Perspective - Markets
Sustainable Investment Report Q3 2019
Read our latest insights on climate change, electric vehicles, Amazon, proxy voting and ESG in value investing.
Unstructured Learning Time
The threat of a climate catastrophe is escalating. Economic expansion, rising consumption and growing resource use were always going to create problems in the context of finite natural resources and a constrained planet. Those problems are becoming more acute and the impacts unavoidable. By 29 July, humanity had used the planet’s resource budget for the whole of 2019, marking a new earliest date for “Earth overshoot day” the third year in a row.
The impacts of such overspending are becoming increasingly evident and include deforestation, biodiversity loss and record concentrations of greenhouse gases (GHGs) leading to ever-more frequent extreme weather events – to name only a few. Current levels of consumption imply the need for 1.75 Earths to fulfil global demand.
Rather than a bleak interpretation of that news, we prefer to focus on how the evidence of damage is generating pressure that governments are responding to. Some policies intended to combat the challenge are starting to take effect. For example, set up in 2005, the price of one tonne of CO2 emitted as part of the European Union’s emission trading scheme has, over the last two years, risen from a meagre ~5€/t to close to 30€/t, near its all-time high.
To meet the 2°C pathway global leaders committed to in the Paris Climate Agreement, this price will need to rise even more. Although there is a long way to go, there are signs that on this front and others, we are starting to see policies with ambitions that meet the scale of the challenge. We are regularly tracking these indicators, as well as others in our Climate Progress Dashboard, and this report provides an update on this.
We’ve shown up late to a race that has been going on for decades and now have to play catch-up. The second half of 2019 will see two major climate events: the UN Climate Action Summit in September and the COP25 event in Chile in December. Both events provide an opportunity to accelerate decarbonisation and we will be watching them closely. This quarter we ask the pertinent question: are governments doing enough and should investors be stepping into the breach?
As well as a focus on policy, our dashboard tracks the rate of climate-related technological innovation, another key component in the drive to make progress. You can take a deep dive into electric vehicles this quarter; decarbonising transport has become a major investment theme for the auto industry and an area where policy has begun to bite.
We believe there is far more credit due to companies that enable faster decarbonisation through products or services than is currently given by most. We take a closer look at Amazon and its climate impact as an investment case study.
On a non-climate related note, many sustainable or ESG products have a quality bias, and increasingly we are seeing clients approach us for solutions that explicitly include value as a factor. Our value team provides a timely overview of the role that ESG plays in their investment process. Finally, we look back on the most recent European proxy voting season and reflect on the increasing pressure on company management that we are seeing.
Key topics covered:
- Climate Progress Dashboard: new emissions pledges fail to change outlook
- Have investors missed the real revolution in electric vehicles?
- What the “prisoner’s dilemma” tells us about climate change
- Can Amazon really be a climate change champion?
- Turning up the heat: Are investors making up for lack of public leadership?
- Why ESG matters in value investing
- Governance update: European proxy season 2019
Many of these pieces are summaries of longer pieces of work. Please do go to our sustainability website if you would like to find out more.