François Passant, executive director of the European Sustainable Investment Forum – or Eurosif – speaks to Blue & Green Tomorrow about how sustainable investment is thriving across the continent.
This piece originally featured in Blue & Green Tomorrow’s Guide to Sustainable Investment 2013.
What would you say is the general state of the sustainable investment market right now?
As evidenced by our recent reports published in 2012, the sustainable and responsible investment industry is witnessing rapid growth across Europe. If you consider all six strategies defined by Eurosif, from sustainably-themed, best-in-class to norms-based, ESG integration, engagement and voting and exclusions, these have grown each at double-digit growth between 2009 and 2011, while the overall asset management industry has grown by around 8% during the same period.
That growth, which of course covers various realities market by market, shows that institutional investors in particular are more and more recognising the importance of ESG factors. Some strategies are also getting some interesting traction and it will be interesting to see how they develop in the coming years. I am thinking here in particular about norms-based strategies, originally emanating from the Nordics but starting to percolate through other markets, including the UK, and about active ownership strategies which are continuing their steady growth and emerging in additional markets such as Italy or Spain.
The downside is that, in aggregate around Europe, retail investors have not yet really embraced sustainable and responsible investment (SRI). This remains an area where, apart from some exceptions where the market is developing, such as sustainably-themed funds in the UK or some defined contribution (DC) products in France, the demand remains relatively weak.
This is certainly not the case in the high net-worth individual (HNWI) segment where, as evidenced by our latest HNWI and Sustainable Investment Survey from November 2012, there is a lot of interest for sustainable investment, more and more seen as an investment discipline and a key component of inter-generational wealth preservation strategies.
Finally, Europe still leads the pack on a global basis and represents over 50% of the global sustainable and responsible investment market as shown by the first Global Sustainable Investment Review, a global SRI landscape published last month by the newly-formed Global Sustainable Investment Alliance, a global alliance of key SIFs worldwide to which Eurosif and UKSIF belong.
What would you highlight as the biggest opportunities in the market?
Not being a commercial organisation, this is a question I would answer differently. As said before, I believe that the institutional segment is a fast-growing one but one that has still a lot of potential for growth, especially in the mid-tier market. To date, our research shows that only 56% of corporate pension funds around Europe have a formal SRI policy. The larger funds would have one in general but beyond these, many are still either not recognising that ESG should be part of their fiduciary duty or wrestling with how to address this.
Another area of interest is certainly the impact investing area. For the first time, our European SRI Market Study published last October, included a review of that market. Although historic data using our methodology is not available, we have gathered evidence that this is a fast growing area, not surprisingly with HNWI but also some very large institutional investors.
In both of these segments, there is ample room for asset or wealth managers to develop product and investment solutions taking into account ESG factors.
Are there any particular barriers for growth?
I already mentioned the challenge related to fiduciary duty. Barriers for growth are multiple of course. I think that a key other one is the potential misalignment of incentives throughout the chain of intermediaries in the investment industry, which, and this is well-known by now, might and often result in short-term orientated behaviours. Sustainable and responsible investment is better aligned with the search for long-term outcomes, one of these outcomes being long-term views on financial returns.
The effect of taking into account ESG factors is typically magnified over the long time. This requires a shift in thinking and that shift can be efficiently eased by a better alignment of incentives, from asset owners and asset managers to the entire asset management value chain and the investee companies themselves. The current emerging thinking around shareholder stewardship codes across Europe, and the world really, might be very helpful in this respect.
What are the consequences of unsustainable investment and finance?
This is a wide subject that many analysts, more expert than me, have already commented upon, in particular in the context of the current economic and financial crisis. I’d like to move away from this for a minute and highlight another important aspect.
The International Energy Agency reckons that to reach a safe level of carbon emissions, an estimated $1 trillion investment in renewable and low-carbon technology is required every year above business as usual. To secure this, it is absolutely necessary to engage the private financial industry.
Further mainstreaming sustainable and responsible investment is a key way, if not the only one, to solve this equation. I was recently at a roundtable organised by the European commission to talk precisely about how private investments could be attracted to fund a resource-efficient Europe and they were very supportive of this idea.
Which countries in Europe would you pick out as key markets for sustainable investment?
With respect to size, the hierarchy of markets has not changed, overall, between 2009 and 2011, the years when we conducted our last European SRI Market Studies. France, the UK and the Netherlands would rank as top markets with regards to sustainable investment. Interestingly enough however, when looking at the details of each strategies, you might find signs of significant progress, starting from a low base, in several other markets, which is encouraging. This is for instance the case in Germany.
What’s your prediction as to how the market will look in 10 years?
Ten years sounds like a long time away and I do not have a crystal ball. All my previous comments however point into the direction of a growing market with a key role to be played by future regulatory or legislative drivers. To recycle your expression from before, I do not think that we will be able to speak any more about unsustainable finance or investment versus sustainable investment, rather an overwhelming majority of investments will have embraced some kind of sustainable approach, all leading to better allocation of invested capital in the market.
This approach will most likely be a combination of strategies. We can already see this coming with the growth of exclusions of certain sectors or practices, which is typically combined with another strategy. Also, I believe that this industry has not yet harnessed the full potential of ESG integration, despite the progress of assets covered by this strategy.
Will Self-Driving Cars Be Better for the Environment?
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.
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 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.
New Zealand to Switch to Fully Renewable Energy by 2035
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.
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