If you are focused on ESG investing, the subject of climate change is unavoidable. ESG is not just about climate change, of course, but it’s a huge part of it.

Which is why I recently found myself signed up to a four-week online course on the science of climate change, run by the University of Exeter. Three hours a week for four weeks is not much, but I wanted to put my knowledge onto a more formal setting and to get a better sense of how much I don’t know. I figured that even though it’s not necessary to be an expert on the details of climate science to help advance best practice in ESG investing, you do need the basics. 

From the course, I gained a more systematic understanding of the way that the atmosphere acts as a blanket, keeping the earth at what is, for us, a livable temperature. Also of how it interacts with the biosphere, the cryosphere (a.k.a. ice), the oceans and the earth’s crust. In some ways, the science is difficult: interpreting data drawn from ocean sediment, tree rings and ice cores; calculating the effect of cyclical variations in the earth’s tilt and orbit; and of variations in solar and volcanic activity. Interactions and feedback loops make outcomes less predictable and modeling more difficult: the poles, for example, have warmed faster than the rest of the planet, because melting ice means the polar regions are effectively donning darker clothes as the temperature rises. 

It’s not that complicated

But in other ways, the science is simple: greenhouse gases such as CO2 trap heat, and the more of it there is in the atmosphere, the warmer the planet gets.

This is the context behind the headlines with which we are all familiar: the alarming rate at which global temperatures have risen (almost 1°C in the past fifty years) and the strong link between this rise and GHG emissions (CO2 is now more than 400 parts per million in the earth’s atmosphere, up from roughly 280 before the industrial revolution). 

Just as a human body can, with no lasting damage, surrender a pint of blood but not nine pints, so we cannot keep pumping out ever more CO2 and other greenhouse gases. This is why the global economy is realigning to become greener and more renewable. This is why the financial world is turning its attention to sustainability. The full investment implications of this are far from simple: there are many possible ways to respond. But, increasingly, investment organizations will be expected to recognize that their decisions do not happen in a vacuum sealed off from the world in which we live, and every asset manager and every asset owner needs a clear ESG policy based on sound foundations. ESG is not going away any time soon.

The course was called Climate Change: the Science. It runs every few months, with the next offering beginning on January 18, 2021 and you can get more details by clicking here. For a slightly more in-depth overview of the science than I give above (not based directly on the course), the opening section of a recent CFA paper does a really good job. And I’d be remiss not to give a shout out to my friends at Carbon Tracker, who have been ahead of the curve on this topic for years.