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AODP: We need to divest from carbon and climate risk not companies

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Divesting from fossil fuel companies is not the most effective solution to climate change and reducing carbon risk, according to the Asset Owners Disclosure Project (AODP). In an open letter to the Bill and Melinda Gates Foundation and Wellcome Trust, which are currently being targeted by a divestment campaign, CEO of the organisation Julian Poulter sets out an alternative.

Dear Mr and Mrs Gates and Mr Farrar,

We note The Guardian’s recent campaign targeting your foundations for investing in fossil fuel assets and would like to offer some insights, which we hope will help you reduce your funds’ exposure to carbon risk.

Firstly, as a solution to climate change we don’t believe that an immediate wholesale divestment of fossil fuel investments is either necessary or desirable. It is carbon and climate risk that we need to divest from, not companies. The vast majority of fossil fuel assets are unlisted, hence any delisting of fossil fuels will likely end up in hedge funds and offshore sovereign wealth funds.

Secondly, at a pure portfolio risk level, while they are a big part of the problem, the fossil fuel extraction companies actually create little greenhouse gas. You have just as big a problem in your portfolio from sectors like energy, manufacturing, transportation and others who are exposed to carbon in other ways.

Finally, we do find it odd that two funds, which combined would not feature in AODP’s top 100 largest asset owners, are being targeted when there are so many bigger funds to pressurise.

AODP believes that there are solid financial risk reasons for reducing carbon risk across asset owners’ portfolios and being transparent about how you do this. The real issue is how your fund assesses, or in finance language ‘prices’, the forward risk of carbon into your investments. The uncertainty alone requires a risk premium given that it is impossible to avoid or diversify.

The ratio of climate exposed investments to low carbon ones is normally around 20-1 and this is a huge gamble for your fund under most scenarios. We also don’t think that any fund can rely on short-term markets to properly price this longer-term risk or rely on them to sell your exposed assets for a profit at the same time that everyone else is selling.

We think that portfolio value can best be protected through a three-pronged attack of divestment, engagement, and hedging. Our ratings methodology follows this approach.  The hedging is particularly important. Whilst many people claim there simply isn’t enough good low carbon investments that are profitable, they fail to properly price the long-term risks on the high carbon side that bring many clean investments forecasts into profit. When the world of stranded assets arrives at the door of fossil fuel based investments, this clean ‘hedge’ will balance those losses.

We did contact your foundation requesting data on how you manage these risks last year in preparation for the new 2015 Index, published in April. Indeed a response might even have negated the need for The Guardian’s campaign, as your portfolio carbon exposure is included as a key metric in your AODP response.

You may have seen the Financial Times article quoting Anne Stausboll, CEO of CalPERS, the largest fund in the USA, discounting divestment as a viable option. We mostly agree with CalPERS although there are some easy divestment wins on some undiversified and high cost fossil fuel companies and some underweighting opportunities that wouldn’t lessen the engagement power by too much but could substantially reduce portfolio carbon risk.

But taking Ms Stausbolls point still further, with pure divestment being discarded by the large asset owners, strong engagement with specific planned outcomes must be a focus. This has never really been attempted and there have been less than ten climate resolutions put to companies outside the US (where they are non-binding) and if engagement is to remain credible then a show of strength is required. We don’t believe that pension beneficiaries or your stakeholders such as taxpayers will accept polite enquiries as an excuse for proper engagement and so we recommend your fund co-files a series of resolutions to this end. We imagine that if such resolutions were to fail due to a lack of support that you might then have to consider divestment or increase your low carbon hedge in order to meet your climate risk reduction goals.

In conclusion, we have some sympathy for your current predicament but I am afraid that this is a sign of things to come. In most foundations, the grant making and investment departments are total separated, but in this case there is no need for foundation investment departments to rely on moral or ethical arguments to meet this unique challenge. The leading asset owners are already aware of this challenge and are disclosing fully to us how they are progressing on this complex journey. Through better management of the risks, their portfolios will survive the volatile transition better than other funds. We recommend climate risk management leadership as your next step as you are better placed than most to set a good example.

Yours truly,

Julian Poulter

CEO, Asset Owners Disclosure Project

Photo: Emilian Robert Vicol via Flickr

Further reading:

London assembly backs fossil fuel divestment

Divestment: University of London’s school freezes fossil fuels investment

UN backing fossil fuel divestment campaign

Harvard faces court over fossil fuel divestment

Guardian Media Group commits to divesting from fossil fuels

Economy

How Going Green Can Save A Company Money

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going green can save company money
Shutterstock Licensed Photot - By GOLFX

What is going green?

Going green means to live life in a way that is environmentally friendly for an entire population. It is the conservation of energy, water, and air. Going green means using products and resources that will not contaminate or pollute the air. It means being educated and well informed about the surroundings, and how to best protect them. It means recycling products that may not be biodegradable. Companies, as well as people, that adhere to going green can help to ensure a safer life for humanity.

The first step in going green

There are actually no step by step instructions for going green. The only requirement needed is making the decision to become environmentally conscious. It takes a caring attitude, and a willingness to make the change. It has been found that companies have improved their profit margins by going green. They have saved money on many of the frivolous things they they thought were a necessity. Besides saving money, companies are operating more efficiently than before going green. Companies have become aware of their ecological responsibility by pursuing the knowledge needed to make decisions that would change lifestyles and help sustain the earth’s natural resources for present and future generations.

Making needed changes within the company

After making the decision to go green, there are several things that can be changed in the workplace. A good place to start would be conserving energy used by electrical appliances. First, turning off the computer will save over the long run. Just letting it sleep still uses energy overnight. Turn off all other appliances like coffee maker, or anything that plugs in. Pull the socket from the outlet to stop unnecessary energy loss. Appliances continue to use electricity although they are switched off, and not unplugged. Get in the habit of turning off the lights whenever you leave a room. Change to fluorescent light bulbs, and lighting throughout the building. Have any leaks sealed on the premises to avoid the escape of heat or air.

Reducing the common paper waste

paper waste

Shutterstock Licensed Photo – By Yury Zap

Modern technologies and state of the art equipment, and tools have almost eliminated the use of paper in the office. Instead of sending out newsletters, brochures, written memos and reminders, you can now do all of these and more by technology while saving on the use of paper. Send out digital documents and emails to communicate with staff and other employees. By using this virtual bookkeeping technique, you will save a bundle on paper. When it is necessary to use paper for printing purposes or other services, choose the already recycled paper. It is smartly labeled and easy to find in any office supply store. It is called the Post Consumer Waste paper, or PCW paper. This will show that your company is dedicated to the preservation of natural resources. By using PCW paper, everyone helps to save the trees which provides and emits many important nutrients into the atmosphere.

Make money by spreading the word

Companies realize that consumers like to buy, or invest in whatever the latest trend may be. They also cater to companies that are doing great things for the quality of life of all people. People want to know that the companies that they cater to are doing their part for the environment and ecology. By going green, you can tell consumers of your experiences with helping them and communities be eco-friendly. This is a sound public relations technique to bring revenue to your brand. Boost the impact that your company makes on the environment. Go green, save and make money while essentially preserving what is normally taken for granted. The benefits of having a green company are enormous for consumers as well as the companies that engage in the process.

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Energy

5 Easy Things You Can Do to Make Your Home More Sustainable

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sustainable homes
Shutterstock Licensed Photot - By Diyana Dimitrova

Increasing your home’s energy efficiency is one of the smartest moves you can make as a homeowner. It will lower your bills, increase the resale value of your property, and help minimize our planet’s fast-approaching climate crisis. While major home retrofits can seem daunting, there are plenty of quick and cost-effective ways to start reducing your carbon footprint today. Here are five easy projects to make your home more sustainable.

1. Weather stripping

If you’re looking to make your home more energy efficient, an energy audit is a highly recommended first step. This will reveal where your home is lacking in regards to sustainability suggests the best plan of attack.

Some form of weather stripping is nearly always advised because it is so easy and inexpensive yet can yield such transformative results. The audit will provide information about air leaks which you can couple with your own knowledge of your home’s ventilation needs to develop a strategic plan.

Make sure you choose the appropriate type of weather stripping for each location in your home. Areas that receive a lot of wear and tear, like popular doorways, are best served by slightly more expensive vinyl or metal options. Immobile cracks or infrequently opened windows can be treated with inexpensive foams or caulking. Depending on the age and quality of your home, the resulting energy savings can be as much as 20 percent.

2. Programmable thermostats

Programmable thermostats

Shutterstock Licensed Photo – By Olivier Le Moal

Programmable thermostats have tremendous potential to save money and minimize unnecessary energy usage. About 45 percent of a home’s energy is earmarked for heating and cooling needs with a large fraction of that wasted on unoccupied spaces. Programmable thermostats can automatically lower the heat overnight or shut off the air conditioning when you go to work.

Every degree Fahrenheit you lower the thermostat equates to 1 percent less energy use, which amounts to considerable savings over the course of a year. When used correctly, programmable thermostats reduce heating and cooling bills by 10 to 30 percent. Of course, the same result can be achieved by manually adjusting your thermostats to coincide with your activities, just make sure you remember to do it!

3. Low-flow water hardware

With the current focus on carbon emissions and climate change, we typically equate environmental stability to lower energy use, but fresh water shortage is an equal threat. Installing low-flow hardware for toilets and showers, particularly in drought prone areas, is an inexpensive and easy way to cut water consumption by 50 percent and save as much as $145 per year.

Older toilets use up to 6 gallons of water per flush, the equivalent of an astounding 20.1 gallons per person each day. This makes them the biggest consumer of indoor water. New low-flow toilets are standardized at 1.6 gallons per flush and can save more than 20,000 gallons a year in a 4-member household.

Similarly, low-flow shower heads can decrease water consumption by 40 percent or more while also lowering water heating bills and reducing CO2 emissions. Unlike early versions, new low-flow models are equipped with excellent pressure technology so your shower will be no less satisfying.

4. Energy efficient light bulbs

An average household dedicates about 5 percent of its energy use to lighting, but this value is dropping thanks to new lighting technology. Incandescent bulbs are quickly becoming a thing of the past. These inefficient light sources give off 90 percent of their energy as heat which is not only impractical from a lighting standpoint, but also raises energy bills even further during hot weather.

New LED and compact fluorescent options are far more efficient and longer lasting. Though the upfront costs are higher, the long term environmental and financial benefits are well worth it. Energy efficient light bulbs use as much as 80 percent less energy than traditional incandescent and last 3 to 25 times longer producing savings of about $6 per year per bulb.

5. Installing solar panels

Adding solar panels may not be the easiest, or least expensive, sustainability upgrade for your home, but it will certainly have the greatest impact on both your energy bills and your environmental footprint. Installing solar panels can run about $15,000 – $20,000 upfront, though a number of government incentives are bringing these numbers down. Alternatively, panels can also be leased for a much lower initial investment.

Once operational, a solar system saves about $600 per year over the course of its 25 to 30-year lifespan, and this figure will grow as energy prices rise. Solar installations require little to no maintenance and increase the value of your home.

From an environmental standpoint, the average five-kilowatt residential system can reduce household CO2 emissions by 15,000 pounds every year. Using your solar system to power an electric vehicle is the ultimate sustainable solution serving to reduce total CO2 emissions by as much as 70%!

These days, being environmentally responsible is the hallmark of a good global citizen and it need not require major sacrifices in regards to your lifestyle or your wallet. In fact, increasing your home’s sustainability is apt to make your residence more livable and save you money in the long run. The five projects listed here are just a few of the easy ways to reduce both your environmental footprint and your energy bills. So, give one or more of them a try; with a small budget and a little know-how, there is no reason you can’t start today.

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