Earth Day has come and gone. I spent the day in Kauai enjoying the best of what the Earth has to offer and thinking about how we could make it better.
I was born in Cape Town, South Africa, and grew up there from 1968–78, including a five-year stint in a suburban home that was three blocks from where Nelson Mandela was jailed for nine years before his release. Perhaps my experience of apartheid helped spark my passion for impact investing. Over the past year, I’ve been spending a good portion of my time meeting with cutting-edge researchers, data providers and portfolio managers concerned with climate change. What I’ve learned may scare you, but may also give you hope that there’s a significant amount of attention and resources being directed to the problem.
The Climate Change Problem
First, the scary part. Humanity is burning carbon at five times the sustainable rate. In 2010, the global signatories to the Cancun Agreement committed to limit temperature increases to 2 degrees Celsius above pre-industrial levels, the amount that most climate scientists agree would be the tipping point beyond which our climate may not recover. Staying below this level requires us to burn only 886 gigatons of carbon dioxide between 2000 and 2050. But we’ve already burned 282 gigatons from 2000–2011, leaving a “budget” of only 604 gigatons of CO2. The world has proven reserves of 2,795 gigatons of CO2, five times our remaining budget. If governments and the public demand that corporate and consumer behavior get in line with these agreements, we are likely to strand (not use) 80% of the world’s carbon reserves.
Stranded carbon would have huge negative implications for businesses with current stock prices that are largely tied to their underground reserves. For example, the 200 largest coal, oil and gas companies alone have a combined market valuation of $7.42 trillion. Many large and notable investors either already have or are evaluating divestment from these companies (including CalPERS, Harvard University and Stanford University).
Carbon Divestment
Some institutional investors may shy away from complete divestment and instead look to engage with corporations as a more effective way to move the needle. Shareholder advocacy is where owners of a company’s stock introduce or vote for or against shareholder resolutions. Two climate-change-related resolutions recently passed, one at Colgate-Palmolive in which they agreed to make all of their product packaging 100% recyclable by 2020, and another at Exxon Mobil in which they committed to disclose the risks associated with their shale drilling and fracking operations.
A Fossil-Fuel-Free Portfolio?
Returning to my roots, I’ll quote Archbishop Desmond Tutu, who in calling for an anti-apartheid-styled divestment campaign recently said, “People of conscience need to break their ties with corporations financing the injustice of climate change.” To this end, Abacus is hard at work developing a new fossil-fuel-free portfolio and improving our existing sustainable portfolios to better reflect the financial and environmental realities in the market. Stay tuned.
