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‘Mission risk’ may drive charity investors to divest from fossil fuels

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In a ground-breaking new legal opinion, Christopher McCall QC (pictured), a pre-eminent legal expert on the hotly debated topic of ‘fiduciary duty’, has raised the prospect that a wide range of different charities may be legally required to re-evaluate their approach to carbon intensive investments.

The opinion, published today, is the first time an authoritative legal perspective on the possibility of conflict between fossil fuels and charities’ missions has been available and could lead to a change in Charity Commission guidance and wider responsible investment practice. The opinion also lays particular emphasis on the need for fiduciaries generally to be alive to the possibility of financial risk in investments which might be described as stranded assets.

McCall suggests that investment in carbon intensive investments may in many cases be “irreconcilable” with the intent behind charities with a wide range of different missions, such as missions relating to the environment, poverty and health. This conclusion is based on the principle recognised in the leading case on investment by charities – the 1991 ‘Bishop of Oxford case’ – that charities should not make investments which conflict with their objects.   That case is now the cornerstone of the wider responsible investment sector and involved a challenge by the Bishop of Oxford to the investment policy of the Church Commissioners, over the extent to which the Commissioners should divest from companies with interests in apartheid-era South Africa. However, the case predated modern concerns about global warming and climate change.

Developments in climate science since the Bishop of Oxford case was decided mean that fossil fuel investments are now seen to add to the risk of dangerous climate change, which threatens to seriously undermine the work of many charities, should global temperatures continue to increase at current rates. This conflict may force many charities to screen out fossil fuels, as many do with other types of investment, such as tobacco, armaments and pornography.

According to McCall, where a clear conflict exists, trustees of charities must divest from carbon intensive investments, “regardless of the financial consequences”. This may come as a wake-up call to trustees, as fossil fuels investments have not previously been thought of as creating the risk of direct legal conflict with the mission of charities. However, McCall suggests that there will be various cases where the conflict is “patent” and “clearcut”, although he notes that trustees will need to look at the evidence and take advice to decide whether a conflict exists.

In a recent speech to City investors at the Guildhall in London, HRH Prince Charles warned that fossil fuel investment could “represent a significant conflict” to the mission of many charities. Amongst those present was Christiana Figueres of the UN, who is leading the global climate change talks in Paris next week. It is now clear that McCall’s opinion backs up the Prince’s view.

Luke Fletcher, a partner at leading charity law firm Bates Wells Braithwaite explained that “Charity investors are different to other investors. Instead of existing to further their own interests, charities exist to benefit the public, which is relevant to how charities invest. This opinion breaks new ground. Charity boards will now need to ask whether fossil fuel investment represents a risk to mission – given the prospect of dangerous increases in global temperatures.”

Fletcher added that “In light of the opinion, we will be asking the Charity Commission to revise its guidance to say that charities must divest from fossil fuels where this conflict with mission exists.”

Given the potential magnitude of the financial risks associated with investment in what might be ‘stranded assets’, all fiduciaries – and not just charity investors – “must be ready to consider, with the benefit of advice, the extent to which the risks associated with carbon intensive assets may currently be underappreciated and not fully priced into the market”, according to McCall. He goes on to say that such investments may prove to be “pregnant with material financial risk” and that “any prudent trustee” should think about how best to manage and mitigate any such risks.

McCall is among the most senior silks at the Bar and recently won a lifetime achievement award from his peers for his work on the law of trusts. Richard Macrory, Professor of Environmental Law, at UCL and a widely recognised authority on environmental law, commented “This is a highly significant opinion. It is likely to require many trustees and charities to re-evaluate their policies on investing in industries engaged in fossil fuels and other carbon intensive industries.”

Kate Rogers, Head of Policy at Schroders and Chair of the Charity Investors Group concurs: “We are seeing a trend of charities and others asking for advice on how to avoid carbon intensive investments – this opinion looks likely to lead to further demand for this kind of advice from charity investors.”

And yet there is a general feeling that the City as a whole has not fully woken up to the need to engage with the risks associated with carbon intensive investments. Helena Morrissey, CEO of Newton and chairman of the Investment Management Association, recently warned that the impact of climate policy is still not high enough on agenda of most investment managers and has warned her peers that “We slept walked into the financial crisis and we have no excuse for sleepwalking into a climate crisis.”

The legal opinion comes out just days before the crucial COP21 Climate negotiations in Paris and against the backdrop of related concerns about carbon intensive investments expressed by the Bank of England and its Governor Mark Carney. It will likely add momentum to the global Divest Invest movement, which is calling for investors to divest from carbon intensive investments and invest in a low carbon future and which now represents $2.6trn of assets.

Economy

Will Self-Driving Cars Be Better for the Environment?

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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.

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Economy

New Zealand to Switch to Fully Renewable Energy by 2035

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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

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