The issue of living and investing sustainably
The issues of living and investing sustainably
By hosting the 26th UN Climate Change Conference (COP26) in Glasgow this month, the UK is confirming its commitment to working with all countries to bring climate change under control. The past decade was the warmest on record, and governments agree urgent collective action is needed.
Extreme weather events, including heatwaves, floods and forest fires that we have witnessed around the world in recent years, have brought the discussion around climate change into sharp focus. Whilst the enormity of the challenge can seem daunting, we can all make a difference. The problem is that we face a range of trade-offs and contradictions; for example, we may dislike fossil fuels and CO2 emissions, but we still drive diesel cars and fly to nice places for our holidays.
On a personal level, there are all sorts of things that we can do to improve the sustainability of our lifestyles, perhaps starting with understanding our own carbon footprint in more depth. The UN, for example, has a simple-to-use calculator that provides useful insight. It also provides ideas about how your emissions can be offset. Despite recycling all our glass, plastics and paper, composting all our organic material, not eating meat and mostly cycling to get around and to the office, I was surprised by the results of the calculator. We clearly need to make some significant changes, to reduce in our carbon emissions every year,
Yet making seemingly positive personal lifestyle changes, such as buying a Tesla or drinking almond milk, can have hidden environmental impacts. There are additional environmental and social costs of nickel and cobalt mining (often mined in less-developed countries) which are needed for electric vehicle batteries. The subsequent increase in demand for electricity to charge these batteries, is in the main, generated by fossil fuels.
Each litre of almond milk requires 1,600 litres of water. Much of the world’s almond crop (80%) is grown in California, on vast monoculture farms, reducing biodiversity and drawing from and depleting deep wells. California has suffered severe droughts over the past decade, and one wonders whether this scarce resource is being sustainably managed. Tricky decisions.
Even Greta Thunberg found herself embroiled in controversy in August 2019, when it was revealed that although she had taken a moral stand to sail, rather than fly, from Europe to the US to attend the UN climate change conference in a zero-carbon yacht, the yacht’s owners had to fly two crew to the US to bring the boat back!
In 2020, students at St John’s College Oxford, demanded that the bursar and manager of the College’s £551m endowment fund, reduce its holding of fossil fuel producers with immediate effect, by selling its shares in BP and Shell. His response was perhaps not the one they were expecting: ‘I am not able to arrange any divestment at short notice…but I can arrange for the gas central heating in college to be switched off with immediate effect. Please let me know if you support this proposal.’
The students objected, claiming that he was being flippant and provocative and even dangerous, given that it was January in a 15th century college! His response was: ‘You are right that I am being provocative, but I am provoking some clear thinking, I hope. It is all too easy to request others to do things that have no personal cost to yourself. The question is whether you and others are prepared to make personal sacrifices to achieve the goals of environmental improvement (which I support as a goal).’
The question is whether fossil fuel producers should carry all the burden of carbon emissions guilt. After all, isn’t it our own, consumer-driven demands for petrol and diesel cars, international air travel, cheap goods produced in high-pollution economies and shipped by sea, a love of palm-oil filled Nutella, and a western, meat-eating diet encouraging ‘advanced’ agriculture with high mileage produce, that are largely to blame?
Most dentists we meet are keen to make a difference and leave the planet in a better place for the next generation. Given the option, a significant majority of clients we ask want to invest in ‘green’ investments and avoid shares deemed to have a negative impact on the climate. These types of investments are often termed ESG for Environmental, Social and Governance, which are a set of standards for a company’s operations, that socially conscious investors use to screen potential investments.
So for investors that genuinely want to make some form of sustainability impact through the investments they hold or avoid, should they sell their shares in ‘polluting’ companies like BP and Shell?
Let’s look at the case for selling first. Most investors own shares that were originally bought in the secondary market i.e. from someone else who owned them before, rather than shares issued when a company needs to raise additional capital for its further development. Likewise, when an investor sells their stake – in this case as a positive act of divestment from fossil fuel producers – they will sell these shares to someone else. Almost by definition, that person or institution will care less than the seller about the environmental impact of these companies. If a large number of investors sell, it may well be that the buyers end up with higher expected returns on account of the lower prices that they pay. What impact will this have? Perhaps it sends a message to these firms that they need to change. Yet, it is a one-off protest that can seem a little like washing one’s hands of the problem.
Perhaps a better course of action is to stay invested and become a thorough nuisance, as a shareholder, at the company’s AGM! The reality is that a single individual has little power. However, the major fund management houses are powerful owners of most major companies and are ‘forever’ investors, particularly in passively managed, index tracking products. For example, Vanguard, SSga and BlackRock own almost 20% of Exxon, the US’ largest oil company. That is a very powerful voting bloc that can engage actively with, and apply pressure to, the firm’s management. Each of these fund management firms are signatories to the Principles for Responsible Investment, which is a United Nations-supported network that encourages engagement with corporations on environmental, social and governance (ESG) issues. Is it better to engage with firms like Exxon, BP and Shell and encourage and cajole them into transitioning to a better place than to simply sell and walk away? BP, as a result of pressure from many quarters has recently set out its ambition to become a net zero company by 2050 or sooner. Surely that approach is more likely to create the necessary change and progress?
The reality is that most of us want to take steps in the right direction in all aspects of our lives, particularly around climate change and struggle with the trade-offs we face. We appreciate that it’s better to try rather than to take no action at all. We strongly believe it’s worth applying this strategy of ‘steps in the right direction’ to how we invest our own and our clients’ money.
The key is to appreciate that this is a complex area and there is more to simply selling shares in a ‘polluting’ company and investing in a ‘green’ company to create the impact you really want for our society and the planet.
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