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Earth Day 2023: Past Performance Can Inspire Future Results

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David Post, CFA

Director, Investment Strategy

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How do we know the world can overcome an environmental crisis? Because it already has. Millions of people took action against pollution more than 60 years ago. Today’s investors can do the same in the fight against climate change. 

We know Earth Day as a day of environmental action, designed to drive changes in public policy and individual behavior. But Earth Day also provides an opportunity to reflect on the environmental achievements made across the globe. The fight for a clean environment isn’t over—in fact, it requires broader and deeper action than ever. Over the years we’ve seen remarkable progress in the fights against air and water pollution. Governments, businesses, investors, and society must all align to deliver the same level of success against climate change.

How did Earth Day start?
The US first celebrated Earth Day in 1970, perhaps the biggest year for environmental policy action in the country’s history. The celebration coincided with the passage of the National Environmental Protection Act (NEPA) and the Clean Air Act, as well as the founding of the Environmental Protection Agency (EPA). The Clean Water Act of 1972 completed the big bang for US environmental policy action. These new laws set limits and imposed fines for untreated sewage and wastewater, carcinogenic chemicals in waterways, and industrial emissions. The overall goal was to require companies to internalize costs that society and the planet had been absorbing until then. 

Nine major US air quality metrics have substantially improved since 1980, 10 years after the first Earth Day. One of the most significant of these air quality improvements, the 94% cut in sulfur dioxide, has personal significance for me. Growing up in New Jersey in the 1960s and 1970s, I remember driving with my parents in the industrial area outside of New York City, and I remember the overpowering stench that I later came to know was sulfur dioxide. When driving there now with my own family, that smell is gone, evidenced by this impressive graph.

Water quality has seen more modest improvements over the last 50 years. Many water pollutants such as PCBs and mercury can remain in place for decades, which makes water pollution more difficult to detect and less friendly to mass public attention. Passing laws and enforcing them through government agencies hasn’t guaranteed victory in the war on water pollution. Clear and present negative impacts are particularly important to drive broad support and government action.

On balance, however, we’ve seen substantial improvement in air and water pollution over the last 50 years. This is due in no small part to the very visible reminder of Earth Day.

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What are the prospects for similar Earth Day success against climate change?

Earth Day 2023’s theme, “Invest in Our Planet,” aims to refocus global attention on the existential nature of the climate crisis. Identifying the importance of climate action is certainly not new, but it bears repeating. The global climate change challenge requires even greater effort than the first Earth Day’s focus on domestic air and water quality.

Unfortunately, passing significant domestic legislation to address climate change has proven to be elusive. The 2022 Inflation Reduction Act contains sweeping provisions related to climate, renewable energy, and clean technologies, making it the most significant climate change legislation since the early 1970s. But $369 billion in clean energy tax credits over the next 10 years pales in comparison with the impact of NEPA-induced environmental regulations over the last 50 years.

On the reporting front, investors and regulators increasingly acknowledge the importance of material nonfinancial issues, including greenhouse-gas (GHG) emissions. But SEC requirements for GHG emissions reporting is by no means a done deal due to challenges from limited government advocates such as the US Chamber of Commerce and a recent Supreme Court decision that may be interpreted to limit SEC authority.

On the other hand, the US government has supported global initiatives—including the 2015 Paris Agreement and the 2010 Global Climate Change Initiative—to address still-rising GHG emissions. Unlike many forms of localized water and air pollution, GHG emissions have truly global impact. Historic emissions in the US and Europe and current emissions in China and India have driven wildfires in California, flooding in Pakistan, and drought in Australia. Failure among all countries in aggregate on GHG emissions reductions will completely offset individual countries’ successes.

Yet another headwind is the dual environmental and climate threats in many developing economies. Many developed countries around the world have reduced air and water pollution since the 1970s. But progress on these matters is more difficult in developing countries dealing with recently accelerating population growth, urbanization, and industrialization. Air pollution from cars and factories plus water pollution from agricultural runoff and industrial waste remain serious problems alongside climate change in China, India, Pakistan, and other countries. These countries will need to address their pollution and climate challenges at the same time.

Happily, we’re seeing positive action in the developed world. India plans to generate 40% of its electricity from renewable resources by 2030, and Mexico, Colombia, and Chile have implemented carbon-pricing policies. More good news came at the 2022 United Nations Climate Change Conference, where nearly 200 countries agreed to fund loss and damage costs for developing countries hit hard by climate disasters. This agreement comes after years of often-contentious negotiations since the idea first surfaced in 2007.

In addition, equity and fixed income investors are taking individual and collective action in the form of engagement, proxy voting, and filing shareholder resolutions at companies, as well as allocating their own capital to climate-friendly investments. Actions like these were largely nonexistent for most of the last 50 years, but they’re proving to be another important weapon in the fight against climate change. Investors realize the rising risks and opportunities that companies can address at scale, from decarbonizing supply chains and product offerings to preparing facilities for natural disasters.

The bottom line

The challenges we faced at the time of the first Earth Day celebration were daunting. But the US made major gains against easily seen and smelled pollutants, whose visibility helped catalyze unprecedented government action. Today the effects of climate change are rapidly growing more visible, and governments, businesses, and investors around the world are taking note and taking action. The future is hard to predict, but we do know that when environmental problems are impossible to miss, action becomes impossible to pass up.

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The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Parametric and its affiliates disclaim any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Parametric are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Parametric strategy. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results. All investments are subject to the risk of loss. Prospective investors should consult with a tax or legal advisor before making any investment decision. Please refer to the Disclosure page on our website for important information about investments and risks.