Following up on this post from a couple weeks ago, here are two more striking indications that fossil fuel investing is becoming a losing game. An analysis by Canadian research company Corporate Knights has found that 14 of the world’s largest institutional investors would have done much better over the past 3 years if they had divested from their major fossil fuel holdings and expanded investment in environmentally-oriented companies they already own. The fourteen have a collective total of just over a trillion dollar in holdings, a figure that would have been 22 billion dollars (2%) higher had they divested. The Bill and Melinda Gates Foundation was especially hard-hit; it totals about $40 billion, and left $1.9 billion (4.6%) on the table by sticking with its fossil fuel holdings. The divestment criteria used is similar to the earlier comparison using the S&P 500 as a benchmark, targeting the Carbon Underground 200 (companies that have the largest as-yet-untapped reserves of coal, oil, and gas), plus utilities that generate more than 30% of their power using coal.
Meanwhile, MSCI, one of the world’s leading providers of financial indexes, made a simple tweak in its All Country World Index (ACWI), simply dropping 124 companies that have large reserves of oil, gas, or coal on their books. The resultant fossil fuel free global index outperformed the ACWI by 60% in its first year (gaining 6.5%, versus 4.1%). Tom Kuh, head of ESG indexes for MSCI, stressed that “Carbon is increasingly becoming a factor that investors are looking at in understanding risk in their portfolios.” Responding to this concern, MSCI will be providing carbon footprints for all of its indexes beginning next year.
Tags: climate, financial assets, sustainable global economy strategy
The fossil fuel divestment movement has faced some fairly stiff headwinds from institutional money managers who insist that universities, foundations, or individual investors will suffer financially if they choose to forgo investment in energy companies that have, historically, been among the best-performing stocks to hold. But a recent analysis by Fossil Free Indexes paints a very different picture: if you take the S&P 500, and remove companies that are among the Carbon Underground 200 (companies that have the largest as-yet-untapped reserves of coal, oil, and gas), replacing some of them to maintain a balanced portfolio, your investment returns can be higher than they’d have been if you stayed on the business-as-usual path. Applying this criteria to the past ten years, you’d have earned about an extra 1% per year. This includes several years early on when the fossil fuel free approach slightly underperformed; it appears that in recent years, you’d have done much better than that (e.g., more than 2% a year over the past 3 years):
Tags: energy, financial assets, fossil fuel free, fossil fuels, sustainable global economy strategy
We’ve long urged readers to expand their view of investing to include focus on growing local economies and their own personal and tangible assets; we often use the phrase “weaning off Wall Street” to evoke these broader horizons. Still, we and most of our clients remain substantially invested in the stock market, even as we seek ever more ways to diversify into all nine zones of the resilient investing map. In the spirit of looking beyond such readily visible horizons, though, let’s hear from a couple of financial pros who have taken a more radical leap, revamping their entire approach to financial assets in ways that led them to walk away from Wall Street and never look back.
RSF Social Finance has gone all the way, divesting of all publicly traded stocks and bonds, rejecting the institutional standard for setting interest rates, and—interestingly, the hardest of all to complete—severing their ties to too-big-to-fail banks. President and CEO Don Shaffer explains:
(As) Einstein famously said, “We cannot solve our problems by using the same kind of thinking we used when we created them.” Wall Street is tethered to only one kind of growth, the most relentlessly efficient kind. . . . Are there other ways to structure investment portfolios that are valid for the 21st century?
Shaffer challenges the idea that we need to accept our embeddedness in the system as it is:
Tags: evolutionary strategy, financial assets, sustainable global economy strategy
I’ve long been a subscriber to The Atlantic, and particularly enjoy James Fallows’ contributions to their website (incredible on both China and small cities as “American Futures” trailblazers). But golly, this month’s big feature on Al Gore’s investment firm is pretty heavy on hyperbole, starting with the title: The Planet-Saving, Capitalism-Subverting, Surprisingly Lucrative Investment Secrets of Al Gore. Granted, this is par for the course in headline-writing—this post pleads guilty as well!—and Fallows’ intent with the article is mostly to get “sustainable capitalism” onto the wider public radar, and we’re all for that. Still, most of what is presented here as groundbreaking is, to our quarter-century-in-SRI eyes, old news. To wit:
What this means in practical terms is that Gore and his Generation colleagues have done the theoretically impossible: Over the past decade, they have made more money, in the Darwinian competition of international finance, by applying an environmentally conscious model of “sustainable” investing than have most fund managers who were guided by a straight-ahead pursuit of profit at any environmental or social price.
Convincing quotes from three experts all seem to agree this flies in the face of conventional wisdom. Where have they been? When we wrote Investing With Your Values in 1999 (published by Bloomberg, not exactly a fringe outfit), there was already a solid track record of clear parity and frequently out-performance by SRI funds; our own Jack Brill had completed a 5-year New York Times mock-management quarterly feature, running a strong second with the only SRI portfolio. Indeed, the co-authors of our new book were in the audience at the annual SRI Conference in 2005 when David Blood, who had recently launched Generations Investment Management with Gore, told the gathered crowd, “You were right. You’ve been right for 25 years. Incorporating social, environmental, and corporate governance considerations into the stock selection process adds value.” We were happy to welcome Blood to the club in 2005, and we’re surely excited that Generation’s first ten years of results can be added to the steady stream of mainstream reports confirming and expanding on the message that socially and environmentally responsible firms outperform their values-neutral peers.
UPDATE: Fallows generously excerpted this post as part of his ongoing followup thread on the Gore article that features reader feedback. We’re flattered and pleased to be part of that dialogue.
One of Generation’s favorite metaphors also struck us close to home: the idea that looking beyond the narrow question of financial performance to consider a broader “spectrum” of information provides a stronger foundation for making investment decisions. Each of our last two books has explicitly aimed to expand our view of investing,
Tags: ESG, evolutionary strategy, financial assets, sustainable global economy strategy
Restoring wetlands, protecting working forests and farmland, and enhancing wildlife habitats are some of the most exciting avenues for resilient investing. Such efforts provide tangible returns in the form of regional resiliency, and increasingly, they are being packaged into traditional investment vehicles that offer reliable financial returns as well. Earlier this year, senior executives from Goldman Sachs, JPMorgan Chase, Credit Suisse, and others gathered to discuss what they see as a burgeoning market for conservation finance. “The mantra of this event is, ‘scalability, repeatability, investability’” said John Tobin, managing director and global head of sustainability at Credit Suisse. And the numbers being bandied about are certainly exciting for those of us who’ve been touting the trailblazing—but modest—grassroots efforts of various regional organizations that have, until recently, been the primary movers and shakers in this realm. Consider: while conservation efforts by governments and foundations have been funded to the tune of about $50 billion/year,
Tags: farming, financial assets, impact investing, regenerative, sustainable global economy strategy
Here’s a piece of good news that’s flown under the radar: sustainability-oriented companies are rapidly becoming mainstream leaders of the corporate world. Nine companies have crossed the billion-dollars-a-year threshold in annual revenues, and several more are not far behind. E. Freya Williams, whose recently-released book Green Giants looks at the traits and qualities that these companies share, proclaims that sustainability-driven firms are no longer “going up against with the big boys. They are the big boys.” And not surprisingly, they’ve been performing like gangbusters:
Tags: financial assets, shopping, SRI, sustainable global economy strategy
In recent weeks, we’ve seen a number of intriguing tweets and articles from the Unreasonable Group. What’s this all about? Obviously something about making positive change, not taking no for an answer. . . but how, and from what perspective? Perhaps a radical offshoot of Occupy? Nope, not quite. Not even close. It turns out that the Unreasonable Group is an umbrella for several related initiatives that aim to catalyze big money into a network of companies that are “dedicated to a new mode and new way of going about business. One that takes into account the value of all stakeholders involved, that is dedicated to transparency and vulnerability, that is pathologically collaborative, and one obsessed with leveraging profit to solve BFPs (Big F***ing Problems).” And they’re definitely thinking big, with the Virgin Group as their long-term model:
Tags: evolutionary strategy, financial assets, impact investing, sustainable global economy strategy
Ikea and Apple have both recently bought up large tracts of working forest land, in order to assure that their wood and paper products are coming from sustainably managed forests. Ikea, which supposedly uses 1% of the world’s commercial wood supply, is aiming to scale back its use of wood by half, and to become net forest-positive (growing more trees than it uses) within five years. For its part, Apple is partnering with The Conservation Fund to manage its forests for both sustainable harvesting and habitat health; it hopes to see other companies doing the same in years to come. On the one hand, this could be seen as a corporate land-grab, but at the same time it represents an attempt to take more corporate responsibility for their supply chains; Ikea, for example, has been criticized for the un-sustainable practices of a Russian supplier. At the very least, in owning the tangible asset of the forest themselves companies will have clear incentives to assure that they remain healthy and productive for decades to come.
Tags: regenerative, sustainable global economy strategy
A recent piece in BloombergBusiness caught our eye: Giving Hippies Key to Portfolio is Not Such a Bad Idea After All. Not to say we told you so, but have you heard the one about Hal, Guatemalan shorts, and phone trades back in the day? Indeed, champions of SRI have always had reassuring results to point to, but in recent months, we’re no longer shouting against the roar of business as usual’s river of denial. A series of long-term trends reports have all come to similar conclusions: companies that embrace environmental, social, and governance (ESG) considerations outperform their more traditional peers. The chart at the top of this post is a good sample, showing two different strategies for choosing more ESG-engaged companies; over the past 7-8 years, doing so has outperformed average returns by a cumulative 12-24%. While we appreciated Bloomberg’s decision to publish our 1999 book, Investing With Your Values, we’re even more glad to see them, along with Morgan Stanley and the Harvard Business School, getting on the bus.
Tags: ESG, financial assets, SRI, sustainable global economy strategy
Here comes some more indication that Paul Gilding’s optimism about market forces steering a rapid transition away from carbon-intensive energy may indeed pan out. As Exhibit A, check out this op-ed from Hank Paulson, Secretary of Treasury for George W. Bush during the economic meltdown of 2008:
For too many years, we failed to rein in the excesses building up in the nation’s financial markets. When the credit bubble burst in 2008, the damage was devastating. Millions suffered. Many still do.
We’re making the same mistake today with climate change. We’re staring down a climate bubble that poses enormous risks to both our environment and economy. The warning signs are clear and growing more urgent as the risks go unchecked. This is a crisis we can’t afford to ignore.
And that’s just his opening salvo. Yowsa! Exhibit B is even more startling; it’s a dry-as-sand financial assessment of the risks of Paulson’s “climate bubble” as it affects the world’s biggest institutional investors. Despite its “just the fact, ma’am” tone, the message is one that we can definitely get behind:
Tags: climate, financial assets, renewable energy, sustainable global economy strategy
The investment world is on the cusp of many disruptive changes, just like the world as a whole. New online tech, artificial intelligence, and sharing platforms will all shake up the status quo—and the livelihoods of investment advisors like us—far more than the emergence of online brokerages did a generation ago. There’s no telling which innovations will deliver on their promise, but this article on a new outfit called Motif caught our eye this week. The idea is that you can put together a group of stocks that target a market segment you’re interested in being invested in:
Walia gave the example of the mobile Internet: How do you invest in that trend? Jim Cramer proposed a mobile Internet index in 2009, but no one seems to have done anything with the idea. Or, say, Facebook. So far, buying actual shares of Facebook doesn’t seem to be paying off as a way to play social networking. Walia’s alternative: Buy the companies with the most likes on Facebook. (Hey, it’s outperformed the S&P.)…Notice how much money you and your friends spend at Starbucks? Buy into a motif called Caffeine Fix. See iPads everywhere? There’s a motif for that: Tablet Takeover.
Motif users will be able to create their own motifs and share them with friends—either small groups of trusted fellow investors or one’s entire Facebook friends list.
The interface is simple (see image above), and of course you can track your results to see if your bright new “fund” is a winner. Former top executives at eTrade and Bank of America are on board and they are emphasizing keeping trading costs very low, making it an appealing platform for bringing your own values, passions, and interests to bear in your investment approach. But remember, the past pleasure of your particular passions is not a guarantee of future results!
Tags: financial assets, investing, sustainable global economy strategy
Everywhere I turn lately, there’s another reminder that cities are central to our hopes for a more sustainable, resilient future. The C40 Cities Climate Leadership Group—a decade-old collaboration among 75 of the world’s largest cities that are home to over a half-billion people and a quarter of the global economy—is on the forefront of these efforts, as is the Compact of Mayors, involving 84 cities, many of them smaller or mid-sized. Both groups are gearing up to have a major presence at the upcoming Paris climate talks. The C40 has just released a new report, Powering Climate Action: Cities as Global Changemakers, which highlights the collaborative potential of cities working together: “The evidence shows that cities are taking action even where they have limited power, by collaborating with other cities and non-state actors and catalysing wider climate action in the private sector and civil society.”
NRDC’s OnEarth magazine recently produced an issue devoted to city-based climate action that is full of inspiring stories, including
Tags: climate, close to home strategy, collaboration, community groups, personal assets, sustainable global economy strategy