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Just what is the point of ESG?



Seb Beloe writes on the WHEB Group blog (republished with kind permission): When I started my career working for an environmental consultancy in the late 1990s one of my first projects was to analyse the world’s entire library of corporate environmental reports. It didn’t take long – only about 100 reports were being produced at the time. Most of these provided a thin veneer of ‘greenwash’, though some, like the Body Shop’s ‘Values Report’ ran to several hundred pages and could only be purchased in hard copy!

Needless to say things have changed substantially since then. KPMG’s 2013 analysis of company reporting counted more than 40,000 reports from 41 countries. According to the research 91% of the UK’s largest companies produced a corporate responsibility, environmental or sustainability report in 2013. In the US the equivalent figure was 86%, in Japan it was 98% and even in Kazakhstan, 25% of the country’s largest companies produced a corporate responsibility or equivalent report. In some countries of course, producing such a report is mandated and so coverage is essentially universal among large companies (for example in France, Denmark and South Africa).

ESG Integration: the ‘cause célèbre’ of responsible investing

Back in the 1990s, the investment world was largely ignorant of the still nascent efforts by companies to report on their environmental and social impacts.  ‘ESG’ did not yet exist and in any case using it in investment would have been impossible with so few companies reporting on these issues, and even fewer providing any useful data.

Today of course, ethical investing, as defined by negative exclusionary screens has been overtaken by ‘ESG integration’ which has increasingly become the ‘cause célèbre’ for responsible investing. Nowhere is this clearer than in the evolution of the UN Principles for Responsible Investment (UN-PRI) where the ‘Integration of ESG’ is no less than the first of the six core principles.

In fact, after a cursory look at the UN-PRI, you would be forgiven for thinking that ESG integration is now a fully mainstream part of the investment agenda. The UN-PRI now counts its members in the thousands and their assets in the trillions (US$59 trillion at the last count). What’s more, the most recent assessment of signatories indicates that over 50% received either an ‘A’ or an ‘A+’ for the quality of their ESG integration.

ESG is focused on process, but sustainability is also about product

In the push to establish ESG as a core part of investment decision-making, this seems to suggest strong grounds for optimism, if not outright celebration. Unfortunately, we should be rather less sanguine about these results.

The stated goal of the UN-PRI is to ‘understand the implications of sustainability for investors and support signatories to incorporate these issues into their investment decision making and ownership practices’. ESG integration is certainly an important tool in understanding ‘the implications of sustainability for investors’. It is core to our own investment philosophy at WHEB Asset Management and helps us, we believe, to identify higher quality companies that are more likely to outperform peers who are less adept at managing these issues.

The problem is that ESG integration has become short-hand for sustainability as a whole. ESG analysis, as currently practiced by much of the market, focuses almost exclusively on internal policies and processes at a company and pays little attention to the environmental or social impact of the product. Ironically, this represents a complete volte-face from the ethical investing forerunners of the UN-PRI who looked at nothing but the product.

This approach leads to the absurd situation where Volkswagen can be considered a leader in sustainability – while its products are rightly demonised for their major negative environmental and health impact. The same should be said for coal, oil and gas companies as well as food and beverage companies whose product portfolios are laden with sugar and salt. Ultimately does it matter that a tobacco company’s cigarettes are fairly-traded or that a coal company has improved its internal energy efficiency? Perhaps – but not much – and demonstrably not more than the impact of their products on the health of people, communities and the environment.

Understanding product impacts

This is particularly true of industries where their main impact is in the use of the product (or indeed service). Between 60% and 98% of the environmental impact of a car is in its use (depending on fuel source and power train technology). Volkswagen could literally run its entire operations on renewable energy, but this positive profile would be quickly reversed if its vehicles perform worse than their peers. It is therefore deeply ironic, that while some ESG analysts have stalwartly defended Volkswagen as an ESG leader, the rest of the market rapidly sold off Volkswagen stock because of their concerns over the environmental performance of their vehicles.

Such muddled thinking about what ESG means is leading to poor investment decisions, and misleading investors. There are now plenty of asset owners that are conflating ESG with an holistic assessment of a company’s overall sustainability. Products labelled ‘positive impact’ and ‘sustainable’ are populated with companies that have strong relative ESG performance but produce products that are directly responsible for some of the most significant environmental crises. Meanwhile businesses supplying the solutions are overlooked. Companies providing LED lighting systems, innovative high efficiency manufacturing equipment and solar power technologies are typically excluded on the basis that they have not published their green procurement policies.

ESG is just one ingredient and is not the full recipe

ESG is now firmly on the agenda for a very significant part of the investment community. This represents extraordinary progress in a relatively short period of time, but it is emphatically not the end of the story.

Ultimately, ESG integration is an important tool in understanding the implications of sustainability for investors, but it is just one of the tools. To paraphrase recent comments from one of WHEB’s advisory committee members, ‘ESG issues are just some of the ingredients, but understanding the total impact of a company should be the recipe’.


Will Self-Driving Cars Be Better for the Environment?



self-driving cars for green environment
Shutterstock Licensed Photo - By 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 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.

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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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