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AODP: We need to divest from carbon and climate risk not companies

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Divesting from fossil fuel companies is not the most effective solution to climate change and reducing carbon risk, according to the Asset Owners Disclosure Project (AODP). In an open letter to the Bill and Melinda Gates Foundation and Wellcome Trust, which are currently being targeted by a divestment campaign, CEO of the organisation Julian Poulter sets out an alternative.

Dear Mr and Mrs Gates and Mr Farrar,

We note The Guardian’s recent campaign targeting your foundations for investing in fossil fuel assets and would like to offer some insights, which we hope will help you reduce your funds’ exposure to carbon risk.

Firstly, as a solution to climate change we don’t believe that an immediate wholesale divestment of fossil fuel investments is either necessary or desirable. It is carbon and climate risk that we need to divest from, not companies. The vast majority of fossil fuel assets are unlisted, hence any delisting of fossil fuels will likely end up in hedge funds and offshore sovereign wealth funds.

Secondly, at a pure portfolio risk level, while they are a big part of the problem, the fossil fuel extraction companies actually create little greenhouse gas. You have just as big a problem in your portfolio from sectors like energy, manufacturing, transportation and others who are exposed to carbon in other ways.

Finally, we do find it odd that two funds, which combined would not feature in AODP’s top 100 largest asset owners, are being targeted when there are so many bigger funds to pressurise.

AODP believes that there are solid financial risk reasons for reducing carbon risk across asset owners’ portfolios and being transparent about how you do this. The real issue is how your fund assesses, or in finance language ‘prices’, the forward risk of carbon into your investments. The uncertainty alone requires a risk premium given that it is impossible to avoid or diversify.

The ratio of climate exposed investments to low carbon ones is normally around 20-1 and this is a huge gamble for your fund under most scenarios. We also don’t think that any fund can rely on short-term markets to properly price this longer-term risk or rely on them to sell your exposed assets for a profit at the same time that everyone else is selling.

We think that portfolio value can best be protected through a three-pronged attack of divestment, engagement, and hedging. Our ratings methodology follows this approach.  The hedging is particularly important. Whilst many people claim there simply isn’t enough good low carbon investments that are profitable, they fail to properly price the long-term risks on the high carbon side that bring many clean investments forecasts into profit. When the world of stranded assets arrives at the door of fossil fuel based investments, this clean ‘hedge’ will balance those losses.

We did contact your foundation requesting data on how you manage these risks last year in preparation for the new 2015 Index, published in April. Indeed a response might even have negated the need for The Guardian’s campaign, as your portfolio carbon exposure is included as a key metric in your AODP response.

You may have seen the Financial Times article quoting Anne Stausboll, CEO of CalPERS, the largest fund in the USA, discounting divestment as a viable option. We mostly agree with CalPERS although there are some easy divestment wins on some undiversified and high cost fossil fuel companies and some underweighting opportunities that wouldn’t lessen the engagement power by too much but could substantially reduce portfolio carbon risk.

But taking Ms Stausbolls point still further, with pure divestment being discarded by the large asset owners, strong engagement with specific planned outcomes must be a focus. This has never really been attempted and there have been less than ten climate resolutions put to companies outside the US (where they are non-binding) and if engagement is to remain credible then a show of strength is required. We don’t believe that pension beneficiaries or your stakeholders such as taxpayers will accept polite enquiries as an excuse for proper engagement and so we recommend your fund co-files a series of resolutions to this end. We imagine that if such resolutions were to fail due to a lack of support that you might then have to consider divestment or increase your low carbon hedge in order to meet your climate risk reduction goals.

In conclusion, we have some sympathy for your current predicament but I am afraid that this is a sign of things to come. In most foundations, the grant making and investment departments are total separated, but in this case there is no need for foundation investment departments to rely on moral or ethical arguments to meet this unique challenge. The leading asset owners are already aware of this challenge and are disclosing fully to us how they are progressing on this complex journey. Through better management of the risks, their portfolios will survive the volatile transition better than other funds. We recommend climate risk management leadership as your next step as you are better placed than most to set a good example.

Yours truly,

Julian Poulter

CEO, Asset Owners Disclosure Project

Photo: Emilian Robert Vicol via Flickr

Further reading:

London assembly backs fossil fuel divestment

Divestment: University of London’s school freezes fossil fuels investment

UN backing fossil fuel divestment campaign

Harvard faces court over fossil fuel divestment

Guardian Media Group commits to divesting from fossil fuels

Editors Choice

2017 Was the Most Expensive Year Ever for U.S. Natural Disaster Damage

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Natural Disaster Damage
Shutterstock / By Droidworker | https://www.shutterstock.com/g/droidworker

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.

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Environment

How to be More eco-Responsible in 2018

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eco-responsible
Shutterstock / By KENG MERRY Paper Art | https://www.shutterstock.com/g/kengmerrymikeymelody

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.

energy efficient

Shutterstock Licensed Photo – By My Life Graphic

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

eco-friendly

Shutterstock / By Khakimullin Aleksandr

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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