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Is it right to invest in an FFFF (Fossil Fuel Free Fund)?



With the arguments against investment in fossil fuel companies mounting, Clare Brook, founding partner at WHEB Listed Equities, asks if going fossil fuel free is simply the right thing to do.

When the American environmentalist, Bill McKibben, published his article ‘Climate change’s terrifying new math’ in Rolling Stone magazine in 2012, it catalysed a new phase in the movement to combat climate change. As McKibben said in his important article, “The anti-climate change movement needs an enemy. And that enemy is the fossil fuel companies.”

By focusing on oil, gas and coal extraction companies, the debate has shifted from being a purely political one to being a discussion around the deployment of capital.

Much of McKibben’s article focuses on work carried out by the UK-based Carbon Tracker Initiative.

Carbon Tracker’s argument runs as follows: Consensus scientific reports assert that in order to prevent dangerous climate change, which most scientists agree would be caused by a rise in global temperatures of over 2%, the amount of carbon dioxide in the atmosphere must be kept below 350 parts per million.

The current price of fossil fuels companies’ shares is based on the assumption that all fossil fuel reserves in the world will be utilised. However, only 565 billion tonnes of CO2 can be burned by 2050 in order have a reasonable chance of staying within the two degree warming limit, versus the 2,795 billion tonnes represented by all oil, gas and coal reserves in the ground.

Therefore, argues Bill McKibben, in order to sustain human life on the planet, up to $20 trillion-worth of fossil fuel reserves will need to remain in the ground.  This could render fossil fuel assets ‘stranded’ and potentially worthless, or at least at a substantial discount to valuations placed on major oil companies’ reserves currently.

Not only are existing reserves at risk, but these companies are spending an estimated $490 billion (£290.2bn) a year on capital expenditure attempting to discover new reserves and add to their base.

How pressure can be brought to bear for these assets to be left in the ground, and for fossil fuel companies to deploy their capital expenditure more wisely, is now the subject of hotly contested debate.

Some argue that the best way to apply pressure is for institutional investors to sell their holdings in fossil fuel companies. Already, an impressive number of charities, foundations, churches and universities, have announced their intention to divest from fossil fuels, most notably the Divest-Invest group. Municipal and state pension funds are starting to join them.

An interesting recent addition to the throng is the British Medical Association (BMA).  The logic of these decisions is compelling: for charities whose purpose is, broadly speaking, to protect the environment and human society, to be investing in companies whose purpose is to burn as many fossil fuels as possible is an obvious contradiction.

The BMA, for instance, sees climate change as an issue that will have a profound impact on public health. Meanwhile, some church groups are emphasising the ethics of climate change and the need to avoid fossil fuel investments as a result.

The argument in favour of divestment is essentially one of spotting an innate contradiction: that if investors are holding shares for the long term – for example, a pension fund investing so that people can ‘enjoy their retirement’, a foundation enabling a charity to carry out vital work, people buying a junior ISA for their children, universities providing students with degrees so they can flourish in the world – then it is contradictory to hold assets in companies whose core businesses threaten the world into which people hope to retire, or grow up, or work in a few decades’ time.

Furthermore, the expectation is that concerted selling of fossil fuel assets by high-profile organisations will bring pressure to bear on the coal, oil and gas companies where hitherto campaigners have failed.

Some in the divestment camp argue that those companies will find it increasingly difficult to command a licence to operate, to recruit and retain high quality employees, to raise debt, develop new territories and expand.

Even if the upshot is less extreme in the short or medium term, the expectation is that concerted divestment will sharpen the focus on those companies directly responsible for climate change and force them to justify their strategy and impact far more than they have hitherto.

Already Shell and Exxon have issued statements explaining why they think their reserves are not ‘stranded’.  Now that managements are responding, they will no longer be able to ignore the debate in the future.

Those who are against divestment point out that divestment in isolation may not have the effect that it had with, for example, the Anti-Apartheid Movement. Then it was relatively easy to isolate a few companies who were invested in South Africa, such as Barclays, to close one’s bank account in protest, or avoid buying South African wine or fruit.

Fossil fuel usage is more invidious. Let he who never drives a petrol-powered car or uses plastic or turns on a light cast the first stone.

Without concerted political action that forces fossil fuel companies to pay for the external and future costs associated with burning their product, divestment by some asset owners may stir up debate, but not on its own bring about the quantum change in business models necessary to keep global temperatures within a two degree rise.

To date, much of the commentary around divestment has focused on the negatives: ‘what is the impact on the performance of a portfolio if one strips out oil, gas and coal companies?’ (Answer: historically negligible.)  ‘What is the impact on the yield of a portfolio?’ (Answer: a little more meaningful).

Again, opinion and statistics differ. For example, Cambridge Associates, in its report ‘Fossil Fuel Divestment’ states, “Global energy stocks, which are largely fossil fuel companies, account for 10% of global equity market capitalization today. Historical analysis shows that their performance is cyclical and has been additive to the global equity index over the long term, both in absolute and risk-adjusted terms7.”

By contrast, Impax Asset Management in its white paper ‘Beyond Fossil Fuels: The Investment Case for Fossil Fuel Divestment’ shows that over a five year period to 30 April 2013 the MSCI World Index with the fossil fuel sector stripped out would have out-performed the MSCI World Index with it left in.

Furthermore, if one substitutes energy efficiency and alternative energy companies for the fossil fuel sector removed, performance is further enhanced.

Aside from Impax, it seems, there has been little focus on the corollary of divestment, which must be investment, or what to put in the place of fossil fuel assets in a balanced portfolio. If investment in fossil fuels is both contradictory for any asset owners who are positioning their investments for the long-term future, and potentially high risk if those assets are structurally over-valued and potentially ‘stranded’ assets, then what should replace those investments in a long-term portfolio?

At WHEB, we contest that sectors involved in reducing global CO2 emissions and providing solutions to climate change, and other sustainability challenges, are likely to have a concomitantly higher growth trajectory, and thus valuation, than is currently being assumed by the market.

Companies involved in clean energy and resource efficiency are among the alternatives for a long-term investor who not only wants to ensure that their portfolio is ‘fossil fuel free’, but that it is instead invested in the solutions, in those companies whose growth will make a positive contribution to society.

As the Cambridge Associates’ report puts it, “the consideration of divestment requests can be a catalyst for investors to begin a careful evaluation of the growing opportunity set of more environmentally sustainable investment strategies.”

It is important to distinguish genuinely fossil fuel free funds from the broader range of socially responsible and ethical funds. Some SRI and ethical funds include natural gas, or even oil and gas and mining companies, in their portfolios.

At WHEB we take a firmer line: To be absolutely clear, the FP WHEB Sustainability Fund has no investment in companies whose core business is the extraction or combustion of fossil fuels.

If such a label were available, we could receive the FFFF (fossil fuel free fund) seal of approval. Instead of exposure to coal, oil or gas, the WHEB fund is exposed to the following sectors.

Energy efficiency

Cleaner (or alternative) energy

Sustainable transport

Environmental services

Water management





While past performance is no guide to future performance, the outlook for fossil fuel companies would appear to be subject to risk, which we feel is not yet priced by the stock market.

Meanwhile, we believe the outlook for energy efficiency, clean energy, sustainable transport and alternative energy has never looked more attractive.

Until now, the performance impact of holding fossil fuel companies in an index-tracking portfolio has been relatively insignificant. As and when concerted action around climate change gets underway, then the impact of owning companies with ‘stranded’ assets could become much more significant.

For trustees of long-term investment vehicles, the imperative is to question the need to hold fossil fuels as an investment has never been so pressing.

Clare Brook is a founding partner at WHEB Asset Management.

Photo: Kiril Havezov via Free Images

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Further reading:

New ‘fossil free’ investment index boosts divestment movement

Desmond Tutu calls on South African university to divest from fossil fuels

Divestment: over 300 churches vote to end fossil fuels investment

IPCC report proves fossil fuel investors are ‘wrecking our future’

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

Articles, features and comment from WHEB Group, an independent investment management firm specialising in opportunities created by the global transition to more sustainable, resource efficient economies. Posts are either original or previously featured on WHEB’s blog or in its magazine, WHEB Quarterly.


New Zealand to Switch to Fully Renewable Energy by 2035



renewable energy policy
Shutterstock Licensed Photo - By Eviart /

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




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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