The Principles for Responsible Investment (PRI) is a United Nations-backed initiative that seeks to engage investors on environmental, social and governance (ESG) issues. Its executive director, James Gifford, speaks with Blue & Green Tomorrow.
This piece originally featured in Blue & Green Tomorrow’s Guide to Sustainable Investment 2013.
What are the main changes you’ve witnessed within the responsible investment industry in the past year?
There’s been significantly more interest in responsible investment in hedge funds. And I guess the overarching thing is a continued broadening of responsible investment into other asset classes. That’s the top level trend which has been very strong over the last year. The other area worth commenting on is ESG integration, or factoring ESG issues into mainstream, fundamental analysis – bottom-up stock picking.
I think what we’re seeing is two forces, which are changing that in a very positive way. The first one is that there’s just a lot more ESG research that is just higher quality, and more fund managers are starting to use it.
There’s now a recognition that these issues are more material than ever; it’s not just that they’re important – they’ve always been important for companies – it’s that there’s a recognition that the world is changing faster than it has ever changed before. So the rate of change is increasing.
Many of the most important changes are loosely within the ESG bucket, so change is opportunity. When you’re talking about investment, change equals opportunity, because when things are changing, some people will be faster and some people will be slower to understand and in effect trade on those changes. And ESG issues, being some of the largest, most important megatrends happening in society, simply translate into opportunities for the cutting-edge of investors to outperform their peers.
The other big strand supporting ESG integration is the academic research. The proliferation of really interesting academic research around demonstrating that these issues are material is very persuasive, and we simply didn’t have this level of persuasiveness in academic research 10 years ago.
What are the main drivers for this growth in responsible investment?
I think there are three drivers. There’s a reputational driver, which we’ve seen with some of the weapons manufacturers being divested at the moment in the US. And there are financial elements to that, certainly, as well.
Then there’s the investment belief. These are no longer niche, irrelevant issues. They are actually issues that are discussed by boards of companies, at the very highest levels. And yet, many investors are still waking up to this fact; that management of ESG issues, sustainability issues and anti-corruption programmes – these are core to the corporations they own, so why would they not be core to the owners of those corporations?
The third driver, which is a big one, is client pressure from the asset owners, in particular pension funds, on their fund managers. The easy way to put it is society is heading in that direction anyway. Corporations, regulators and consumers are caring more about these issues, so investors can’t pretend these issues aren’t relevant. They are part of that ecosystem, and as that ecosystem takes these issues into account in much more systematic and deep ways, so too will investors inevitably.
Do you think the PRI’s work has led to significant behavioural change within corporations?
There are obviously a lot of drivers and it’s impossible to pin it down to the PRI alone – a certain proportion would have happened anyway, because this is one of those inevitable movements in an industry – but I think we have been able to make that faster, because we’ve engaged with hundreds and hundreds of signatories, or investors in institutions, who were never engaged with responsible investment before.
We have signed up hundreds and hundreds of investors who are very much mainstream investors, and many of them have really moved ahead in responsible investment. There may have been another catalyst, but what we can say is that we certainly are a catalyst for many hundreds of signatories.
Next year, we’re moving to a mandatory transparency framework for reporting to the public, which means that over 1,000 signatories will be reporting significant amounts of responsible investment information to the public for the first time. That’s really quite dramatic, and they’ll be delisted from the PRI if they don’t want to participate in that process. So the PRI is really driving transparency within this industry in a way that wouldn’t have happened without us.
In terms of the underlying corporations, we certainly have some good evidence that our work has resulted in improvements in corporate activity, but the easy ones to determine are things like disclosure – are the corporations disclosing more than they were before investors asked them to disclose?
But what’s more important than focusing on those very difficult-to-answer questions is are the investors changing their behaviour and are they doing the type of things that we would expect, over time, to result in improvements in corporate behaviour? And to that, I think we can answer a very clear yes.
What are the main trends going forward and what will be the PRI’s main focuses?
Responsible investment, active ownership and ESG integration don’t really help if the system is collapsing. So reflecting on the financial crisis, we are now looking at how investors can collectively work to try to address some of the more systemic problems. So rather than focusing on the investor-company interaction, what’s not working in the system overall?
How do we go about making ethical, sustainable and responsible investment mainstream?
I think there are dozens of examples that show how unethical behaviour can lead to dramatic financial losses; you can look at the fines being imposed on a number of banks right now for Libor or money laundering; you can look at News Corporation and ethical issues around phone hacking.
Combining those, academic evidence that being a good company can result in outperformance, plus obvious examples of where poor corporate responsibility leads to scandals and high risk behaviour, we just continue to make that case.
This is an inevitable movement in society; it’s not just an investment movement, it’s a corporate and societal movement. With each new generation, there is more recognition that these issues are important and responsible investment is simply the investor part of an inevitable movement, which is basically created by having thousands of these conversations to demonstrate why it’s important. We need to demonstrate the business case.
2017 Was the Most Expensive Year Ever for U.S. Natural Disaster Damage
Devastating natural disasters dominated last year’s headlines and made many wonder how the affected areas could ever recover. According to data from the U.S. National Oceanic and Atmospheric Administration (NOAA), the storms and other weather events that caused the destruction were extremely costly.
Specifically, the natural disasters recorded last year caused so much damage that the associated losses made 2017 the most expensive year on record in the 38-year history of keeping such data. The following are several reasons that 2017 made headlines for this notorious distinction.
Over a Dozen Events With Losses Totalling More Than $1 Billion Each
The NOAA reports that in total, the recorded losses equaled $306 billion, which is $90 billion more than the amount associated with 2005, the previous record holder. One of the primary reasons the dollar amount climbed so high last year is that 16 individual events cost more than $1 billion each.
Global Warming Contributed to Hurricane Harvey
Hurricane Harvey, one of two Category-4 hurricanes that made landfall in 2017, was a particularly expensive natural disaster. Nearly 800,000 people needed assistance after the storm. Hurricane Harvey alone cost $125 billion, with some estimates even higher than that. So far, the only hurricane more expensive than Harvey was Katrina.
Before Hurricane Harvey hit, scientists speculated climate change could make it worse. They discussed how rising ocean temperatures make hurricanes more intense, and warmer atmospheres have higher amounts of water vapor, causing larger rainfall totals.
Since then, a new study published in “Environmental Research Letters” confirmed climate change was indeed a factor that gave Hurricane Harvey more power. It found environmental conditions associated with global warming made the storm more severe and increase the likelihood of similar events.
That same study also compared today’s storms with ones from 1900. It found that compared to those earlier weather phenomena, Hurricane Harvey’s rainfall was 15 percent more intense and three times as likely to happen now versus in 1900.
Warming oceans are one of the contributing factors. Specifically, the ocean’s surface temperature associated with the region where Hurricane Harvey quickly transformed from a tropical storm into a Category 4 hurricane has become about 1 degree Fahrenheit warmer over the past few decades.
Michael Mann, a climatologist from Penn State University, believes that due to a relationship known as the Clausius-Clapeyron equation, there was about 3-5 percent more moisture in the air, which caused more rain. To complicate matters even more, global warming made sea levels rise by more than 6 inches in the Houston area over the past few decades. Mann also believes global warming caused the stationery summer weather patterns that made Hurricane Harvey stop moving and saturate the area with rain. Mann clarifies although global warming didn’t cause Hurricane Harvey as a whole, it exacerbated several factors of the storm.
Also, statistics collected by the Environmental Protection Agency (EPA) from 1901-2015 found the precipitation levels in the contiguous 48 states had gone up by 0.17 inches per decade. The EPA notes the increase is expected because rainfall totals tend to go up as the Earth’s surface temperatures rise and additional evaporation occurs.
The EPA’s measurements about surface temperature indicate for the same timespan mentioned above for precipitation, the temperatures have gotten 0.14 Fahrenheit hotter per decade. Also, although the global surface temperature went up by 0.15 Fahrenheit during the same period, the temperature rise has been faster in the United States compared to the rest of the world since the 1970s.
Severe Storms Cause a Loss of Productivity
Many people don’t immediately think of one important factor when discussing the aftermath of natural disasters: the adverse impact on productivity. Businesses and members of the workforce in Houston, Miami and other cities hit by Hurricanes Harvey and Irma suffered losses that may total between $150-200 billion when both damage and sacrificed productivity are accounted for, according to estimates from Moody’s Analytics.
Some workers who decide to leave their homes before storms arrive delay returning after the immediate danger has passed. As a result of their absences, a labor-force shortage may occur. News sources posted stories highlighting that the Houston area might not have enough construction workers to handle necessary rebuilding efforts after Hurricane Harvey.
It’s not hard to imagine the impact heavy storms could have on business operations. However, companies that offer goods to help people prepare for hurricanes and similar disasters often find the market wants what they provide. While watching the paths of current storms, people tend to recall storms that took place years ago and see them as reminders to get prepared for what could happen.
Longer and More Disastrous Wildfires Require More Resources to Fight
The wildfires that ripped through millions of acres in the western region of the United States this year also made substantial contributions to the 2017 disaster-related expenses. The U.S. Forest Service, which is within the U.S. Department of Agriculture, reported 2017 as its costliest year ever and saw total expenditures exceeding $2 billion.
The agency anticipates the costs will grow, especially when they take past data into account. In 1995, the U.S. Forest Service spent 16 percent of its annual budget for wildfire-fighting costs, but in 2015, the amount ballooned to 52 percent. The sheer number of wildfires last year didn’t help matters either. Between January 1 and November 24 last year, 54,858 fires broke out.
2017: Among the Three Hottest Years Recorded
People cause the majority of wildfires, but climate change acts as another notable contributor. In addition to affecting hurricane intensity, rising temperatures help fires spread and make them harder to extinguish.
Data collected by the National Interagency Fire Center and published by the EPA highlighted a correlation between the largest wildfires and the warmest years on record. The extent of damage caused by wildfires has gotten worse since the 1980s, but became particularly severe starting in 2000 during a period characterized by some of the warmest years the U.S. ever recorded.
Things haven’t changed for the better, either. In mid-December of 2017, the World Meteorological Organization released a statement announcing the year would likely end as one of the three warmest years ever recorded. A notable finding since the group looks at global land and ocean temperature, not just statistics associated with the United States.
Not all the most financially impactful weather events in 2017 were hurricanes and wildfires. Some of the other issues that cost over $1 billion included a hailstorm in Colorado, tornados in several regions of the U.S. and substantial flooding throughout Missouri and Arkansas.
Although numerous factors gave these natural disasters momentum, scientists know climate change was a defining force — a reality that should worry just about everyone.
How to be More eco-Responsible in 2018
Nowadays, more and more people are talking about being more eco-responsible. There is a constant growth of information regarding the importance of being aware of ecological issues and the methods of using eco-friendly necessities on daily basis.
Have you been considering becoming more eco-responsible after the New Year? If so, here are some useful tips that could help you make the difference in the following year:
1. Energy – produce it, save it
If you’re building a house or planning to expand your living space, think before deciding on the final square footage. Maybe you don’t really need that much space. Unnecessary square footage will force you to spend more building materials, but it will also result in having to use extra heating, air-conditioning, and electricity in it.
It’s even better if you seek professional help to reduce energy consumption. An energy audit can provide you some great piece of advice on how to save on your energy bills.
While buying appliances such as a refrigerator or a dishwasher, make sure they have “Energy Star” label on, as it means they are energy-efficient.
Regarding the production of energy, you can power your home with renewable energy. The most common way is to install rooftop solar panels. They can be used for producing electricity, as well as heat for the house. If powering the whole home is a big step for you, try with solar oven then – they trap the sunlight in order to heat food! Solar air conditioning is another interesting thing to try out – instead of providing you with heat, it cools your house!
2. Don’t be just another tourist
Think about the environment, as well your own enjoyment – try not to travel too far, as most forms of transport contribute to the climate change. Choose the most environmentally friendly means of transport that you can, as well as environmentally friendly accommodation. If you can go to a destination that is being recommended as an eco-travel destination – even better! Interesting countries such as Zambia, Vietnam or Nicaragua are among these destinations that are famous for its sustainability efforts.
3. Let your beauty be also eco-friendly
We all want to look beautiful. Unfortunately, sometimes (or very often) it comes with a price. Cruelty-free cosmetics are making its way on the world market but be careful with the labels – just because it says a product hasn’t been tested on animals, it doesn’t mean that some of the product’s ingredients haven’t been tested on some poor animal.
To be sure which companies definitely stay away from the cruel testing on animals, check PETA Bunny list of cosmetic companies just to make sure which ones are truly and completely cruelty-free.
It’s also important if a brand uses toxic ingredients. Brands such as Tata Harper Skincare or Dr Bronner’s use only organic ingredients and biodegradable packaging, as well as being cruelty-free. Of course, this list is longer, so you’ll have to do some online research.
4. Know thy recycling
People often make mistakes while wanting to do something good for the environment. For example, plastic grocery bags, take-out containers, paper coffee cups and shredded paper cannot be recycled in your curb for many reasons, so don’t throw them into recycling bins. The same applies to pizza boxes, household glass, ceramics, and pottery – whether they are contaminated by grease or difficult to recycle, they just can’t go through the usual recycling process.
People usually forget to do is to rinse plastic and metal containers – they always have some residue, so be thorough. Also, bottle caps are allowed, too, so don’t separate them from the bottles. However, yard waste isn’t recyclable, so any yard waste or junk you are unsure of – just contact rubbish removal services instead of piling it up in public containers or in your own yard.
5. Fashion can be both eco-friendly and cool
Believe it or not, there are actually places where you can buy clothes that are eco-friendly, sustainable, as well as ethical. And they look cool, too! Companies like Everlane are very transparent about where their clothes are manufactured and how the price is set. PACT is another great company that uses non-GMO, organic cotton and non-toxic dyes for their clothing, while simultaneously using renewable energy factories. Soko is a company that uses natural and recycled materials in making their clothes and jewelry.
All in all
The truth is – being eco-responsible can be done in many ways. There are tons of small things we could change when it comes to our habits that would make a positive influence on the environment. The point is to start doing research on things that can be done by every person and it can start with the only thing that person has the control of – their own household.
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