Isn't it selfish to invest in anything other than carbon divested funds?
28 September 2021
Question by Susanna
We face a climate catastrophe, so we must invest in carbon divested funds and demonstrate to people both that they do pay, and that these funds do provide solutions - don't you agree? I mean, isn't it really selfish- immoral- to invest in anything else?
Answered by Jeannie Boyle
It is essential that we recognise the role that the financial system has in helping us transition to a low carbon world. For many of us, it is an ethical question - we cannot stomach retiring on the profits made from big oil or other harmful industries. For others, climate change is simply a question of risk management. Whichever way you look at this question, it is becoming clearer that climate change is a significant risk to investors. You don't need to be motivated by ethics to want to adapt your portfolio to take this risk into account.
Physical climate risks are the most tangible to each one of us, and include flooding, hurricanes and wildfires. According to the World Meteorological Organisation, the number of disasters has increased by a factor of five over the past 50 years and economic losses by a factor of eight. Floods and storms represent 80% of the number of disasters and losses. Meanwhile droughts, extreme temperatures, landslides, and wildfires account for the remaining 20%. These climate events have an impact on crop yields, disrupt supply chains and increase insurance costs – with a risk of a decline in availability and affordability of insurance provided by the private sector. These extreme weather events have a high cost to businesses.
Climate transition risks are more abstract but could be more costly for investors as regulatory frameworks change. These include changes in climate and energy policies, a shift away from fossil fuels into low carbon technologies and liability issues. According to Climate Action, current policies, pledges and targets are far from being aligned with 1.5°C warming above pre-industrial levels. It is near certainty that governments will have to implement stricter climate policies including the introduction of a carbon tax which would penalise the highest emitters. The sectors particularly at risk include automatives, coal, oil & gas and power - together these sectors represent 12% of the UK stock market & 7% of the global stock market.
It's not all doom & gloom though. The transition to a low carbon & sustainable economy is a change of such magnitude it is being call the sixth industrial revolution. The International Energy Authority estimates that we need investment of $4trillion annually between now & 2050 to reach net zero and stay within a 1.5 degrees warming scenario. It is inconceivable that we will attain this through the public sector alone. Private capital is required to help drive this change so there are opportunities in many sectors for people to put to work their money in support of the change we urgently require.
Aside from all of the science and technical data I think a growing number of investors are unwilling to put their personal profits ahead of all other considerations. For a long time the financial sector has told us success can only be measured in pounds & pence. This approach has destroyed our planet and created untold human misery. We urgently need to change how we think about what is done with our money.
Chartered Financial Planner
I'm a Chartered Financial Planner & Fellow of the Personal Finance Society. I work with people in Brighton, London & anywhere in between. My specialism is helping people align their money with their values. Many of my clients share my commitment to protecting the environment and investing to create a better future for our planet. My company, EQ Investors, has won multiple awards for our Positive Impact Portfolios and I have personally been recognised as a leading adviser in this sector.