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Are pension funds serving their purpose?

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James Cameron takes a look at the investment portfolios of pensions and urges real alternatives to high-carbon yields.

This summer, the archbishop of Canterbury got into hot water when it was revealed the Church of England pension fund was an inadvertent investor in Wonga, the payday loan company he pledged to put out of business. He did not know.

I wonder how many people know where their own money is invested, and what they are inadvertently supporting. How many know they are investing in the fossil fuel businesses that dominate our economic world and endanger our future?

According to the Asset Owners Disclosure Project, 50-60% of the average pension portfolio is invested in high-carbon assets. Those who believe that our pension funds must be doing the right thing with our money – that is, taking a long-term view by investing in a low-carbon future – may be surprised and disappointed to learn that a meagre 2% is earmarked for such investments.

The question has to be asked whether these funds are doing what they are meant to do. Are they providing decent funds to safeguard our future, or are they doing exactly the opposite? Where is the fiduciary responsibility in the creation of risk and the potential destruction of value across the whole portfolio? How does the ‘beneficiary’ actually benefit in a world warmed beyond 2C?

One of the reasons for this imbalance is that funds do not see it as their job to come up with solutions to problems such as climate change and resource depletion. Another is that the most powerful force in the pensions’ world is inertia, and it is a world driven by short-term gain. Long-term consequences are just that.

But it is not all their fault. To keep our pension pots in the black they rely upon dividend yield or income returns from stocks or real assets. If pension funds want to put money into reducing climate change risk and find acceptable yields from large cap stocks in today’s market, they do not have a ‘pure play’ low-carbon option (that is, an investment opportunity focused on renewables alone). Sure, there are utility companies with renewable energy arms and bits of energy companies devoting many millions to cleaner alternatives, but the priority business is almost always fossil fuels.

While it is right – as Carbon Tracker has shown – to reassess the risk in high-carbon assets, we need to offer real alternatives to high-carbon yields. The renewable energy industry is a great fit for pension funds, but they need a large cap corporation (that is, one with a market capitalisation value of more than $10 billion) to turn the tide of investment.

Renewable energy assets offer inflation-tracked returns that afford a variety of debt or equity financing opportunities, over long-term fixed or floating price contracts. These are often underwritten by governments, and this sits neatly with the risk profiles of many pension funds, which are keen to make a stable rate of return in these uncertain times. A big clean energy corporate which is solely committed to this industry seems both a necessary and natural evolution.

Of course, this is easier said than done. But here at Climate Change Capital we think it can and should be done now. We think that it is possible to build substantial pure play renewable energy companies that could attract tracker money, raise debt cheaply and build better cleaner infrastructure, without being tied to the vagaries of fossil fuel risk. Such an entity would encourage smaller cleantech pioneers and investors, which could sell to or serve it without compromise in a market with real, reliable demand.

Where could such an enterprise come from? It may spawn from an emerging market, like India, China, Brazil, Mexico, Korea or Turkey, where the unassailable priorities of energy and resource security are connected to sustainability by public policy.

It could come from state-owned enterprises with access to cheap capital or generous subsidies that have driven down the costs of wind and solar so that they are competitive with coal and some forms of gas (according to Bloomberg New Energy Finance, since 2008, wind turbine prices have fallen by 29% and solar module prices by 80%).

It may come from outside the energy industry. Look at the resources available at an AppleCisco or a Google and at the recent moves they have made into the sector. Or, there are ample options to aggregate and consolidate renewable energy businesses in the US and Europe.

The closest we have come so far are substantial groups in big conglomerates like Siemens and GE, which have large research and development budgets and skills in engineering and finance. GE’s Ecomagination business, with a turnover of $25 billion last year, is now worth $130 billion and would be a Fortune 100 company if it stood alone. It is easy to see how these companies could transform the way we generate and consume energy and gain competitive advantage.

The International Energy Association states that renewables are now the fastest-growing power generation sector and will make up almost a quarter of the global power mix by 2018. This is at a time when fossil fuel subsidies are over five times that of renewables and yet the costs of oil and gas extraction have risen three-fold over the last decade.

By demanding greater transparency in how pension funds manage our money, we could begin to crack the inertia that supports the business-as-usual strategy. And we could reduce the risk of stranded assets, societal conflict and human suffering. We must present to the financial ecosystem a real opportunity for the creation of a large cap clean energy enterprise that can safeguard our retirement packages and our planet. The archbishop should be interested, too.

James Cameron is non-executive chairman of Climate Change Capital Limited, chairman of the Overseas Development Institute and a member of HM Treasury’s Infrastructure UK advisory council. This article originally appeared in Green Futures, the leading magazine on environmental solutions and sustainable futures published by Forum for the Future.

Further reading:

Climate change: we’ve still got time to save the world… haven’t we?

How to invest in energy once you’ve ditched fossil fuels

Norwegian pension fund divests from ‘financially worthless’ fossil fuel firms

The UK canary in the carbon mine

The Guide to Climate Change 2013

Economy

New Zealand to Switch to Fully Renewable Energy by 2035

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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

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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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