Direct air capture is a tool that draws CO2 from the atmosphere or smokestack. It can partially compensate for the total emissions output and provide a bit more time for low- or no-carbon sources to be deployed, but its overall contribution to total emissions reduction will need to be supplemented by other actions in parallel. Relying on direct air capture alone to go cold turkey won’t work.
A: Julio Friedmann: There are processes, like steel production, where we don’t have a path to zero-carbon emissions. Carbon capture is a way to manage that.
We can either continue emitting now and hope we can solve the problem later, or we can take stewardship for the problem now. The idea is, if you take carbon out of the ground, you have to put it back. You’re not allowed to just keep pumping it out. Part of that is to not continue removing it from the ground in the first place. If you use carbon anywhere in the economy, you should manage it. Acknowledging that principle is what things like carbon management and carbon capture are all about.
The Time Horizon Mismatch Between Climate and Investing Outcomes
Q. Investors usually have a short investment horizon, while climate impact is only realized over the long term. How do you persuade investors and managers to prioritize long-term growth over short-term profit?
A: Michelle Dunstan, Global Head—Responsible Investing; Portfolio Manager—Global ESG Improvers Strategy, AllianceBernstein: Yes, the shorter the duration your investments are, the more challenging it is to fully realize or fully incorporate the effects of climate change.
But there still are many short-term impacts. A lot of the physical risks we see—the slow increase in temperature—are going to play out over the long term.
However, there are physical impacts that are happening today. For example, we're seeing an increasing number of extreme weather events that are having a very short-term impact. Not considering those is a risk to investments over the short term.
The transition impacts, including those on cash flows and valuation, are playing out now—over the short term. We are seeing regulatory change—even looking at what has happened in the US since the election in terms of capital allocation, in terms of stock prices or bond prices moving around based on the assumptions of what the new administration is going to do.
So, whether it's implementing carbon taxes, changing regulations requiring your plants to upgrade their equipment or customers changing their preferences for what kind of products they're going to buy, those actually do play out over a very short term. Those all impact cash flows.
Q. Do you see exclusion or engagement as the most important tool for addressing climate in the investment context?
A: Lisa Sachs, Adjunct Assistant Professor of International and Public Affairs; Director, Columbia Center on Sustainable Investment at the School of International and Public Affairs at Columbia University: ESG investment means so many different things that each ESG product has a different strategy. Exclusion portfolios make sense for investors who just simply don't want to be exposed to certain types of assets for moral reasons, or because they think that they are just long-term bad stocks. Others are just integrating ESG as a risk factor, so they’re just accounting for exposure to these ESG risks. But it doesn’t mean that they’re doing anything different in terms of what they’re including or not including, or in terms of their engagement strategy.