Connect with us

Economy

Alternative Wall Street Journal: the financial advantage of socially responsible investing

Published

on

Socially responsible investment (SRI) “may involve financial sacrifice”. That’s according to Olivia S Mitchell, a professor of business economics and public policy at the Wharton School of the University of Pennsylvania, who was interviewed by the Wall Street Journal last week.

In an article entitled The Financial Sacrifice of Socially Responsible Investing, Mitchell said investors would “limit [their] investment menu” by looking at SRI, and could “end up ruling out many of the most profitable and highly stable firms around the world”.

But her analysis is certainly not accepted across the board, and there is evidence out there to suggest the so-called “financial sacrifice” is actually more of a financial advantage.

Blue & Green Tomorrow posed the same four questions to the US Forum for Sustainable and Responsible Investment (US SIF) that the WSJ posed to Mitchell, and this is what they said.

What are some of the limitations of socially responsible investing?

Sustainable and responsible investing spans a wide and growing range of products and asset classes, embracing not only public equity investments, but also cash, fixed income and alternative investments.  By including environmental, social and governance (ESG) issues in assessing a potential investment, investors have actually expanded their investment options, rather than limiting them.

What Mitchell told the WSJ: For sure, you’ll limit your investment menu. Depending on how strict your criteria are, you could end up ruling out many of the most profitable and highly stable firms around the world. Returns may also be cut due to compliance costs associated with SRI accreditation.

How hard is it to define these investments?

Sustainable and responsible investing (SRI) is an investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact. It is an investment approach with multiple strategies that spans asset classes.

What Mitchell told the WSJ: Even trickier is the fact that reasonable people disagree about what socially responsible means: firms that avoid polluting, limit pay for managers, or ‘do good’ in their local communities? Also, such factors are often difficult to measure in practice, and there’s little clear guidance on how much weight to attach to each of the components in an overall rating or index–especially if the scores conflict.

What does this mean in practical terms?

There are two principal approaches to SRI. The first is ESG incorporation, which considers ESG criteria in investment analysis and portfolio construction; this can take several forms. Some may actively seek to include companies that have stronger corporate social responsibility (CSR) policies and practices in their portfolios, or to exclude or avoid companies with poor CSR track records. Others may incorporate ESG factors to benchmark corporations to peers or to identify ‘best-in-class’ investment opportunities based on CSR issues. Still other responsible investors integrate ESG factors into the investment process as part of a wider evaluation of risk and return. Some investors reserve a portion of their portfolios for venture funds, loan funds and other vehicles that help to foster businesses in underserved communities or introduce products that yield social and environmental benefits.

The second approach is shareowner engagement, which involves the actions sustainable investors take as share owners to communicate to the managements of portfolio companies their concerns about the companies’ ESG policies and to ask management to study these issues and make improvements.

What Mitchell told the WSJ: Setting benchmarks and measuring performance for socially-targeted corporations is complex and costly, and even the rating groups have been known to disagree among themselves.

How does performance typically stack up against other investments?

Research studies demonstrate that companies with strong corporate social responsibility policies, programs and practices are sound investments. For example, a 2012 study by Deutsche Bank Group Climate Change Advisers found that incorporating ESG data in investment analysis is “correlated with superior risk-adjusted returns at a securities level.” A report by the United Nations Environment Programme Finance Initiative (Unep-FI) and Mercer examined 36 representative academic studies and 10 related industry research reports about SRI performance and found that “there does not appear to be a performance penalty from taking ESG factors into account in the portfolio management process.” For additional research studies, see here.

What Mitchell told the WSJ: My own research showed that SRI-attentive firms in Japan were more conservative managers than their non-SRI peers. This could portend lower future investment returns, though perhaps also less volatility in share prices. Since it’s become so difficult to earn returns at all these days, be sure you understand the costs of SRI investment rules before agreeing to a restricted investment diet.

Further reading:

Myth of sustainable investment performance sacrifice ‘finally withering away’

Mainstream press ‘full of piffle and wind’ on sustainable investment

From ethics to sustainability: shifting the investment debate for 2014

Investing sustainably is a ‘clear win’ says study

The Guide to Sustainable Investment 2014 

Economy

Will Self-Driving Cars Be Better for the Environment?

Published

on

self-driving cars for green environment
Shutterstock Licensed Photo - By Zapp2Photo | https://www.shutterstock.com/g/zapp2photo

Technologists, engineers, lawmakers, and the general public have been excitedly debating about the merits of self-driving cars for the past several years, as companies like Waymo and Uber race to get the first fully autonomous vehicles on the market. Largely, the concerns have been about safety and ethics; is a self-driving car really capable of eliminating the human errors responsible for the majority of vehicular accidents? And if so, who’s responsible for programming life-or-death decisions, and who’s held liable in the event of an accident?

But while these questions continue being debated, protecting people on an individual level, it’s worth posing a different question: how will self-driving cars impact the environment?

The Big Picture

The Department of Energy attempted to answer this question in clear terms, using scientific research and existing data sets to project the short-term and long-term environmental impact that self-driving vehicles could have. Its findings? The emergence of self-driving vehicles could essentially go either way; it could reduce energy consumption in transportation by as much as 90 percent, or increase it by more than 200 percent.

That’s a margin of error so wide it might as well be a total guess, but there are too many unknown variables to form a solid conclusion. There are many ways autonomous vehicles could influence our energy consumption and environmental impact, and they could go well or poorly, depending on how they’re adopted.

Driver Reduction?

One of the big selling points of autonomous vehicles is their capacity to reduce the total number of vehicles—and human drivers—on the road. If you’re able to carpool to work in a self-driving vehicle, or rely on autonomous public transportation, you’ll spend far less time, money, and energy on your own car. The convenience and efficiency of autonomous vehicles would therefore reduce the total miles driven, and significantly reduce carbon emissions.

There’s a flip side to this argument, however. If autonomous vehicles are far more convenient and less expensive than previous means of travel, it could be an incentive for people to travel more frequently, or drive to more destinations they’d otherwise avoid. In this case, the total miles driven could actually increase with the rise of self-driving cars.

As an added consideration, the increase or decrease in drivers on the road could result in more or fewer vehicle collisions, respectively—especially in the early days of autonomous vehicle adoption, when so many human drivers are still on the road. Car accident injury cases, therefore, would become far more complicated, and the roads could be temporarily less safe.

Deadheading

Deadheading is a term used in trucking and ridesharing to refer to miles driven with an empty load. Assume for a moment that there’s a fleet of self-driving vehicles available to pick people up and carry them to their destinations. It’s a convenient service, but by necessity, these vehicles will spend at least some of their time driving without passengers, whether it’s spent waiting to pick someone up or en route to their location. The increase in miles from deadheading could nullify the potential benefits of people driving fewer total miles, or add to the damage done by their increased mileage.

Make and Model of Car

Much will also depend on the types of cars equipped to be self-driving. For example, Waymo recently launched a wave of self-driving hybrid minivans, capable of getting far better mileage than a gas-only vehicle. If the majority of self-driving cars are electric or hybrids, the environmental impact will be much lower than if they’re converted from existing vehicles. Good emissions ratings are also important here.

On the other hand, the increased demand for autonomous vehicles could put more pressure on factory production, and make older cars obsolete. In that case, the gas mileage savings could be counteracted by the increased environmental impact of factory production.

The Bottom Line

Right now, there are too many unanswered questions to make a confident determination whether self-driving vehicles will help or harm the environment. Will we start driving more, or less? How will they handle dead time? What kind of models are going to be on the road?

Engineers and the general public are in complete control of how this develops in the near future. Hopefully, we’ll be able to see all the safety benefits of having autonomous vehicles on the road, but without any of the extra environmental impact to deal with.

Continue Reading

Economy

New Zealand to Switch to Fully Renewable Energy by 2035

Published

on

renewable energy policy
Shutterstock Licensed Photo - By Eviart / https://www.shutterstock.com/g/adrian825

New Zealand’s prime minister-elect Jacinda Ardern is already taking steps towards reducing the country’s carbon footprint. She signed a coalition deal with NZ First in October, aiming to generate 100% of the country’s energy from renewable sources by 2035.

New Zealand is already one of the greenest countries in the world, sourcing over 80% of its energy for its 4.7 million people from renewable resources like hydroelectric, geothermal and wind. The majority of its electricity comes from hydro-power, which generated 60% of the country’s energy in 2016. Last winter, renewable generation peaked at 93%.

Now, Ardern is taking on the challenge of eliminating New Zealand’s remaining use of fossil fuels. One of the biggest obstacles will be filling in the gap left by hydropower sources during dry conditions. When lake levels drop, the country relies on gas and coal to provide energy. Eliminating fossil fuels will require finding an alternative source to avoid spikes in energy costs during droughts.

Business NZ’s executive director John Carnegie told Bloomberg he believes Ardern needs to balance her goals with affordability, stating, “It’s completely appropriate to have a focus on reducing carbon emissions, but there needs to be an open and transparent public conversation about the policies and how they are delivered.”

The coalition deal outlined a few steps towards achieving this, including investing more in solar, which currently only provides 0.1% of the country’s energy. Ardern’s plans also include switching the electricity grid to renewable energy, investing more funds into rail transport, and switching all government vehicles to green fuel within a decade.

Zero net emissions by 2050

Beyond powering the country’s electricity grid with 100% green energy, Ardern also wants to reach zero net emissions by 2050. This ambitious goal is very much in line with her focus on climate change throughout the course of her campaign. Environmental issues were one of her top priorities from the start, which increased her appeal with young voters and helped her become one of the youngest world leaders at only 37.

Reaching zero net emissions would require overcoming challenging issues like eliminating fossil fuels in vehicles. Ardern hasn’t outlined a plan for reaching this goal, but has suggested creating an independent commission to aid in the transition to a lower carbon economy.

She also set a goal of doubling the number of trees the country plants per year to 100 million, a goal she says is “absolutely achievable” using land that is marginal for farming animals.

Greenpeace New Zealand climate and energy campaigner Amanda Larsson believes that phasing out fossil fuels should be a priority for the new prime minister. She says that in order to reach zero net emissions, Ardern “must prioritize closing down coal, putting a moratorium on new fossil fuel plants, building more wind infrastructure, and opening the playing field for household and community solar.”

A worldwide shift to renewable energy

Addressing climate change is becoming more of a priority around the world and many governments are assessing how they can reduce their reliance on fossil fuels and switch to environmentally-friendly energy sources. Sustainable energy is becoming an increasingly profitable industry, giving companies more of an incentive to invest.

Ardern isn’t alone in her climate concerns, as other prominent world leaders like Justin Trudeau and Emmanuel Macron have made renewable energy a focus of their campaigns. She isn’t the first to set ambitious goals, either. Sweden and Norway share New Zealand’s goal of net zero emissions by 2045 and 2030, respectively.

Scotland already sources more than half of its electricity from renewable sources and aims to fully transition by 2020, while France announced plans in September to stop fossil fuel production by 2040. This would make it the first country to do so, and the first to end the sale of gasoline and diesel vehicles.

Many parts of the world still rely heavily on coal, but if these countries are successful in phasing out fossil fuels and transitioning to renewable resources, it could serve as a turning point. As other world leaders see that switching to sustainable energy is possible – and profitable – it could be the start of a worldwide shift towards environmentally-friendly energy.

Sources: https://www.bloomberg.com/news/articles/2017-11-06/green-dream-risks-energy-security-as-kiwis-aim-for-zero-carbon

https://www.reuters.com/article/us-france-hydrocarbons/france-plans-to-end-oil-and-gas-production-by-2040-idUSKCN1BH1AQ

Continue Reading
Advertisement

Facebook

Trending