One of Credit Suisse’s (CS) most senior bankers has said investments could “go to zero quickly” if companies ignore climate change.
Marisa Drew, head of Credit Suisse’s impact advisory and finance division, told Yahoo Finance UK: “If someone has not priced in the risk, you could easily see something that seems like a great investment go to zero quickly.
“Let’s take the energy sector for a second. There will be a day when the world can be 100% reliant on alternative energy. If you’re in an old school energy business and we hit that moment where we switch, guess what? The value of those old school investments isn’t going to be worth much.”
The issue is not limited to sectors like oil and gas, Drew said.
“Let’s just say you’re a real estate investor and you’ve got a pool of coastal real estate. In the past, that’s where everybody wanted to be — everybody wants to be on the water. But now you look at that and say, woah, wait a minute, if seas are going to rise 3ft in the next 20 years, those assets may not actually be worth as much.”
Bank of England Governor Mark Carney warned earlier this year that businesses ignoring climate change “will go bankrupt without question.” The Bank estimated that as much as $20trn-worth of assets could be at risk from climate change.
“The other part of the equation is the new young startups that are going to be the disruptors,” Drew said, highlighting alternative hamburger company Beyond Meat as an example.
“It’s mission is: for those that eat meat, eat less beef if you care about the environment. When we took that company public it was really only a couple of years in commercial operation — best performing IPO in 20 years, a multi-multi-billion dollar company. From zero to multi-billions because it’s tapping into this moment.
“Now what’s happening is the entire food sector is now saying, uh oh, I need part of that,” Drew said. “Food, agriculture companies very much want to play a part of this. All the old names either want to have investments in these companies because they’re the new disruptors, or they want to be a part of it somehow.”
‘There’s a visceral human response’
Drew ran Credit Suisse’s European investment bank until 2017 when she was tasked by the bank’s CEO Tidjane Thiam with creating a new “impact” investing division. The division helps clients put money into projects with positive social or environmental outcomes, as well as strong financial returns. Examples include a project in South-east Asia to improve the quality of crops for low income famers and a private healthcare initiative in India.
“Increasingly if you’re an asset manager, the people who are giving you that money want to know what you’re doing with it, is it being invested in an environmentally friendly way?” Drew told Yahoo Finance UK at the OneYoungWorld conference in London last week.
“As an individual, so many of our clients now want to do something positive, not just in philanthropy and with their day-to-day action but with their investments. All these forces are coming together.”
Drew reports directly to Thiam and the Credit Suisse CEO name-checked her division in the bank’s recent third quarter results.
“We intend for this to become a growing part of our activities,” he said, adding “clients are increasingly interested” and promising further investment in the division.
Drew said the focus was driven by increasing awareness of climate change globally.
“You certainly had people more than a decade ago banging the drum saying: climate change is real, it’s here, it’s going to be serious,” she told Yahoo Finance UK. “But I think human nature isn’t really equipped to look 50 years out.
“Now, it’s very real for people, when you have the California wildfires and it’s your house that burns down. Or you have the electricity shut off. Or you have these increasingly violent storms that wipe out towns and villages. Now it’s real. So I think that there’s a visceral human response to say: I want to do something about this.”
Still working with oil and gas
Despite the environmental focus, Credit Suisse continues to work with oil and gas companies, which are some of the biggest polluters.
The bank is reportedly one of nine working on the planned stock market float of Saudi Aramco, the world’s biggest oil company. The state-owned company is responsible for an estimated 4.3% of all CO2 and methane emissions globally since 1965.
“There are areas that maybe today have the term old school industry or quote unquote dirty industry,” Drew said. “We believe we’ve got a role to play in helping companies finance their transition. Unless or until you have a viable global alternative, you can’t rid yourself of fossil fuels today. It’s not possible.
“It’s about quickly accelerating the transition in some of these older industries that have a bigger carbon footprint. That could be maritime, it could be long haul trucking, it can be automobiles. All of these industries are migrating, but they need to migrate faster.”
As part of the push to migrate to green energy, Credit Suisse has partnered with the Climate Bonds Initiative to create a new market for “transition bonds”. Businesses that don’t meet the criteria to issue “green bonds” can issue transition notes to help fund the move towards greener energy and practices.
“That could be a consumer products company that wants to change its packaging and not use single-use plastics,” Drew said. “It could be the food companies that want to make more investments in plant-based proteins — and on and on it goes.
“Today the green bond market is about a $600bn market. No reason why this couldn’t be similar.”
Oscar Williams-Grut is Yahoo Finance UK’s City correspondent. He covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.