Ethical investments?

I just got around to joining the superannuation program offered by my employer in the UK and so I thought I’d investigate fossil fuel divestment. After all, I don’t want my, er, £364 going into the pockets of fossil fuel companies. I’m sure fossil fuel companies are shivering with fear just at the thought of losing my business right now 🙂

But my paltry sum is beside the point. The bigger issue is that we can only emit another 500 gigatons, or thereabouts, of carbon dioxide if we are to stay below 2°C of warming. The Trillionth Tonne website has a good interactive counter which demonstrates how much time we’ve got and it’s not very much:

screenshot.

What is really frightening though is that fossil fuel companies have enough carbon in their reserves to emit about 2,795 gigatons of carbon dioxide. Even more concerning is that these reserves are reflected in their share price. They are effectively betting on being able to burn the whole lot. If we accept that we must tackle climate change then these companies are overvalued and we now have what many refer to as a carbon bubble. An organisation that is monitoring this carbon bubble is The Carbon Tracker. They say:

Currently financial markets have an unlimited capacity to treat fossil fuel reserves
as assets. As governments move to control carbon emissions, this market
failure is creating systemic risks for institutional investors, notably the
threat of fossil fuel assets becoming stranded as the shift to a low-carbon
economy accelerates.

This afternoon I logged into my newborn superannuation account to switch assets. Ethically I don’t want to invest in fossil fuels but it also seems like a risky asset to invest in anyway. I began by searching for ethical funds and there are quite a few of them. It’s not always obvious what they mean by ethical so you really need to dig a bit to see where they put their money. What I found was quite surprising. Every single fund which described itself as ethical, still has investments in fossil fuel companies. How is this ethical investing? If they consider investments in oil and gas ethical, then what exactly is their definition of ethical? I have a cynical idea that it might mean good corporate governance and sound business practices which as far as I’m concerned ought to be a part of every publicly listed company and not just those which describe themselves as ethical.

16 thoughts on “Ethical investments?

  1. Insightful. Thanks for sharing this. I just had a look at my investment portfolio and there are a host of “very good investments” but with companies I would consider unethical. It’s time to rethink these. Thanks!

  2. That’s the spirit. At its 2014 meeting in Geneva, the Central Committee of the World Council of Churches , which represent some 590 million people in 150 countries, endorsed fossil fuel divestment, agreeing to phase out its own holdings and encourage its members to do the same. Serene Jones, the President of Union Theological Seminary in the US, which recently committed to divest its entire $108.4 million endowment from fossil fuels says, “Scripture tells us that all of the world is God’s precious creation, and our place within it is to care for and respect the health of the whole. As a seminary dedicated to social justice, we have a critical call to live out our values in the world. Climate change poses a catastrophic threat, and as stewards of God’s creation we simply must act.”

    That certainly brought out a howl of protest from the Cornwall Alliance, who claims that environmental stewardship is a Green Dragon eating up our churches. Those not familiar them might want to read: http://jcmooreonline.com/2015/01/06/the-cornwall-alliance-from-stewardship-to-propaganda/.

    1. I’ve been following the divestment movement as it gathers steam. It is wonderful to see so many organisations divesting of fossil fuel. I’m not surprised to read about the reaction by the Cornwall Alliance. I think the divestment movement will continue to gather pace until it reaches a tipping point where suddenly everyone wants to divest and this will send those stocks crashing. I want to be out before then.

  3. There seem to be 3 types of ethical banking.
    1. Invest in best of a sector.
    2. Do not invest in bad sectors.
    3. Only invest in good sectors.

    The first two types give normal investment returns, the 3rd a little less. All could provide an incentive to companies to behave better. The 3rd is better for your concious.

    Fossil Fuel companies are a special case. Even the best ones are doing something we need less of and all are an investment risk. My Dutch pension fund (ABP) hold 10% in fossil fuel companies. That probably means that I will get 10% less our of my pension, if they do not get smarter soon.

      1. Tridos Bank looks really good. I just joined up with the Bank of Scotland though (different to the Royal Bank of Scotland!) and they’ve been good so far. They also seem to have quite a large presence in Scotland and there are banks and atms everywhere. I guess I don’t need access to a physical bank these days and I would really like to know our money was being invested ethically.

    1. That’s great. I see most of the power comes from hydropower. New Zealand gets a significant amount of power from hydropower too but this is thanks to the people who lived 100 hundred years ago who built them. New Zealand has done very little since then to reduce carbon emissions. From what I can see, these Costa Rican power plants are relatively new.

  4. Rachel, thank you for raising a very important point in your post, which has been bugging me for a while.

    Following hearing Naomi Klein talk at the Cheltenham Book Festival last year and reading her book “This Changes Everything”, I was jolted into thinking about the same issue. I then became aware of the divestment movement (gofossilfree.org and 350.org). This happened to coincide with some retirement planning and a new pension that consolidated several ones I had gathered over the years.

    I asked about how to drastically reduce if not eliminate any fossil fuel ‘exposure’ in the pension. But of course a pension relies on number of investments in assets like shares and bonds. For ordinary mortals like me, that is not direct share ownership but ‘funds’ which themselves have investments in a portfolio of shares and other assets. The level of ‘indirection’ can make it a little opaque to say the least.

    It turns out that without really planning it, my fossil fuel ‘exposure’ is only 3.5% of the total (still too high really). To reduce it to zero is not as simple as you might think (it is relatively simple for UK, but if the pension is globally spread it gets much trickier).

    Unlike the University of Glasgow, for example, who can no doubt employ someone to handle their £18m, picking and choosing a completely bespoke portfolio. And, after all, even they admit it will take them 10 years to gradually reallocate the funds.

    It got me thinking. Maybe the Schroders of this world should be thinking about offering ‘fossil divested’ funds.

    Especially when the Bank of England is warning of huge risk of ‘stranded assets’ (the carbon that we will need to leave buried), it is time for the financial markets to start offering us a deal. See, for example … http://www.theguardian.com/environment/2015/mar/03/bank-of-england-warns-of-financial-risk-from-fossil-fuel-investments

    1. Yes, I found exactly the same thing when I was looking through different funds. Some of these funds invested in funds themselves creating layers of investment and making it hard to find where the money ends up. But it’s something we should all be doing and the more of us who put pressure on our pension schemes the more likely they are to create fossil-free investments. Good to see the Bank of England is aware of the problem.

  5. “ethical investing” truly covers a lot of ground. As a former financial advisor, I saw such funds using definitions such as abortion funding, or no abortion funding, Energy concerns are rarely considered. You are correct about needing to research each option to determine the specific definition of “ethical investing”. I used to use software that revealed such definitions and holdings.

    I generally found that people were so disenchanted by their pursuit of ethical investing, that they chose to invest in what was most likely to make money, regardless of its ethics, and use the profits to support ethical organizations. Kind of like buying from amazon.com, and using their Smile or affiliate program.

    Maybe the problem is that trying to get away from something might attract more of it. One solution that I liked was deliberately investing in specific companies that people believed in. They inventoried their homes (are you familiar with the Buycot app?) to help identify corporations that produced goods that they believed in.

    1. Thanks, WeaverGrace. I’m not familiar with the app but it looks good. I’ll have to start using it.

      I’m surprised energy concerns are not taken into consideration. It seems like one of the most obvious things to me. By contrast, abortion funding is, to my mind, perfectly fine. I have some super in Australia as well and it’s all with Australian Ethical Investment. It’s not just a single ethical fund but an entire pension plan from which you can choose different investment strategies. I’m surprised there isn’t something similar here.

      1. I’m glad that you are bringing more attention to investment as a strategy for change. I appreciate the value of any steps that a person or community can take to address such global issues.

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