Towards defining an environmental investment universe within planetary boundaries

Science is increasingly able to identify precautionary boundaries for critical Earth system processes, and the business world provides societies with important means for adaptive responses to global environmental risks. In turn, investors provide vital leverage on companies. Here, we report on our transdisciplinary science/business experience in applying the planetary boundaries framework (sensu Rockström et al., Ecol Soc 14, 2009) to define a boundary-compatible investment universe and analyse the environmental compatibility of companies. We translate the planetary boundaries into limits for resource use and emissions per unit of economic value creation, using indicators from the Carnegie Mellon University EIO‑LCA database. The resulting precautionary ‘economic intensities’ can be compared with the current levels of companies’ environmental impact. This necessarily involves simplifying assumptions, for which dialogue between biophysical science, corporate sustainability and investment perspectives is needed. The simplifications mean that our translation is transparent from both biophysical and financial viewpoints, and allow our approach to be responsive to future developments in scientific insights about planetary boundaries. Our approach enables both sub‑industries and individual companies to be screened against the planetary boundaries. Our preliminary application of this screening to the entire background universe of all investable stock‑listed companies gives a selectivity of two orders of magnitude for an investment universe of environmentally attractive stocks. We discuss implications for an expanded role of environmental change science in the development of thematic equity funds.

Butz C., Liechti J., Bodin J. & Cornell S. E., in press. Towards defining an environmental investment universe within planetary boundaries. Sustainability Science. Article.

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