Connect with us

Economy

The principles of responsible investment – a short series. Principle one – analysis and decision-making.

Published

on

The first principle states that signatories “will incorporate ESG issues into investment analysis and decision-making processes.”

The first challenge with any responsible investment, whether as a fund manager or private individual, is to explore where we draw the boundaries on environmental, social or corporate governance issues versus profit. What is acceptable to one person may not be acceptable to another.

Put simply, it has not been possible throughout the long course of human history to draw up a commonly understood and widely accepted code of behaviour that governs our interaction with each other and the planet. The United Nations did its level best through the Declaration of Human Rights and various other conventions on climate and biodiversity. The various collections of simple principles are widely and regularly flouted by national, political, military, religious and business leaders.  Why should we expect more from investment managers and investors?

But the establishment of principles is not simply the triumph of optimism and idealism over realism. It is in no-one’s interests, least of all investors, that the investments they make harm the potential for return on future investments. In many ways, our current economic malaise is a direct result of these principles not being adhered to by investors and those they invest in. Those who are now suffering from a decade-long flat-line in equities only have themselves to blame, for investing in companies that crashed the global economy and are now exacerbating the problem by pressurising national governments to cut spending. Maybe it is recognition of this that there was a rush to sign up to UNPRI after the 2007 crash.

Incorporate means ‘to contain or include’. Most major corporations’ Corporate Social Responsibility statements could be said to be incorporating ESG issues into investment analysis and decision-making. But highly paid analysts need to look further and deeper.

BP (Deepwater Horizon oil spill), News Corporation (phone hacking and bribing police), Barclays (multiple scandals), HSBC (money laundering) and Standard Chartered (alleged hiding of Iranian government billions) all look like weaker investment options today than they did a few years ago. With the most cursory analysis, most of these problems would have been identified as highly probable due to poor corporate governance (or by simply reading the back pages of Private Eye). Anyone who asserts that these organisations take their environmental, social or governance responsibilities seriously is paying lip service to this principle from the off. The Church of England finally sold its stake in News Corporation yesterday, as though the Millie Dowler phone hacking scandal wasn’t enough to make them question that investment over 13 months ago.

It seems that some investment managers, including those representing the established Church of England, glanced at the dubious ESG record of these organisations and then focused on the bottom line – will this make a solid return?

What is surprising is the human element in these decisions. Investment managers and investors are people. Most people who read and write for Blue & Green Tomorrow are one or both of these. People with values and morals, people who treat their families well and wouldn’t dream of damaging their local environment or community or cheating at anything. It is surprising therefore, that the person who walks towards an investment terminal leaves this moral person behind and thinks, “to hell with the environment, society and good corporate governance.” It is not enough to argue that it is the system that makes this happen. The system is made up of human beings making simple choices and decisions minute-by-minute, hour-by-hour and day-by-day. The person who decides to hold their position in News Corporation, long after the facts of their appalling wrong-doing have broken, is saying that hacking the phone of a murdered child is okay with them. No system can make a person do that. It’s a choice that has been weighted and measured.

Any sensible investment manager and investor will now be looking a lot closer at companies in their portfolio.  The media scents blood in the business world, especially financial services, and the public is really angry. There will be a lot more disasters and scandals – the LIBOR rate fixing scandal hasn’t even started yet – and as we get closer to an election there will be ever greater pressure on politicians to act tough in national and in intergovernmental debates. Action will follow rhetoric or the public, egged on by the media and digital vigilantes, will punish the parties that don’t act.

Organisations like EIRIS provide an invaluable service in screening funds based on the companies they invest in, but relying on external parties is not enough. Institutional investors need to invest in more ESG training, research and analysis tools to ensure that the companies they invest in are living up to their ESG responsibilities. The fund manager is responsible and accountable as he is, in effect, part owner of the enterprise.

The next principle talks about the investor as an active owner and it is there we will go tomorrow.

Featured articles

The principles of responsible investment – a short series. The opening clause

The principles of responsible investment – a short series. An introduction.

Encouraging sustainable finance: the principles for responsible investment

The Guide to Sustainable Investment 2012

Simon Leadbetter is the founder and publisher of Blue & Green Tomorrow. He has held senior roles at Northcliffe, The Daily Telegraph, Santander, Barclaycard, AXA, Prudential and Fidelity. In 2004, he founded a marketing agency that worked amongst others with The Guardian, Vodafone, E.On and Liverpool Victoria. He sold this agency in 2006 and as Chief Marketing Officer for two VC-backed start-ups launched the online platform Cleantech Intelligence (which underpinned the The Guardian’s Cleantech 100) and StrategyEye Cleantech. Most recently, he was Marketing Director of Emap, the UK’s largest B2B publisher, and the founder of Blue & Green Communications Limited.

Economy

Will Self-Driving Cars Be Better for the Environment?

Published

on

self-driving cars for green environment
Shutterstock Licensed Photo - By Zapp2Photo | https://www.shutterstock.com/g/zapp2photo

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.

Driver Reduction?

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

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.

Continue Reading

Economy

New Zealand to Switch to Fully Renewable Energy by 2035

Published

on

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

Continue Reading
Advertisement

Facebook

Trending