areas key to stabilizing the Earth’s climate: the Brazilian Amazon and boreal forests in Russia and Canada.
And they can do so relatively easily. As significant shareholders in the companies partaking in industries in these forests, the large financial institutions can help direct the companies to more environmentally friendly policies.
These areas in Brazil, Canada, and Russia are known as “tipping elements.” If they’re significantly disrupted, the report notes, they “could contribute to the destabilization of the global climate system.”
Thankfully, industry in these regions — beef and soy in Brazil, wood and paper in Russia and Canada — isn’t spread among disparate, disjointed companies. Rather, as the study finds, a handful of stockholders have managed to obtain “substantial shares across the largest companies in the most implicated sectors.”
As the researchers found, a number of the companies leading industrial efforts in these forested areas have investors owning more than 10 percent of the companies’ shares — presenting them with a powerful opportunity to direct the companies’ efforts toward assuring climate stability. Given their holdings, these firms have significant leverage to make sure the companies follow strict environmental guidelines, or reduce their destructive practices.
“What I found very surprising in this data is that so much influence is concentrated in the hands of very large financial giants, most — but not all — based in the U.S.,” author Victor Galaz, the deputy director at Stockholm University’s Stockholm Resilience Center, told ThinkProgress. “And this is the result of a bigger change in the global economy: the concentration of power through equity in the hands of major asset managers in the U.S.” (Other researchers who contributed to the study included those from the Australian National University, the Netherlands’ University of Groningen, and the Royal Swedish Academy of Sciences.)
Many of the significant holdings are held by a trio of the largest passive asset managers in the world: BlackRock, Vanguard, and State Street. The report notes that these companies, known colloquially as the “Big Three,” represent the “largest corporate stockholders in the U.S., but their ownership has never before been linked to their influence on climate stability.”
The three companies are largely unknown among most Americans but their reach is massive, both internationally and domestically. Known as passive investment firms, they represent significant shareholdings of listed American firms. Two years ago, The Economist estimated that the three, if combined, would be the “largest shareholder in just over 40 percent of listed American firms.”
Other financial institutions who are significant shareholders, per the new study, are Credit Suisse, Dimensional Fund Advisors (an American investment management firm), the U.S.-based Bank of New York Mellon, and JPMorgan Chase. Norway, via things like its sovereign wealth fund and state pension fund, has also obtained outsized ownership of the companies selected in the study for their work in Canada, Brazil, and Russia.
All told, these companies, dubbed “Financial Giants,” have a massive, untapped potential for directing climate stability in the future, ranging from dialogue with the companies into which they’ve invested to threatening to potentially divest if the companies don’t follow environmentally friendly practices encouraging climate stability.
“Through their common blockholding power, [these companies] have a previously ignored, yet considerable potential influence in companies shaping biomes critical for the stability of the climate system,” the report concludes.
The study follows an earlier report from Galaz and a handful of other researchers, which examined the role tax havens continue to play in exacerbating environmental damage in places like the Amazon. Perhaps unsurprisingly, tax havens like the Cayman Islands played a key role in funding the types of industries leading deforestation efforts. The new study, though, takes a wider vantage, looking at the tipping elements — these forests helping stabilize the global climate — effecting all of us.
“This is a continuation of our other work,” Galaz told ThinkProgress. “Now, it’s the bigger picture.”