The Office of Climate and Sustainability hosted the fourth installment of its Investing for Mission-Driven Institutions seminar series, which investigated the role climate risks play in investment decision-making and explored strategies for mitigating such risks Tuesday evening.
Students, faculty and other community stakeholders met in the Holsti-Anderson Family Assembly Room of the Rubenstein Library to hear experts across the financial sector speak about the way climate risks show up in their work and can affect the investment practices of institutions like Duke.
“This is an effort here at the University for us to sort of learn together as a community about the choices that we can make in our investments at an institution like this,” said Tim Profeta, senior fellow at the Nicholas Institute for Energy, Environment & Sustainability and one of the series organizers.
Experts described climate-related financial risks as both physical and transitional. Physical risks result from the damage caused by acute and chronic climate hazards, namely natural disasters of increasing intensity and severity, while transition risks are those that result from human responses to climate change and encompass changes in technology or consumer and investor preferences.
Asset managers are now tasked with mitigating both of these risks in their investment decisions, which speaker Christopher Abbate, managing partner and co-chief executive officer at Breakwall Capital and Trinity ‘92, said has become standard practice across financial institutions.
Abbate was joined on Zoom by Tom Sanzillo, director of finance at the Institute for Energy Economics and Financial Analysis. In-person experts featured at the session included Mercy DeMenno, managing director at Kaya Partners, Sanford School ‘16 and Graduate School ‘18, and Marilyn Ceci, managing director at J.P. Morgan and executive in residence of economics at Duke.
Duke Climate Coalition co-president Brennan McDonald, a senior, served as one of the event’s moderators alongside Sarah Bloom Raskin, Colin W. Brown distinguished professor of the practice of law.
The panelists identified two primary strategies to manage climate risk. The first is divestment from fossil fuel companies, which has become a common tactic for mission-driven institutions such as universities.
“The board sets the policy, and then they contract with managers and advisors to structure a portfolio that meets the needs of the University … to meet the financial targets and stay true to the mission of the University,” Sanzillo said.
Sanzillo referenced Harvard’s decision to divest in 2021 as a turning point in the national movement for institutions of higher education to stop funding fossil fuel companies, a policy change he attributes to mass student mobilizations.
Duke’s own divestment movement has been underway for 11 years, led by the Duke Climate Coalition. In fall 2023, organization members participated in a mass protest in New York City calling for President Joseph Biden to declare a climate emergency, released a report about Duke research funded by fossil fuel corporations and organized on-campus demonstrations calling for the University’s divestment from fossil fuels.
The second strategy for addressing climate risks is engagement, which entails leveraging one’s position as a shareholder to influence company policy. Abbate expressed that his firm, which manages investments for lower- to middle-market companies, exclusively uses the engagement approach in order to “drive behavior at the micro level.”
Ceci, who works in the banking industry, also supported the use of engagement strategies as opposed to solely divestment, drawing on her experience from building out ESG strategies for her clients.
DeMenno advocated for an intermediate position, which she termed “engagement on a spectrum” in which organizations articulate their priorities and goals for engagement.
One improvement that speakers identified was standardizing how companies measure their carbon emissions. Although firms are generally required to have such data verified by a third-party auditor before officially reporting the numbers, the methodologies for doing so vary widely, even within the same industry.
Even the baseline metrics for characterizing carbon emissions can be inconsistent. Investors can choose to examine absolute emissions — a firm’s sum total of carbon emitted into the atmosphere — or emission intensity — carbon emissions per unit of output.
Panelists largely agreed that although managing climate risks through proactive investment strategies can contribute to the fight against the climate crisis, meaningful change is not possible without comprehensive policy action to back it up.
“I worry that too often in these conversations we talk about this as though we’re going to break through political impasse and policy failures through market action … We should be really cautious of the amount of optimism that we’ve put on the potential of financial instruments to solve this problem,” DeMenno stated.
“We really need all hands on deck,” she said.
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Zoe Kolenovsky is a Trinity sophomore and news editor of The Chronicle's 120th volume.