tag:theconversation.com,2011:/global/topics/green-investment-23189/articlesGreen investment – The Conversation2024-02-13T16:08:51Ztag:theconversation.com,2011:article/2232832024-02-13T16:08:51Z2024-02-13T16:08:51ZLabour scaling back its £28 billion green pledge will impact UK housing – and public health<figure><img src="https://images.theconversation.com/files/575302/original/file-20240213-16-cnaxya.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/aerial-drone-sunrise-view-suburban-houses-1079721062">Shutterstock</a></span></figcaption></figure><p>The UK Labour party has <a href="https://www.theguardian.com/politics/2024/feb/08/labour-cuts-28bn-green-investment-pledge-by-half#:%7E:text=Labour%20announced%20the%20%C2%A328bn,flood%20defences%20and%20home%20insulation.">announced</a> its intention to reduce <a href="https://theconversation.com/labours-28-billion-green-investment-promise-could-be-watered-down-heres-why-222319">its £28 billion green investment pledge</a> to less than £15 billion if elected this year. The political fallout has been been largely focused on the party’s fiscal credibility and leader of the opposition Keir Starmer’s seeming proclivity for <a href="https://www.politico.eu/article/keir-starmer-labour-party-uk-election-u-turns/">U-turns</a>. </p>
<p>A crucial question so far overlooked is what impact the cut would have on <a href="https://theconversation.com/healthy-cities-arent-a-question-of-boring-or-exciting-buildings-but-about-creating-better-public-space-220456">public health</a>. The initial pledge included a key home-insulation plan to upgrade 72% – 19m homes – of the UK’s housing stock. </p>
<p>The revised plan, however, replaces that ambitious target with the more ambiguous statement that “millions of homes” will be refurbished. <a href="https://www.tandfonline.com/doi/full/10.1080/07352166.2023.2260029">Research</a> has long shown that uninsulated homes have consequences for health, especially for those living in poverty and in poor quality housing. This in turn places <a href="https://www.frontiersin.org/journals/public-health/articles/10.3389/fpubh.2023.1070200/full">an extra burden</a> on an already over-stretched health service.</p>
<figure class="align-center ">
<img alt="A constructionn site." src="https://images.theconversation.com/files/575304/original/file-20240213-16-hkrvur.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/575304/original/file-20240213-16-hkrvur.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/575304/original/file-20240213-16-hkrvur.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/575304/original/file-20240213-16-hkrvur.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/575304/original/file-20240213-16-hkrvur.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/575304/original/file-20240213-16-hkrvur.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/575304/original/file-20240213-16-hkrvur.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Labour plans to build 1.5 million homes.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/construction-new-houses-england-ground-1190120185">Shutterstock</a></span>
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<h2>Existing government failure</h2>
<p>The wider societal cost of poor-quality housing in the UK is estimated at <a href="https://www.brebookshop.com/details.jsp?id=327671">£18.6 billion a year</a>. Such costs, however, are often ignored when housing policy is being developed and implemented. </p>
<p>Labour promises to deliver 1.5 million homes by “<a href="https://labour.org.uk/updates/press-releases/how-not-if-labour-will-jump-start-planning-to-build-1-5-million-homes-and-save-the-dream-of-homeownership/">blitzing</a>” the planning system, but it has so far ignored the potential consequences for public health.</p>
<p>Of course, the failure to factor in health is by no means unique to Labour policy. It is already embedded in the government’s approach. <a href="https://doi.org/10.1080/07352166.2023.2260029">A recent academic review</a> of government housing and transport policy found that health is notably absent, despite well-established evidence that urban spaces are making us ill. This shows that on the occasions where health is included, it is lower in a hierarchy of priorities compared to other agendas such as growing the economy. </p>
<p>For many years, government housing policy has been shaped by the numeric gap between supply and demand, rather than the type or quality of the housing stock. The mechanisms for delivering have been based on land release and planning reform. Successive housing policies have mentioned involving communities and supporting their health, social, and cultural wellbeing. But there have been no clear targets for ensuring house retrofit and house building positively impact public health.</p>
<p>In his 2010 independent review on how to reduce
health inequalities in England, epidemiologist Michael Marmot <a href="https://www.instituteofhealthequity.org/resources-reports/fair-society-healthy-lives-the-marmot-review/fair-society-healthy-lives-full-report-pdf.pdf">showed</a> that prioritising health in urban policies, like housing and transport, can have significant health benefits for local populations. </p>
<p><a href="https://truud.ac.uk/briefings/">Our research project has shown</a> that health should be made a central factor in all national policy and guidance that shapes urban spaces. The World Health Organization <a href="https://unhabitat.org/global-report-on-urban-health-equitable-healthier-cities-for-sustainable-development">recommends</a> explicitly including health in housing policy – and tracking its impact with recognised metrics. UK politicians have largely failed to respond.</p>
<h2>Promising developments</h2>
<p>In addition to positive developments in government, such as the <a href="https://www.gov.uk/government/groups/building-better-building-beautiful-commission">Build Back Beautiful Commission</a>, the opposition also has some promising ambitions. Labour is pledging to deliver a <a href="https://labour.org.uk/wp-content/uploads/2023/05/Mission-Public-Services.pdf">“prevention-first revolution”</a>, in which it envisions a pro-active role for government in ensuring that everybody has the building blocks for a healthy life. </p>
<p>In its mission document for health policy, Labour says that retrofitting of millions of homes will “keep families warm rather than living in damp, mouldy conditions that give their children asthma”. The fact that the party is making explicit this link between housing and health signal is a potentially very positive step forward. </p>
<p>However, in all the furore about Labour scrapping its £28 billion pledge, this crucial link to public health has been entirely forgotten. Indeed, while Labour’s environmental policy has been carefully updated to revise and remove various targets, the preventative health agenda retains the now defunct promise to “<a href="https://labour.org.uk/wp-content/uploads/2023/05/Mission-Public-Services.pdf#page=13">oversee retrofitting of 19 million homes</a>”. This is perhaps indicative of the extent to which policymakers just don’t think about health when they think about housing. </p>
<p>While the Conservative pledges for the next parliament remain unclear, analysis of their existing policies in government <a href="https://doi.org/10.1080/07352166.2023.2260029">has found</a> a failure to think about or measure the way housing and urban development policis impact health. Instead, it is merely assumed that housing policies will have positive health outcomes. Rather than making such assumptions, policymakers should be putting public health considerations at the centre of all their decision making. </p>
<p>To ensure that the impact any given policy has on public health is <a href="https://www.youtube.com/watch?v=bhcJN2WKAvo&t=76s">measured</a> and <a href="https://truud.ac.uk/wp-content/uploads/2023/06/D2900_Walton_Truud-report_Health-evidence-in-a-complex-system__v3.pdf">acted upon</a>, health needs to be an explicit urban planning policy outcome. It needs to be clearly defined, measurable, and built into policy implementation and political discourse.</p>
<p>It is also important that different government ministries and relevant stakeholders focused on public health, planning and the environment work together more effectively. Unhealthy homes should be a priority for both the housing minister and the health minister. </p>
<p>Healthier people are more economically productive. They have a smaller financial footprint on the NHS. In the long term, better preventative health is a key part of solving some of the UK’s biggest economic challenges, from labour shortages and sluggish productivity growth to stretched public finances. </p>
<p>Too often government policy is not often designed with the long-term in mind. Instead, short-term economic outcomes and political gains <a href="https://blogs.bath.ac.uk/iprblog/2023/10/24/uk-government-climate-policy-developments-leave-a-health-shaped-gap/">are prioritised</a> – to the detriment of public health. </p>
<p>The best way for the government to protect public health is for every department to consider how their work impacts on it. If political and economic calculations about creating, scrapping and rescaling major projects continue to ignore health, however, politicians are likely to continue coming up with the wrong answers.</p><img src="https://counter.theconversation.com/content/223283/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>This research comes from the TRUUD project, a research programme based at the University of Bristol, that aims to reduce non-communicable disease (such as cancers, diabetes, obesity, mental ill-health and respiratory illness) and health inequalities linked to the quality of urban planning and development for use in discussions with government and the developer industry.
The TRUUD research project (<a href="https://truud.ac.uk/">https://truud.ac.uk/</a>) is funded by the the UK Prevention Research Partnership (<a href="https://ukprp.org/">https://ukprp.org/</a>).</span></em></p><p class="fine-print"><em><span>Geoff Bates receives funding as part of the TRUUD research project (<a href="https://truud.ac.uk/">https://truud.ac.uk/</a>), which is funded by the the UK Prevention Research Partnership (<a href="https://ukprp.org/">https://ukprp.org/</a>).</span></em></p>Too often government policy is not designed with the long-term in mind. Instead, short-term economic outcomes and political gains are prioritised - to the detriment of public health.Jack Newman, Research Fellow, School for Policy Studies, University of BristolGeoff Bates, Lecturer in Social Policy, Research Fellow, University of BathLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2223192024-02-02T06:40:02Z2024-02-02T06:40:02ZLabour’s £28 billion green investment promise could be watered down – here’s why<p>Mathematicians will tell you that <a href="https://homework.study.com/explanation/how-is-28-a-perfect-number.html#:%7E:text=The%20number%2028%20is%20a,4%2C%207%2C%20and%2014.">28 is a perfect number</a>; it is not proving quite so perfect for Labour leader Keir Starmer.</p>
<p>Starmer is set to make a “final” decision on whether Labour will commit to <a href="https://www.itv.com/news/2024-01-29/labours-28bn-green-pledge-to-be-scrapped-amid-exploitation-by-sunak-campaign">investing £28 billion a year</a> as part of its green prosperity plan. The party hasn’t confirmed whether this figure would be met by the end of the next parliament (fiscal year 2029-30), let alone the middle of it.</p>
<p>Unions, environmentalists and <a href="https://www.theguardian.com/environment/2024/jan/31/business-leader-urges-labour-to-stand-by-28bn-pledge-for-green-economy">investors</a> have given their support to the pledge. Others (some of them Labour Party members including <a href="https://www.telegraph.co.uk/politics/2024/01/26/keir-starmer-ditch-labour-28bn-green-pledge-ed-balls/">Ed Balls</a>) say such a commitment is a liability. “Starmer the spendthrift” is already a club that the Conservatives and some newspapers have been using to try to close the yawning gap in the polls.</p>
<h2>2021 vision</h2>
<p>The £28 billion a year figure was <a href="https://www.theguardian.com/politics/2021/sep/27/labour-promises-spend-28bn-year-tackling-climate-crisis">first announced</a> at Labour party conference by shadow chancellor Rachel Reeves in September 2021.</p>
<p>Reeves said then that the time for dither and delay was over, and that she wanted to be known as the first green chancellor. She would spend £28 billion each and every year of the next parliament (should Labour take office).</p>
<figure class="align-center ">
<img alt="A woman at a lectern with union jack colours." src="https://images.theconversation.com/files/572816/original/file-20240201-15-g4cmdf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/572816/original/file-20240201-15-g4cmdf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/572816/original/file-20240201-15-g4cmdf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/572816/original/file-20240201-15-g4cmdf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/572816/original/file-20240201-15-g4cmdf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/572816/original/file-20240201-15-g4cmdf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/572816/original/file-20240201-15-g4cmdf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Reeves has since poured cold water on earlier public spending promises.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/liverpool-united-kingdom-october-09-2023-2374491263">Martin Suker/Shutterstock</a></span>
</figcaption>
</figure>
<p>A year later more flesh was put on the bones. Labour announced the green prosperity plan which included a state-owned company called <a href="https://labour.org.uk/updates/stories/labours-plan-for-gb-energy/">Great British Energy</a> (responsible for investing in technologies less ready for market like tidal power) housing renovations and support for green steelmaking.</p>
<p>These announcements were made during a party conference in which the Labour leadership <a href="https://tribunemag.co.uk/2022/09/theres-no-green-future-without-public-ownership">refused to allow a motion</a> to discuss public ownership of energy assets (wind turbines, transmission lines, grid-scale batteries).</p>
<p>It was also in the midst of the short-lived Liz Truss premiership. Then-chancellor Kwasi Kwarteng’s <a href="https://commonslibrary.parliament.uk/research-briefings/cbp-9624/">fiscal statement</a> sent interest rates spiralling, and therein lies the trouble for Starmer and Reeves. When they made the promise two-and-a-half years ago, it was very, very cheap to borrow money. Now, not so much. </p>
<p>But the sums involved, even if borrowed without a windfall tax on energy giants, are <a href="https://news.sky.com/story/labours-28bn-green-spending-pledge-sounds-significant-but-wouldnt-be-enough-to-prevent-overall-public-investment-falling-13044921">expected</a> to hardly increase the national debt.</p>
<h2>The watering down begins</h2>
<p>From the beginning of 2023 Starmer and Reeves were remarkably quiet on the £28-billion figure and the green prosperity plan, which was launched by its main author Ed Miliband in <a href="https://labourlist.org/2023/03/consistent-and-clear-climate-leadership-milibands-speech-to-the-green-alliance/">March 2023</a>.</p>
<p>Labour’s opponents were not so reticent. On June 5, the Daily Mail ran <a href="https://www.dailymail.co.uk/news/article-12162745/Treasury-analysis-warns-Starmers-28BILLION-net-zero-strategy-drive-mortgage-costs.html">a front-page story</a> claiming families faced a £1,000-a-year bill for <a href="https://www.dailymail.co.uk/news/article-12162745/Treasury-analysis-warns-Starmers-28BILLION-net-zero-strategy-drive-mortgage-costs.html">“Labour eco plans”</a>.</p>
<figure class="align-center ">
<img alt="A worker in overalls unrolling insulation foam in the eaves of a house." src="https://images.theconversation.com/files/572821/original/file-20240201-17-5ek8kg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/572821/original/file-20240201-17-5ek8kg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=392&fit=crop&dpr=1 600w, https://images.theconversation.com/files/572821/original/file-20240201-17-5ek8kg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=392&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/572821/original/file-20240201-17-5ek8kg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=392&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/572821/original/file-20240201-17-5ek8kg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=492&fit=crop&dpr=1 754w, https://images.theconversation.com/files/572821/original/file-20240201-17-5ek8kg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=492&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/572821/original/file-20240201-17-5ek8kg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=492&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Renovating homes could make them more energy-efficient – and lower heating bills.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/work-composed-mineral-wool-insulation-floor-1017169942">Serhii Krot/Shutterstock</a></span>
</figcaption>
</figure>
<p>Days later, Reeves announced the first of several backwards steps on her 2021 commitment. She said that £28 billion would not be invested in a Labour government’s first year, but more likely in the second half of the five-year term. Further concessions followed in October, pushing the date back to the end of the parliament and introducing a rule that each pound of public investment would have to attract three from the private sector.</p>
<p>A series of interviews by Starmer in January 2024 threw further doubt on the £28-billion figure, and the Labour Party’s <a href="https://www.bbc.co.uk/news/uk-politics-67993311">“campaign bible”</a> – instructions for prospective MPs on slogans to use and policies to quote to voters – was silent on the number.</p>
<p>Then, on Friday January 19, the Sun newspaper ran <a href="https://www.thesun.co.uk/news/politics/25422227/labour-ditched-green-spending-target-starmer/">another story</a> quoting an (unnamed) senior Labour figure who said the spending target would be scrapped.</p>
<p>An upcoming meeting may resolve matters one way or another. The date for Labour’s election manifesto to be finalised is <a href="https://www.ft.com/content/96f97332-36dd-44e5-8a24-9592965ca4f9">February 8</a>.</p>
<p>Supporters of the commitment are various unions, including the firefighters union, whose members are battling <a href="https://www.theguardian.com/politics/2024/jan/21/public-risk-labour-drops-28bn-green-plan-fire-union-chief-matt-wrack">more floods and fires</a> as a result of climate change. The Labour climate and environment forum, an internal pressure group set up just over a year ago, has released <a href="https://lcef.cdn.prismic.io/lcef/bf737486-79cc-422c-a59b-58a6a483f6ad_LCEF_EssaysCollection_1801_LowRes.pdf">a 17-page report</a> listing the benefits of the proposed spend. Some labour frontbenchers are also <a href="https://www.theguardian.com/politics/2024/jan/21/uk-needs-ambitious-green-plan-keep-up-allies-labour-frontbencher">vocal in their support</a>.</p>
<figure class="align-center ">
<img alt="A moorland with smoke rising from it and a fire engine in the foreground." src="https://images.theconversation.com/files/572817/original/file-20240201-85962-cz6313.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/572817/original/file-20240201-85962-cz6313.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/572817/original/file-20240201-85962-cz6313.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/572817/original/file-20240201-85962-cz6313.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/572817/original/file-20240201-85962-cz6313.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/572817/original/file-20240201-85962-cz6313.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/572817/original/file-20240201-85962-cz6313.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Firefighters are on the frontline of increasingly extreme weather.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/ebbw-vale-wales-march-24-2022-2144761171">Richard Whitcombe/Shutterstock</a></span>
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<p>Within the Labour party there is the familiar argument that you can only implement a policy once you are in government, and so anything that will scare voters or give opponents a stick to beat you with should be discarded. As per the title of an article in the Times by Peter Mandelson: “Few voters will be thrilled by Keir Starmer turning into another Greta Thunberg”.</p>
<h2>Choices have consequences</h2>
<p>There is a scene in the 1987 Stanley Kubrick film Full Metal Jacket that those who advocate Labour sticking to its (already watered down) spending commitment should show Starmer.</p>
<p>A marine recruit is quizzed by a ferocious drill sergeant about whether he believes in the Virgin Mary. The recruit, played by Matthew Modine, says he does not. The drill sergeant explodes and threatens the recruit with a beating if he does not change his answer. The recruit says:</p>
<blockquote>
<p>Sir, the private believes that any answer he gives will be wrong and the senior drill instructor will beat him harder if he reverses himself, sir!</p>
</blockquote>
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<iframe width="440" height="260" src="https://www.youtube.com/embed/gYxEIyNA_mk?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
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<p>The drill instructor respects his guts, and makes him leader of the platoon.</p>
<p>If Starmer sticks to the £28 billion promise he can expect headlines decrying “tax and spend” and “same old Labour”. If he dumps it, he will demoralise door knockers, unions and <a href="https://www.politicshome.com/news/article/labour-28bn-green-prosperity-plans-investment-energy-sector-net-zero">investors</a>. He will also not stop the attacks on him from the Conservatives and right-wing newspapers. They will add “flip-flopper” (something they’ve <a href="https://order-order.com/2024/01/30/labour-states-businesses-hate-uncertainty-as-it-flip-flops-on-28-billion-12-times/">already been saying</a>) to the list of his perceived sins. </p>
<p>They will, as the insight of the fictional marine suggests, beat him harder.</p>
<p>Climate change is, as the UK parliament <a href="https://www.bbc.co.uk/news/uk-politics-48126677">agreed in 2019</a>, an emergency. Public support for action is <a href="https://strongmessagehere.substack.com/p/labours-28bn-question">surprisingly robust</a>. Doing so will require credibility that only comes from saying what you are going to do and how much you are going to spend. </p>
<p>Promising (to save) the world, but to do it on the cheap, makes you look silly or shifty – or both.</p>
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<p class="fine-print"><em><span>Marc Hudson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Keir Starmer’s flagship climate change pledge has already been cut back significantly since 2021.Marc Hudson, Visiting Fellow, SPRU, University of Sussex Business School, University of SussexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2210182024-01-22T23:25:32Z2024-01-22T23:25:32ZHow Australia’s huge superannuation funds can do much more to fight climate change, with a little help<p>Few of us pay much attention to our superannuation. Under the <a href="https://www.fairwork.gov.au/pay-and-wages/tax-and-superannuation#super-guarantee">Superannuation Guarantee</a>, employers pay at least 11% of salaries into their employees’ super funds without workers having to do anything.</p>
<p>These accumulating automatic payments have turned the Australian super fund industry into one of the world’s largest, and <a href="https://www.bloomberg.com/news/articles/2023-07-24/wall-street-is-partnering-with-cashed-up-fast-growing-australian-pension-funds">the fastest-growing</a>. Worth $A3.5 trillion, our superfunds sit alongside funds from Canada, Japan, Netherlands, Switzerland, the United Kingdom and United States to make up <a href="https://www.thinkingaheadinstitute.org/research-papers/global-pension-assets-study-2023/">92% of total global pension assets.</a></p>
<p>But none of these funds are investing enough in the net zero transition. Institutional investors, of which super funds are a vital part, provided less than 1% of all direct private climate change finance globally in <a href="https://www.climatepolicyinitiative.org/publication/global-landscape-of-climate-finance-2023/">2021/2022</a>- a contribution of around $US6 billion. This is far from the trillions <a href="https://www.allenovery.com/en-gb/global/news-and-insights/news/new-study-reveals-usd200-trillion-of-investment-will-be-needed-to-deliver-net-zero">needed</a> every year to finance renewable energy projects, cleaner industrial processes, and replacing fossil fuels in transport, among other initiatives.</p>
<p>At the same time, many Australian funds continue to invest in carbon-producing companies, such as oil and gas, even when they <a href="https://www.abc.net.au/news/2023-12-14/sustainable-ethical-super-funds-with-fossil-fuel-investment/103196032">claim to be making “green” investments</a>.</p>
<p>This article outlines reforms the federal government could undertake to encourage super funds to tackle the climate crisis. This would help align the super system with its original purpose: to provide a better standard of living for the millions of us who will retire on a climate-damaged planet.</p>
<h2>The Albanese government’s sustainable finance plan</h2>
<p>Treasurer Jim Chalmers is aware of the unmet potential of super funds. Treasury’s <a href="https://theconversation.com/making-money-green-australia-takes-its-first-steps-towards-a-net-zero-finance-strategy-214063">Sustainable Finance Strategy</a>, released in November, outlines measures underway or in development to enable more sustainable investment. The <a href="https://www.asfi.org.au/taxonomy">Australian Sustainable Finance Taxonomy</a>, for example, helps investors and regulators to identify whether an investment is “green”.</p>
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Read more:
<a href="https://theconversation.com/making-money-green-australia-takes-its-first-steps-towards-a-net-zero-finance-strategy-214063">Making money green: Australia takes its first steps towards a net zero finance strategy</a>
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<p>Last month <a href="https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/investor-roundtable-help-modernise-economy-maximise-advantages">Chalmers held</a> an “Investor Roundtable” that brought together heads of superannuation funds and others to discuss how to scale up investment in climate change.</p>
<p>Funds expressed their intent to make more investments aligned with net zero. <a href="https://www.rightlane.com.au/wp-content/uploads/2023/05/Right-Lane-Consulting_May-2023_Staying-the-course-on-net-zero.pdf">Studies</a> consistently show most large Australian funds have pledged to support net zero and established investment targets. Yet they say several regulatory roadblocks hinder them from turning their commitments into action.</p>
<p>The government has said it will make reforms on one roadblock – the <a href="https://ministers.treasury.gov.au/ministers/stephen-jones-2022/media-releases/your-future-your-super-review-outcomes">funds’ performance-testing framework</a>.</p>
<h2>Why super funds rarely invest in clean energy</h2>
<p>Because superannuation funds are <a href="https://www.unimelb.edu.au/__data/assets/word_doc/0011/4609586/MCF-submission_31032023.docx">required by law</a> to invest retirement savings for the best return for their members, they give preference to investments that offer the best financial returns with the lowest level of risk.</p>
<p>Funds see companies that are developing and deploying new technologies or operating in areas of significant public policy change as higher risk. That’s a big reason why new green technologies struggle to attract institutional capital compared to those based on fossil fuels.</p>
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Read more:
<a href="https://theconversation.com/as-australias-net-zero-transition-threatens-to-stall-rooftop-solar-could-help-provide-the-power-we-need-220050">As Australia's net zero transition threatens to stall, rooftop solar could help provide the power we need</a>
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<p>Super funds <a href="https://igcc.org.au/wp-content/uploads/2023/03/IGCC-The-State-of-Australian-Net-Zero-Investment_March2023.pdf">consistently note in annual surveys</a> that the lack of green investment opportunities with the right risk-adjusted return profile is a huge barrier to exapanding climate-aligned investment. And recent legislative changes have made the situation worse.</p>
<p>Under the <a href="https://www.apra.gov.au/your-future-your-super-legislation-and-supporting-material">Your Super Your Future</a> scheme, announced in the 2020-21 Budget, the financial regulator for super funds evaluates funds each year by comparing their performance over an eight-year time period against one of 11 “benchmark” investment portfolios.</p>
<p>This process aims to weed out underachieving funds and to protect members from losing money. Funds that are found to underperform must disclose the fact to their members, and persistent failures cannot accept new member funds. This tough sanction has led funds to “<a href="https://treasury.gov.au/sites/default/files/2023-04/c2022-313936-yfys-review.docx">hug the benchmark</a>”, meaning they pursue investment strategies to beat the performance test and their peers.</p>
<p>The result, as studies <a href="https://theconexusinstitute.org.au/wp-content/uploads/2022/11/YFYS-Performance-Test-Constraint-on-ESG-Sustainability-and-Carbon-Transition-Activities-20221109-Final.pdf">show</a>, is that funds are discouraged from pursuing climate-related investments. The test encourages funds to invest in companies or projects that deliver returns over time frames that are too short for most climate-related investments to achieve returns.</p>
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Read more:
<a href="https://theconversation.com/australian-homes-can-be-made-climate-ready-reducing-bills-and-emissions-a-new-report-shows-how-219113">Australian homes can be made climate-ready, reducing bills and emissions – a new report shows how</a>
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<p>Treasury has <a href="https://ministers.treasury.gov.au/ministers/stephen-jones-2022/media-releases/your-future-your-super-review-outcomes">announced</a> it will extend the performance test period to ten years, and adjust it “to ensure that funds are not unintentionally discouraged from investing in certain assets”. These are encouraging first steps but they are not enough.</p>
<h2>Letting ordinary fund members invest in a greener planet</h2>
<p>Melbourne Climate Futures’ <a href="https://law.unimelb.edu.au/centres/mcle/research/current-research-projects/advancing-investor-action-on-energy-transition">research</a> has uncovered further regulatory barriers that are stalling investment. One relates to the way individual members choose investments.</p>
<p>Since its establishment by the Keating government in 1992, the Superannuation Guarantee has given individuals some choice over how they handle their superannuation. While many <a href="https://www.ato.gov.au/businesses-and-organisations/super-for-employers/setting-up-super-for-your-business/select-your-default-super-fund">are placed into a fund</a> with a default investment option when they begin work, they are able to choose different investment approaches.</p>
<p>Some of these focus on a theme, such as sustainability, and some offer different levels of risk exposure. Encouraging individuals to direct more of their super to green companies and projects could be a powerful tool to enable more climate investment.</p>
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Read more:
<a href="https://theconversation.com/why-australia-urgently-needs-a-climate-plan-and-a-net-zero-national-cabinet-committee-to-implement-it-213866">Why Australia urgently needs a climate plan and a Net Zero National Cabinet Committee to implement it</a>
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<p>Surveys show <a href="https://responsibleinvestment.org/resources/benchmark-report/#:%7E:text=The%20Responsible%20Investment%20Benchmark%20Report,comprehensive%20approach%20to%20responsible%20investment.">more than half of Australians</a> support greater climate action. While many people would not support their super fund making climate investments that hurt their returns, <a href="https://www.afr.com/politics/federal/super-should-go-green-but-not-for-lower-returns-say-afr-readers-20231210-p5eqcr">at least some members</a> would. Yet the rigid nature of the best-financial-interest duty, combined with the performance test, prevents funds from offering members the option to put the climate first.</p>
<p>This needs to change. The government could amend the best-financial-interest duty so individuals can instruct their funds to invest their money in projects that reduce long-term and systemic financial risks such as climate change. A tax break or a matching contribution from government could also encourage individuals to choose sustainable investment options.</p>
<p>Climate change poses a grave risk to the health, wellbeing and finances of all Australians, including retirees. Federal policy reform is urgently needed to unlock more superannuation for green investment, harness the power and preferences of individual members and help reduce future climate impacts. </p>
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Read more:
<a href="https://theconversation.com/too-hard-basket-why-climate-change-is-defeating-our-political-system-214382">Too hard basket: why climate change is defeating our political system</a>
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<p class="fine-print"><em><span>Arjuna Dibley is a Fellow at the Centre for Policy Development, a Board Member at CarbonPlan and Environmental Justice Australia. He is part of a research team at the University of Melbourne that receives funding from the Australian Research Council to study institutional investors and climate investing. </span></em></p>Our super funds say they want to invest more in the net zero transition but that regulation blocks them. It’s time to put them to the test, and turn their piles of money toward a greener future.Arjuna Dibley, Head of Sustainable Finance Hub, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2176362023-11-29T13:51:15Z2023-11-29T13:51:15ZLow emissions and economic survival – countries in the global south aren’t getting a fair deal<p><em>In 2015, more than 140 countries <a href="https://www.un.org/en/climatechange/net-zero-coalition">signed up</a> to the goal of achieving net-zero emissions by 2050. For countries in the global south this is a huge task. On the one hand they have committed to low emissions. On the other their economic survival depends on using resources that produce high emissions. International economic law scholar Olabisi D. Akinkugbe unpacks the issue of climate justice, and how climate laws and foreign investment laws fit into the picture.</em></p>
<h2>What is climate justice and why is achieving it such a challenge?</h2>
<p>Climate change policies are designed to reduce greenhouse gas emissions (which mainly come from the use of fossil fuels) and shift socio-economic activities towards the use of renewable energies. But, unless these changes are made in a manner that considers historical responsibility for the economic imbalances between countries, they risk crippling the economies of the global south.</p>
<p>That’s why institutions such as the United Nations Development Programme have called for <a href="https://climatepromise.undp.org/news-and-stories/climate-change-matter-justice-heres-why">climate justice</a>, which means:</p>
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<p>putting equity and human rights at the core of decision making and action on climate change. The concept has been widely used to refer to the unequal historical responsibility that countries and communities bear in relation to the climate crisis. </p>
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<p>A climate justice approach to climate change would consider that developing countries did not <a href="https://www.cgdev.org/media/who-caused-climate-change-historically">contribute</a> to climate change as much as developed countries but bear a <a href="https://www.weforum.org/agenda/2023/01/climate-crisis-poor-davos2023/">disproportionate burden</a> of the impact of climate change.</p>
<p>Yet, as we detail <a href="https://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=2854&context=ilj">in a recent paper</a>, a combination of legal frameworks for climate change and foreign direct investment is making the situation worse for developing countries. These laws inform the debate on climate change.</p>
<h2>What are the laws? How are they flawed?</h2>
<p>International climate change law is a layered and complex set of principles, rules, regulations and institutions. </p>
<p>The United Nations climate change regime is at the centre of the international action to address climate change. It does this by addressing <a href="https://www.ipcc.ch/site/assets/uploads/2018/02/ar4-wg2-chapter18-1.pdf">mitigation and adaptation</a> challenges. The regime includes the <a href="https://unfccc.int/resource/docs/convkp/conveng.pdf">1992 United Nations Framework Convention on Climate Change</a> and the <a href="https://unfccc.int/sites/default/files/english_paris_agreement.pdf">2015 Paris Agreement</a>. It also includes the <a href="https://www.ipcc.ch">Intergovernmental Panel on Climate Change</a> (IPCC), and decisions of bodies like the Conference of Parties to the Convention (“COP”) and the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement.</p>
<p>The relationship between climate goals and international investment and trade has attracted more attention from <a href="https://www.oecd.org/investment/investment-policy/OECD-investment-treaties-climate-change-consultation-responses.pdf">scholars</a> since the 2022 <a href="https://www.ipcc.ch/report/ar6/wg3/downloads/report/IPCC_AR6_WGIII_FullReport.pdf">report</a> of the Working Group III of the IPCC highlighted the <a href="https://www.veblen-institute.org/IPCC-points-out-the-incompatibility-between-protecting-fossil-investments-and.html">incompatibility</a> of climate goals and trade and investment regimes. </p>
<p>The <a href="https://unfccc.int/process-and-meetings/the-paris-agreement">Paris Agreement</a> is the primary point of intersection between investment law and climate law. Among other goals, the agreement aspires to make finance flows consistent with low emissions pathways and climate resilient development.</p>
<p>In the <a href="https://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=2854&context=ilj">study</a> I argue that investment law and climate change law are at odds with the quest for climate justice. There are at least four reasons:</p>
<p>First, calls for ambitious and expedited transition to climate-friendly investments leave developing countries at a disadvantage in attracting new investments. Mobilising climate finance for a clean energy transition is expensive. As the finance is also primarily in the form of loans, it deepens the <a href="https://www.afronomicslaw.org/sites/default/files/pdf/A%20Brief%20on%20Debt%20and%20Climate%20Vulnerable%20Countries%20in%20Africa.pdf">debt vulnerability</a> of developing countries.</p>
<p>Second, treaty-based solutions don’t adequately address the power imbalance in the investor-host state relationship. Investment treaties protect investors more than host states. Also, the investor-state dispute system has more consequences for developing countries. And there is <a href="https://www.iisd.org/itn/en/2013/03/22/remedies-in-investor-state-arbitration-a-public-interest-perspective/">disregard</a> for public interest concerns in the award of damages to investors.</p>
<p>Third, embracing market-based solutions led by transnational corporations may reinforce climate injustice while barely reducing emissions. The profit-oriented nature of the investment approach exacerbates the existing <a href="https://debtjustice.org.uk/wp-content/uploads/2022/10/Debt-and-the-Climate-Crisis-Briefing-October-2022-UPDATED.pdf">debt challenges</a> of developing countries.</p>
<p>Fourth, the risks of investor-state disputes, heavy damages and compensation are generally skewed against developing countries. This affects their capacity to take climate action. </p>
<p>Legal instruments protect foreign investors. The legal protection of foreign direct investment under public international law is guaranteed by international investment agreements and bilateral investment treaties. In addition, multilateral investment treaties, such as the <a href="https://www.energycharter.org/process/energy-charter-treaty-1994/energy-charter-treaty/">Energy Charter Treaty</a>, and some free trade agreements also protect direct investment. </p>
<p>An investor can sue a host state for violations of treaties or investment agreements and get damages. Developing countries have been on the receiving end of punitive damages. This has led to calls for <a href="https://www.afronomicslaw.org/2020/09/07/symposium-introduction-centering-voices-from-the-global-south-on-investor-state-dispute-settlement-reform-a-debate/">reform</a> of the arbitration regime that applies to investors and states. </p>
<h2>What should be done?</h2>
<p>The design of the global transition from fossil fuels to net-zero emissions must account for the economic differences between countries and allow for multiple pathways. This is particularly true for developing countries that must reorganise their economies to attract investments that reduce emissions and generate socioeconomic development, while addressing their debt exposures. </p>
<p>The misalignment of climate change law and international investment law deepens this challenge. This is because many African states depend on the extractive industry to sustain their economies. In addition, the global transition to renewable energy has wider ramifications to produce batteries, electric vehicles, and other renewable energy systems. All require mineral resources from the global south. </p>
<p>Green or climate-friendly investment places global south countries in an unequal position on the international energy chart.</p>
<p>Developing countries, therefore, face the dilemma of balancing fossil fuel extraction with climate-friendly investments. Increased demands for electric vehicles and renewable energy present opportunities for developing states. But many lack the capacity to capture parts of the supply chains of the new green economy. </p>
<p>The transition to net-zero emissions thus poses <a href="https://www.afronomicslaw.org/category/african-sovereign-debt-justice-network-afsdjn/statement-african-sovereign-debt-justice">several problems</a>: climate crisis, extreme poverty, and lack of access to energy.</p><img src="https://counter.theconversation.com/content/217636/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Olabisi D. Akinkugbe does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Climate and investment laws must align for the global south to get climate justice and achieve net-zero emissions.Olabisi D. Akinkugbe, Associate Professor & Viscount Bennett Professor of Law, Dalhousie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2087792023-07-04T13:51:05Z2023-07-04T13:51:05ZWho decides what ESG is and how to make investments greener – new research<figure><img src="https://images.theconversation.com/files/535306/original/file-20230703-193958-drmgte.jpg?ixlib=rb-1.1.0&rect=52%2C41%2C3823%2C2216&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">It's not easy being a green investor.</span> <span class="attribution"><span class="source">Miha Creative/Shutterstock</span></span></figcaption></figure><p><a href="https://www.ropesgray.com/en/navigating-state-regulation-of-esg/state-initiatives">More than 30 US states</a> have proposed or implemented legislation in recent years to stop the government and its pension funds from investing in environmental social and governance (ESG) funds. These products integrate ESG issues into their investment strategies, which mainly involve buying stocks but also bonds. </p>
<p>US conservatives claim that <a href="https://www.jdsupra.com/legalnews/update-four-more-states-move-toward-8229132/#:%7E:text=As%20of%20the%20date%20of,%2C%20Texas%2C%20and%20West%20Virginia.">ESG has an overly large impact</a> on corporations and the whole economy – hence recent moves to ban the strategy for government investments. But critics in Europe argue that <a href="https://www.socialeurope.eu/is-esg-the-solution-to-climate-and-social-ills">ESG funds are not doing enough</a> to have a positive impact in the real world.</p>
<p>Both cannot be right. So, who is?</p>
<p>Our <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/rego.12530">recently published research</a> explores this question by looking at the actual sustainability impact that these funds have. Although <a href="https://www.reuters.com/business/sustainable-business/sustainable-investments-account-more-than-third-global-assets-2021-07-18/">financial industry groups claim</a> that one-third of all investment assets are already sustainable, our research shows most ESG investing actually does not create any meaningful sustainability impact. </p>
<p>Most ESG funds take conventional mutual funds as their baseline and tweak their capital allocation according to ESG criteria. Those that stay closest to their conventional peers are called “broad ESG” or “ESG integration” funds. Broad funds are prone to <a href="https://www.bloomberg.com/news/articles/2021-09-29/fund-managers-start-axing-esg-buzzword-as-greenwash-rules-bite#xj4y7vzkg">accusations of greenwashing</a> because their capital allocation only slightly deviates from conventional funds. </p>
<p>For example, these funds usually exclude producers of thermal coal from their portfolio and assign slightly less weight to oil firms. As a result, large tech firms such as Amazon, Microsoft and Alphabet often make up a bigger share of these funds’ portfolios due to their huge market capitalisation and their relatively small emissions footprint (compared with fossil fuel producers, anyway). Overall, however, changes to their portfolios are more cosmetic than anything else.</p>
<p>Our market analysis of ESG funds showed that, out of all index-tracking ESG funds, 88% are broad ESG funds. But there are also “light green” and “dark green” ESG funds, which do not track conventional or benchmark stock indices as closely. Light green funds comprise 7% and dark green funds make up 5% of the market.</p>
<p>When it comes to firms that offer these ESG funds, our research shows Blackrock is the largest provider, but its market share is only 15%, followed by Fidelity with 12% and Pictet with 8% of the pie. This indicates ESG asset management is a rather fragmented market, and so asset managers themselves are less likely to be able to set the standard for ESG. </p>
<h2>Who really sets ESG standards?</h2>
<p>Instead, we found that asset managers such as Blackrock, which are passive investors, essentially delegate their investment decisions to ESG indices. And most large active managers such as Fidelity hardly deviate from their non-ESG index benchmarks. So, what ultimately matters when it comes to defining ESG capital allocation are indices.</p>
<p>Indices are basically a basket of particular stocks that aim to represent a specific economic entity. There are many but, for example, the S&P 500 represents the US stock market, while the MSCI ESG Leaders USA Index supposedly represents the leading US companies with respect to ESG criteria. </p>
<p>These index providers play a key role in this <a href="https://www.tandfonline.com/doi/full/10.1080/09692290.2019.1699147">age of passive asset management</a>. We found that ESG funds tend to <a href="https://www.cambridge.org/core/journals/business-and-politics/article/hidden-power-of-the-big-three-passive-index-funds-reconcentration-of-corporate-ownership-and-new-financial-risk/30AD689509AAD62F5B677E916C28C4B6">merely track existing stock indices</a> these days, essentially delegating investment decisions to the firms that create these indices. As a result, this is where ESG standards are actually set.</p>
<p>One firm in particular dominates the development and provision of ESG indices: MSCI has a stunning <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/rego.12530#">global market share of 57%</a>, compared to only 12% each for its closest competitors, S&P Dow Jones and FTSE Russell. This is largely because MSCI is one of the very few firms that not only provides ESG ratings, but also data and indices. Offering a number of related products in this way creates a strong <a href="https://www.tandfonline.com/doi/full/10.1080/13563467.2020.1782368">“network” effect</a>.</p>
<p>Further, most ESG funds are based on the ESG ratings of companies, which do not seek to measure a corporation’s sustainability impact on the environment or society. In fact, they <a href="https://www.bloomberg.com/graphics/2021-what-is-esg-investing-msci-ratings-focus-on-corporate-bottom-line/">measure the exact opposite</a>: the potential impact of ESG on the corporation and its shareholders.</p>
<p>Broad ESG investing based on MSCI and other rating and index providers is therefore really only a risk management tool for investors. Rather than monitoring how a company is affecting or helping with the escalating climate crisis and other ESG issues, it actually tracks how ESG factors are affecting companies.</p>
<p>This means that broad ESG funds, <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/rego.12530#">which constitute the lion’s share of the market</a>, often only make a rather feeble attempt to manage ESG. Their typical capital allocation – the amount of money invested in a fund – hardly deviates from conventional funds.</p>
<figure class="align-center ">
<img alt="Offshore oil and gas wellhead, remote platform, sea in twilight." src="https://images.theconversation.com/files/535307/original/file-20230703-212410-l6f6pp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/535307/original/file-20230703-212410-l6f6pp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/535307/original/file-20230703-212410-l6f6pp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/535307/original/file-20230703-212410-l6f6pp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/535307/original/file-20230703-212410-l6f6pp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/535307/original/file-20230703-212410-l6f6pp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/535307/original/file-20230703-212410-l6f6pp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">ESG investment should go much further than reducing exposure to oil & gas producers in an investment portfolio.</span>
<span class="attribution"><span class="source">Oil and Gas Photographer/Shutterstock</span></span>
</figcaption>
</figure>
<h2>How ESG funds could boost sustainability</h2>
<p>Capital allocation is only one of the potential ways ESG investing can boost sustainability, however. Shareholder engagement could be even more powerful. This can either be pursued by investors via their proxy voting behaviour at the annual general meetings of the firms that are part of their portfolio, or through other forms of interactions (such as private engagements) with the management of these companies. </p>
<p><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4205546">Research has shown</a> that funds are able to create significant impact via these routes. But at the moment, shareholder engagement is neither a standard part of ESG methodologies nor of ESG indices. Our research shows this could be a crucial factor in ensuring ESG funds have maximum impact, but there is a need for significant changes in the regulation of the industry.</p>
<p>This should include clear criteria for broad ESG funds to dictate how capital allocation should deviate from conventional funds, plus favourable taxation or regulatory arrangements to boost the market share of light and dark green funds. International regulators should also develop minimum standards for ESG funds’ proxy voting behaviour and private engagements.</p>
<p>In its current form, ESG will not decarbonise our economies. The volume of “true” ESG funds is still so small that they cannot possibly change contemporary capitalism, indicating the US conservatives’ “war” on ESG is just electioneering. Instead, EU discussions about ESG greenwashing seem a much more fitting description of what is going on in the world of (allegedly) sustainable finance.</p><img src="https://counter.theconversation.com/content/208779/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Most ESG funds track passive indices - this is where the power really lies in determining what is ESG.Johannes Petry, CSGR Research Fellow, University of WarwickJan Fichtner, Postdoctoral Researcher in Political Science, University of AmsterdamRobin Jaspert, PhD Candidate, Goethe University Frankfurt am MainLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2062762023-06-14T11:51:55Z2023-06-14T11:51:55ZCanada needs to set its businesses up for success in the clean energy transition<figure><img src="https://images.theconversation.com/files/531454/original/file-20230612-256738-cjrhs2.jpg?ixlib=rb-1.1.0&rect=52%2C41%2C6945%2C4616&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">To achieve a sustainable future that benefits Canadians, a coordinated response from households, businesses and the government is essential. </span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>Canada <a href="https://www.canada.ca/en/employment-social-development/programs/agenda-2030.html">committed to the United Nation Sustainability Development Goals</a> (SDGs) in 2015. These <a href="https://sdgs.un.org/goals">17 goals</a> aim to “achieve peace and prosperity for people and the planet.” This is an important, yet challenging, undertaking. </p>
<p>The goals aim to establish a “global partership” to address the pressing issues of our time. Some of these issues include reducing inequalities, promoting quality education, addressing climate change and protecting biodiversity. </p>
<p>When taking action to reduce our impact on the environment, a key challenge is how to transition to cleaner economies. The costs and risks of such an undertaking are clearly not trivial. </p>
<p>An important issue facing the country now is how to prioritize this transition in the face of <a href="https://theconversation.com/new-study-reveals-intensified-housing-inequality-in-canada-from-1981-to-2016-173633">unaffordable housing</a>, <a href="https://www.cbc.ca/news/business/bank-of-canada-january-rate-decision-1.6725283">rising interest rates</a> and <a href="https://www150.statcan.gc.ca/n1/daily-quotidien/220517/dq220517d-eng.htm">an uncertain future</a> for upcoming generations.</p>
<h2>Economic uncertainty</h2>
<p>It’s a difficult time for Canadians to consider transitioning to a cleaner, more sustainable future. Canada is projected to have one of the lowest gains in average living standards over the next seven years, <a href="https://doi.org/10.1787/a112307e-en">according to a study from the Organisation for Economic Co-operation and Development</a>. </p>
<p>There are a few reasons for this prediction. One is <a href="https://bcbc.com/insights-and-opinions/canadas-productivity-performance-over-the-past-20-years">Canada’s low level of labour productivity</a> in comparison to other nations like France, the United Kingdom and Italy. </p>
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Read more:
<a href="https://theconversation.com/canadas-lagging-productivity-affects-us-all-and-will-take-years-to-remedy-206440">Canada's lagging productivity affects us all — and will take years to remedy</a>
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<p>Another concern is Canada’s level of household debt, <a href="https://www.cmhc-schl.gc.ca/en/blog/2023/risks-canadas-economy-remain-high-household-debt-levels-continue-grow">which is now the highest in the G7</a>, according to the Canada Mortgage and Housing Corporation. Canada’s high housing prices, and resulting high levels of debt, <a href="https://financialpost.com/news/economy/canadian-home-prices-dragging-economic-growth">are likely stifling economic growth</a>.</p>
<p>In the face of such economic uncertainty, is it worth investing in a more sustainable Canada, or will it become just another economic burden? The hope is that it will provide an opportunity for Canada to fix some of its more significant problems. It could be Canada’s best hope to improve its economic fortunes. </p>
<h2>Co-ordinated response needed</h2>
<p>To achieve a sustainable future that benefits Canadians, a co-ordinated response from a variety of stakeholders — including households, businesses and the government — is essential. </p>
<p>Such a response needs businesses up front and centre. One reason for this is that <a href="https://www.theguardian.com/sustainable-business/2017/jul/10/100-fossil-fuel-companies-investors-responsible-71-global-emissions-cdp-study-climate-change">much of the world’s CO2 emissions come from businesses</a>. </p>
<p>However, it is also vital that businesses are supported because companies can innovate and thrive, ensuring that <a href="https://www.ohchr.org/sites/default/files/Documents/Issues/ClimateChange/materials/KMBusiness.pdf">sustainability and prosperity can be realized</a>. </p>
<p>Ahead of the Government of Canada’s March 2023 budget announcement, accounting firm <a href="https://kpmg.com/ca/en/home/media/press-releases/2023/03/businesses-need-more-support-to-reach-climate-goals.html">KPMG surveyed</a> medium-sized enterprises. </p>
<figure class="align-center ">
<img alt="A woman in a dark green suit gestures while speaking to a large crowd of people from behind a podium." src="https://images.theconversation.com/files/531455/original/file-20230612-222332-hltpfk.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/531455/original/file-20230612-222332-hltpfk.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/531455/original/file-20230612-222332-hltpfk.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/531455/original/file-20230612-222332-hltpfk.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/531455/original/file-20230612-222332-hltpfk.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/531455/original/file-20230612-222332-hltpfk.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/531455/original/file-20230612-222332-hltpfk.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Deputy Prime Minister and Minister of Finance Chrystia Freeland delivers the federal budget in the House of Commons on Parliament Hill in Ottawa in March 2023.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Sean Kilpatrick</span></span>
</figcaption>
</figure>
<p>They found that Canadian businesses are ready to embrace their role in achieving sustainability, but 80 per cent want more support from the government. This includes assistance for capital investment, tax incentives and tax credits. </p>
<p>These measures would make it easier for companies to adopt clean technologies. They would also be crucial for helping Canadian companies compete with their American and European counterparts, which are already receiving green incentives. </p>
<h2>Global green incentives</h2>
<p>Other countries, like the U.S., are shoring up their competitiveness and positioning themselves for a cleaner economy. The U.S. committed nearly US$370 billion to clean energy in its <a href="https://www.whitehouse.gov/cleanenergy/inflation-reduction-act-guidebook/">Inflation Reduction Act of 2022</a>.</p>
<p>In response, the European Union published its <a href="https://ec.europa.eu/commission/presscorner/detail/en/ip_23_510">Green Deal Industrial Plan</a> in February 2023 to support Europe’s net-zero industry and help it transition to climate neutrality. This included <a href="https://www.allianz.com/en/economic_research/publications/specials_fmo/inflation-reduction-act.html">520 billion euros in support</a> through the Recovery and Resilience Fund and REPowerEU fund.</p>
<figure class="align-center ">
<img alt="A man with white hair wearing aviator glasses speaks from behind a podium emblazoned with the crest of the U.S. president." src="https://images.theconversation.com/files/531199/original/file-20230609-23-gz60na.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/531199/original/file-20230609-23-gz60na.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/531199/original/file-20230609-23-gz60na.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/531199/original/file-20230609-23-gz60na.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/531199/original/file-20230609-23-gz60na.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/531199/original/file-20230609-23-gz60na.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/531199/original/file-20230609-23-gz60na.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">U.S. President Joe Biden speaks before signing H.R. 5376, the Inflation Reduction Act of 2022, during a ceremony at White House in September 2022.</span>
<span class="attribution"><span class="source">(AP Photo/Andrew Harnik)</span></span>
</figcaption>
</figure>
<p>EU member nations have also responded individually. For instance, <a href="https://www.reuters.com/sustainability/france-offer-new-tax-credit-business-investments-green-technologies-2023-05-11/">France announced a tax credit</a> for renewable investments earlier this month. </p>
<p>Critics might see this trend as a “<a href="https://nationalpost.com/news/politics/beware-risk-of-mutually-sabotaging-competition-on-corporate-subsidies-freeland">race to the bottom</a>” in terms of subsidies and protectionist trade measures. Others, however, might see it as a global effort toward growing market competitiveness.</p>
<p>The desired outcome is a win-win scenario where all market participants benefit through combined global climate action and green investment.</p>
<h2>Federal budget</h2>
<p>The federal government seems to agree that creating a green economy is Canada’s greatest opportunity to generate growth. The <a href="https://climateinstitute.ca/budget-2023-balances-policy-and-programs-with-payments-to-support-clean-growth">2023 budget outlines C$70 billion in investments</a> to address Canada’s competitiveness and transition to clean energy. </p>
<p>This includes a strong package of tax incentives for clean energy, particularly for clean electricity and clean technology manufacturing. </p>
<p>Deputy Prime Minister and Minister of Finance <a href="https://www.canada.ca/en/department-finance/news/2023/03/government-of-canada-releases-budget-2023.html">Chrystia Freeland said</a> she had “never been more optimistic” about the future of Canada than she was on the day the federal budget was announced.</p>
<p>The list of green incentives baked into the 2023 budget is not exhaustive. However, it demonstrates that the federal government is trying to position Canada to be a more competitive, cleaner economy. </p>
<h2>More work to be done</h2>
<p>Given the package of measures in the 2023 budget, Canadian businesses are now better positioned to contribute to saving the planet. However, to compete in the clean economy space they will need continuing support as they seek to compete with other nations. </p>
<p>How this support will manifest is difficult to say, but Canada must take a global perspective when considering the best approach. It needs to be especially mindful of similar budget decisions from other major economies and the potential impact these will have on Canada’s fledgling clean economy. </p>
<p>Will there likely be further tax incentives in the future? We can suspect so. </p>
<p>But more tax incentives are not the only way to provide support. For example, Canada has not clarified how it will manage <a href="https://thoughtleadership.rbc.com/policy-insight-will-budget-2023-spark-a-green-investment-wave/">regulatory issues regarding large clean energy projects</a>. This is an important issue that could either promote or deter clean energy investment. </p>
<p>Some in the research and development sector also felt there was a <a href="https://www.univcan.ca/media-room/media-releases/budget-2023-a-missed-opportunity/">missed opportunity for Canada to invest in its own research capacity</a> to develop the talent needed to ensure the clean economy’s success. </p>
<p>While efforts are being made at the highest levels, there is still much work to do.</p><img src="https://counter.theconversation.com/content/206276/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In the fact of economic uncertainty, one question remains: Is it worth investing in a more sustainable Canada, or will it become just another economic burden?Stuart Snaith, Associate Professor, Gustavson School of Business, University of VictoriaAlison Jean Parker, Assistant Teaching Professor, Gustavson School of Business, University of VictoriaDouglas A. Stuart, Assistant Teaching Professor, Gustavson School of Business, University of VictoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1999162023-02-19T16:59:37Z2023-02-19T16:59:37ZThe rise of renewables is not without risk for investors<figure><img src="https://images.theconversation.com/files/510584/original/file-20230216-28-kllla6.jpeg?ixlib=rb-1.1.0&rect=0%2C0%2C1200%2C607&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Reaching net-zero by 2050 will require 2,000 billion dollars' worth of investment in clean electricity per year, according to the International Energy Agency.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/sunciti_sundaram/14355126874">Suncit/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>Given the urgent need to combat climate change and put an end to the exploitation of fossil fuels, it would appear renewable energies have a bright future. Having grown steadily for several years, they accounted for <a href="https://www.statistiques.developpement-durable.gouv.fr/les-energies-renouvelables-en-france-en-2020-suivi-de-la-directive-200928ce-relative-la-promotion">19.1% of gross final energy consumption in France</a> in 2020. Across the Channel, <a href="https://www.nationalgrid.com/stories/energy-explained/how-much-uks-energy-renewable">43% of the energy consumed in oot twhe UK</a> now comes from renewable sources such as wind, solar and hydroelectric power.</p>
<p>That said, it is essential we step up green investment even more if we are to sustain low-carbon economic growth. According to the International Energy Agency, more than <a href="https://www.la-croix.com/environnement/Climat-lAgence-internationale-lenergie-prevoit-pic-emissions-CO2-liees-lenergie-2025-2022-10-27-1201239635">$2 trillion in annual investment in clean electricity</a> will be needed by 2030 to achieve carbon neutrality. The war in Ukraine has also highlighted the risks posed by states’ dependence on imported hydrocarbons, making the energy transition not only an economic and ecological imperative, but a political one.</p>
<p>However, we note in an <a href="https://edhec.infrastructure.institute/wp-content/uploads/2022/11/EDHECinfra_Research_Does-the-rise-of-renewable-energy-create-new-risks-for-investors.pdf">EDHECinfra study</a> that there are a number of risks inherent in this type of investment. Our work has tracked 20 years of energy transition in the UK, an example of an economy that has successfully moved away from coal and made a rapid transition to renewables, while relying on limited hydro and nuclear power.</p>
<h2>The risk premium increases</h2>
<p>As in most developed economies, the growing share of intermittent renewables in the energy mix has created new challenges:</p>
<ul>
<li><p>an increase in development costs;</p></li>
<li><p>an increase in production volatility;</p></li>
<li><p>an increase in market price volatility.</p></li>
</ul>
<p>So while renewables are enjoying record profits (a recent <a href="https://edhec.infrastructure.institute/paper/the-pricing-of-green-infrastructure/">EDHECinfra research note</a> showed that returns on European renewable energy assets reached 16% in 2020, up from 10% in 2015), the risks faced by investors are also increasing.</p>
<p>And while interest remains strong, the risk premium demanded by the market in unlisted wind and solar projects has started to rise again since the beginning of 2022, after a decade of decline. This premium now stands at 700 basis points for wind projects in the most developed economies, according to our data provider <a href="https://edhec.infrastructure.institute/get-started/">infraMetrics</a>, up from just over 500 at the end of 2020. </p>
<p>The impact on investors of a rapid transition to intermittent renewable energy generation is therefore notable. First up, there is the instability of the energy system to contend with, but also the increase in the value of gas production, which remains one of the main sources of energy, increased price volatility, and of course, a negative impact on the returns expected by investors.</p>
<p>To rebalance the risks, investors and consumers could turn to price stabilisation mechanisms.</p>
<h2>The storage capacity strategy</h2>
<p>For investors, this is an opportunity to better think about and manage the risks to which they are exposed. Part of these risks can be managed by investing in the technologies that seem to be most needed today, such as those that increase storage capacity. To date, the majority of new investments have been directed toward intermittent energy production (such as wind and photovoltaic). However, storage capacity is struggling to develop at the same rate, which makes the supply chain more fragile.</p>
<p>But other tools than the investment strategy can also be mobilised. In this respect, diversification can be mentioned. For example: combining investments in several types of renewable energy, such as wind and solar, or in several European countries.</p>
<p>Investors can also opt to use hedging strategies such as hedging (insurance or guarantee contracts against risk). Power Purchase Agreements (PPAs) and Contracts for Difference (CfDs), financial instruments designed to limit the risk of losses, can also be used.</p>
<h2>The urgent need to stabilise prices</h2>
<p>While investors have the leverage to control the risks to which they are exposed, strong public intervention remains necessary to accelerate the development of renewable energies. Firstly, it is necessary to protect consumers from soaring prices <a href="https://www.ons.gov.uk/economy/inflationandpriceindices/articles/costoflivinginsights/energy">(+65.5% for electricity in the United Kingdom</a> over the period from November 2021 to November 2022, <a href="https://www.service-public.fr/particuliers/actualites/A15944">+15% in France</a> from January 2023 thanks to the tariff shield).</p>
<p>Thus, the preservation of existing price stabilisation mechanisms such as the tariff shield in France, the “contracts for difference”, or the end of price coupling between gas and electricity seems essential.</p>
<p>This type of measure would indeed make it possible to compensate for the deficiencies of a market which is increasingly based on the production of renewable energies, but where gas remains, paradoxically, the measure of all things.</p><img src="https://counter.theconversation.com/content/199916/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Les auteurs ne travaillent pas, ne conseillent pas, ne possèdent pas de parts, ne reçoivent pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'ont déclaré aucune autre affiliation que leur organisme de recherche.</span></em></p>Market volatility and rising development costs have led to an increase in the risk premium in recent years.Frédéric Blanc-Brude, Directeur de l'EDHEC Infrastructure Institute, EDHEC Business SchoolLaurence Monnier, Research Associate and member of the EDHECinfra Advisory Board, EDHEC Business SchoolLeonard Lum, Data analyst, EDHECinfra, EDHEC Business SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1946792022-12-20T15:58:02Z2022-12-20T15:58:02ZInvestments in green energy infrastructure: an (over)performance that will last?<figure><img src="https://images.theconversation.com/files/495400/original/file-20221115-11-jzlrbj.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C1495%2C997&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The European Commission estimates that between 2021 and 2030, the energy sector at European level will need at least 175 billion euros per year.</span> <span class="attribution"><a class="source" href="https://www.pexels.com/fr-fr/photo/trois-eoliennes-grises-243138/">Pexels</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span></figcaption></figure><p>The summer of 2022, which saw repeated <a href="https://www.lemonde.fr/en/environment/article/2022/08/21/map-of-europe-and-the-mediterranean-s-summer-temperatures-and-extreme-weather-events_5994301_114.html">heat waves, fires, and droughts</a> in Europe and around the world, is confirmation that the effects of global warming are coming on stronger and faster than even the most pessimistic forecasts. To be able to hope to curb them, it is essential for us to change our current mode of energy production and consumption to a more responsible model. This paradigm shift will require major investments: the European Commission estimates that between 2021 and 2030, the EU’s energy sector will need a minimum of <a href="https://www.cre.fr/en/CRE-in-the-world/Europe/eu-legislation">175 to 290 billion euros per year for the development of green energies</a> (solar, wind, etc.) and the necessary infrastructure.</p>
<p>But from a strictly financial point of view, is the return for investors worth it? Do green energies, which represent the future, provide better financial performance, compared to fossil energies, which are doomed to disappear?</p>
<p>In our <a href="https://edhec.infrastructure.institute/paper/the-pricing-of-green-infrastructure/">recent work</a>, we studied the expected returns and actual performance of green-energy infrastructure compared to fossil-energy infrastructure over a 10-year period (2011-2021). This question of return on investment is crucial, as investments in wind and solar energy projects currently represent between 25% and 33% of all infrastructure investments and their growth is anticipated to accelerate.</p>
<h2>A favourite among investors</h2>
<p>One of the arguments used to promote sustainable investment is that it generates better returns than conventional investment (which finances, among other things, fossil fuels). Does this hold true in practice?</p>
<p>In 2011, wind and solar energy projects had an expected return of 8%, compared to 9% for fossil energy projects. Their total annualised returns over 10 years were 16% and 17% respectively in 2021. These two figures may seem similar, but they correspond to two different economic realities.</p>
<p>Our study shows that there is now evidence of outperformance of investments in green infrastructure (defined as wind and solar projects). This outperformance, which is defined as higher returns than conventional assets, is indeed due to changing investor preferences for “green” projects. In other words, there is an excess demand for this type of investment, which can be attributed to the public’s growing awareness of energy-transition issues, and that explains the better performance of responsible assets compared to conventional assets.</p>
<h2>A paradigm shift?</h2>
<p>Over the past decade, investors have shown increasing interest in the renewable energy sector. In the first half of 2022, green investments totalled <a href="https://about.bnef.com/blog/renewable-energy-sector-defies-supply-chain-challenges-to-hit-a-record-first-half-for-new-investment/">US$226 billion</a>, up 11% year-on-year, according to a BloombergNEF report published in August. In particular, investments in solar projects reached $120 billion (+33%) and wind projects $84 billion (+16%).</p>
<p>In a 2022 survey of around 350 asset portfolios, <a href="https://edhec.infrastructure.institute/">EDHECinfra</a> found that renewables accounted for between 25% and 33% of investments, but also that fossil fuels (gas and coal) accounted for only 1 to 3% of portfolios, with a notable exception for North American investors.</p>
<p>This is because fossil-fuel projects are, in addition to being relatively unpopular, subject to environmental taxes – such as the <a href="https://www.oecd.org/tax/tax-policy/carbon-pricing-france.pdf">carbon tax in France</a> and from 2026, the <a href="https://www.ft.com/content/4a0db207-cf24-42e4-bf82-9952b93980e8">European Union</a>. Moreover, we are witnessing what may well be a tipping point. In 2020, investment in renewables exceeded $500 billion, compared to $400 billion for oil and gas production. Indeed, the value of so-called “traditional” assets is being affected.</p>
<h2>Will the momentum keep up?</h2>
<p>It can be seen that over the last decade, fossil fuel investments have been shunned by mainstream investors, while green assets have been widely integrated into investment portfolios. This is particularly visible over the period 2012-2015, during which green assets also performed better than (or as well as) conventional assets.</p>
<p>This performance of green assets can be explained in particular by a change in risk perception (responsible investment tends to become more normalised and even more desirable). By contrast, the performance of conventional assets remains driven by their risk-adjusted return.</p>
<p>However, these temporarily higher returns for green investments do not predict future performance. According to our observations, this phenomenon of strong demand accompanied by an increase in the value of green assets reached its peak in 2019. At present, the expected returns from this type of investment are much lower.</p>
<p>This means, among other things, that returns on green energy projects should not be seen as an indicator of their future performance. For the more demand for green assets is met by additional investment, the lower the expected returns. Indeed, supply and demand eventually converge, allowing the outperformance of green assets to be “corrected”.</p>
<p>There is therefore no real <a href="https://www.forbes.com/advisor/investing/risk-premium/">risk premium</a> for green infrastructure projects that investors could benefit from over the long term. In fact, we should rather speak of a “green premium”, which investors were willing to pay at a given moment, when responsible assets gained in popularity. The outperformance of green assets over the previous decade was only due to excess demand, which eventually diminished.</p>
<p>In other words, when supply finally caught up with demand, green assets experienced a relative decline in performance as a result of a return to market equilibrium. The green premium is a reality, but it was only meant to be temporary. The previous decade should therefore be seen as a transition period, not as the beginning of a permanent phenomenon.</p><img src="https://counter.theconversation.com/content/194679/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Les auteurs ne travaillent pas, ne conseillent pas, ne possèdent pas de parts, ne reçoivent pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'ont déclaré aucune autre affiliation que leur organisme de recherche.</span></em></p>A new study indicates that the supply of “green” assets has caught up with demand, leading to a relative decline in performance. The green premium is a reality, but may be temporary.Frédéric Blanc-Brude, Directeur de l'EDHEC Infrastructure Institute, EDHEC Business SchoolNoël Amenc, Professeur de finance, EDHEC Business SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1966402022-12-15T21:47:42Z2022-12-15T21:47:42ZCOP15: A call to action for investors to help us meet vital biodiversity goals<figure><img src="https://images.theconversation.com/files/501385/original/file-20221215-15-d0euu7.jpg?ixlib=rb-1.1.0&rect=326%2C293%2C10353%2C5356&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Businesses and investors have a critical role to play in biodiversity and conservation efforts and need to invest in sustainable production and extraction methods</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>The UN Secretary-General, António Guterres, opened the <a href="https://www.cbd.int/">UN Convention on Biological Diversity</a> (COP15) in Montréal with a stark message: “<a href="https://journalbreak.com/fate-of-the-living-world-will-be-decided-at-cop15-say-scientists-cop15/">Without nature, we are nothing. Nature is our life-support system, and yet humanity seems hell bent on destruction</a>.”</p>
<p>The summit brought together delegates from over 190 countries to negotiate the post-2020 <a href="https://www.cbd.int/doc/c/abb5/591f/2e46096d3f0330b08ce87a45/wg2020-03-03-en.pdf">Global Biodiversity Framework</a>, the implementation of which will require a transformation in the way we produce, consume and trade goods and services that rely on and impact biodiversity. </p>
<p>Companies and investors have, therefore, been paying close attention. Businesses and investors have a critical role to play in biodiversity and conservation efforts and need <a href="https://news.un.org/en/story/2022/12/1131482">to invest in sustainable production and extraction methods</a>.</p>
<p>On Dec. 14, the <a href="https://www.cbd.int/article/cop15-finance-and-biodiversity-day">Finance and Biodiversity Day</a> of the summit, speakers across the financial sector discussed various ways of aligning financial investments with the new biodiversity framework. In anticipation of these finance talks, a new global engagement initiative, <a href="https://www.prnewswire.com/news-releases/at-cop15-investors-announce-nature-action-100-to-tackle-nature-loss-and-biodiversity-decline-301699719.html">Nature Action 100</a> was launched to drive investors’ action on nature-related risks and opportunities. </p>
<p>As a scholar in sustainable finance, I believe that while these initiatives and discussions are important, we need more targeted and urgent investments in nature-friendly solutions to reverse biodiversity loss.</p>
<h2>“Without nature, we are nothing”</h2>
<p>Numerous scientific studies point to alarming statistics on the rates of biodiversity loss. The <a href="https://livingplanet.panda.org/">Living Planet Report 2022</a> shows an average decline of 69 per cent in wildlife populations since 1970, thus emphasizing the dual crises of biodiversity loss and climate change driven by human activities. </p>
<figure class="align-center ">
<img alt="A vast stretch of mangrove with a river running in between" src="https://images.theconversation.com/files/501402/original/file-20221215-11129-13xluz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/501402/original/file-20221215-11129-13xluz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/501402/original/file-20221215-11129-13xluz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/501402/original/file-20221215-11129-13xluz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/501402/original/file-20221215-11129-13xluz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/501402/original/file-20221215-11129-13xluz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/501402/original/file-20221215-11129-13xluz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Ecosystem services from biodiversity, such as flood protection and carbon sequestration, are worth an estimated US$125-140 trillion per year.</span>
<span class="attribution"><span class="source">(AP Photo/Al-emrun Garjon)</span></span>
</figcaption>
</figure>
<p>Unlike the climate crisis that led to the <a href="https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement">signing of the Paris Agreement</a>, biodiversity loss has received little attention until now. However, the risks from biodiversity loss are enormous. </p>
<p>According to an <a href="https://www.oecd.org/environment/resources/biodiversity/G7-report-Biodiversity-Finance-and-the-Economic-and-Business-Case-for-Action.pdf">OECD report</a>, ecosystem services from biodiversity, such as crop pollination, water purification, flood protection and carbon sequestration, are worth an estimated US$125-140 trillion per year. About<a href="https://planet-tracker.org/wp-content/uploads/2022/10/NDE-report.pdf"> US$44 trillion per year of this global output</a> is dependent on nature . </p>
<h2>Bending the curve of biodiversity loss</h2>
<p>The Convention on Biological Diversity’s <a href="https://www.cbd.int/gbo/gbo5/publication/gbo-5-spm-en.pdf">fifth Global Biodiversity Outlook</a> summary report for policymakers, published in 2020, suggests a portfolio of actions to restore biodiversity.</p>
<p>These actions include the restoration of landscapes and marine and coastal ecosystems, redesigning agricultural systems through innovative productivity-enhancing approaches, deploying green infrastructure, enabling sustainable and healthy diets, rapidly phasing out fossil fuel use, and many more.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/501378/original/file-20221215-11129-zd431c.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Graph of the potential trend changes after following CBD's action plan" src="https://images.theconversation.com/files/501378/original/file-20221215-11129-zd431c.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/501378/original/file-20221215-11129-zd431c.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=501&fit=crop&dpr=1 600w, https://images.theconversation.com/files/501378/original/file-20221215-11129-zd431c.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=501&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/501378/original/file-20221215-11129-zd431c.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=501&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/501378/original/file-20221215-11129-zd431c.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=629&fit=crop&dpr=1 754w, https://images.theconversation.com/files/501378/original/file-20221215-11129-zd431c.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=629&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/501378/original/file-20221215-11129-zd431c.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=629&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The Global Biodiversity Outlook report offers climate actions that could halt and reverse the rate of biodiversity decline (bend the curve), potentially leading to net biodiversity gains after 2030.</span>
<span class="attribution"><span class="source">(CBD/Global Biodiversity Outlook 5, Summary for Policymakers)</span></span>
</figcaption>
</figure>
<p>Businesses and investors have a critical role to play in each of these action domains, especially when it comes to shifting to more sustainable production and manufacturing processes, investing in energy efficiency and waste reduction, conservation of natural resources, and investing in climate solutions that also support biodiversity.</p>
<h2>Biodiversity awareness in the world of finance</h2>
<p>The awareness about biodiversity risks remains very limited within the finance community. This year, the non-profit CDP, which runs the world’s environmental disclosure system, included <a href="https://dfge.de/biodiversity-cdp-2022-questionnaire/">new questions to assess firms’ approaches to biodiversity</a>. </p>
<p>The results show that three-quarters of 7,700 respondent companies do not assess their impact on biodiversity. Most companies in nature-damaging sectors, such as apparel and manufacturing, are still failing to take meaningful action to stop biodiversity loss and environmental degradation. </p>
<p>According to a <a href="https://www.oecd-ilibrary.org/docserver/1a1ae114-en.pdf?expires=1670922228&id=id&accname=guest&checksum=BEFF7F6094BF8F10746F39F98A4E16A5">2021 OECD report</a>, nature-related dependencies, impacts and risks are poorly understood and almost entirely uncompensated for in the financial sector. This leads to capital misallocation that ultimately undermines the wellbeing of society. </p>
<p>There are, however, positive signs. Thirty-one per cent of companies in the CDP survey have made a public commitment and/or endorsed biodiversity-related initiatives, and 25 per cent of respondents are planning to do so within the next two years.</p>
<p>The growing awareness is confirmed by the 2022 Global Risks Report, which found that biodiversity loss ranks third among the <a href="https://assets.weforum.org/editor/responsive_large_webp_uN-wLneixIqA0YQRRbytTiHbpvtbRYoXXytgYRwzJ-o.webp">top 10 global risks by severity over the next 10 years</a>.</p>
<h2>Integrating biodiversity in financial decisions</h2>
<p>One of the key challenges for investors and lenders is getting the relevant data to make evidence-based decisions to allocate funds. This is in line with the ever-increasing demand for environmental, social and governance (ESG) data disclosure. </p>
<p>The newly launched international initiative <a href="https://tnfd.global/">Taskforce on Nature-related Financial Disclosures</a> is developing a risk management and disclosure framework for organizations to report and act on evolving nature-related financial risks.</p>
<p>Biodiversity is also attracting the attention of financial policymakers. In March 2022, the <a href="https://www.ngfs.net/en">Network for Greening the Financial System</a>, a coalition of more than 120 central banks and supervisors, <a href="http://www.ngfs.net/sites/default/files/medias/documents/statement_on_nature_related_financial_risks_-_final.pdf">published a new statement</a>, acknowledging that biodiversity loss could lead to significant macroeconomic and financial stability risks. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1602025756581937152"}"></div></p>
<p>The new investor-led initiative <a href="https://www.prnewswire.com/news-releases/at-cop15-investors-announce-nature-action-100-to-tackle-nature-loss-and-biodiversity-decline-301699719.html">Nature Action 100</a> builds on <a href="https://www.climateaction100.org/">similar initiatives</a> to help investors engage with companies that are contributing to biodiversity loss. Engaging with companies to reduce their negative impact on nature can be a powerful tool for change, especially when coming from large investors and asset owners. </p>
<p>The International Sustainability Standards Board (ISSB) is now considering biodiversity in the development of new ESG disclosure standards. Addressing COP15 delegates, Emmanuel Faber, chair of the ISSB, announced the appointment of two <a href="https://www.ifrs.org/news-and-events/news/2022/12/issb-describes-the-concept-of-sustainability/?utm_medium=email&utm_source=website-follows-alert&utm_campaign=immediate">special advisors to provide strategic counsel on issues relating to natural ecosystems and ‘just transition.’</a> </p>
<h2>The future lies in impact investing</h2>
<p>While these initiatives are crucial, focusing on data disclosure is not sufficient. Even if we quickly agree on disclosure frameworks and measurements around biodiversity, disclosures that are voluntary and not supported by regulation are vulnerable to <a href="https://theconversation.com/greenwashing-corporate-tree-planting-generates-goodwill-but-may-sometimes-harm-the-planet-103457">greenwashing</a> which is widespread in the ESG space. </p>
<p>We need to encourage more targeted investments in nature-positive solutions that reverse biodiversity loss. Impact investing — investing money with the intention to benefit society and the environment — offers a framework for this. </p>
<p>Impact investing starts with identifying a societal challenge and then screens for investment opportunities that provide measurable solutions. But <a href="https://thegiin.org/research/publication/impact-investing-market-size-2022/">impact investments remain very small</a> relative to other responsible investment strategies. Many impact investors use the <a href="https://sdgs.un.org/goals">UN Sustainable Development Goals (SDGs)</a> to set their impact goals and measure outcomes.</p>
<p>To tackle biodiversity loss, we need more investments in SDG14 (life below water) and SDG15 (life on land). Despite the importance of ocean ecosystems for local livelihoods, food security and carbon sequestration, <a href="https://sdgs.un.org/events/accelerating-investments-sdg-14-and-sustainable-blue-economy-48934">SDG14 receives the least amount of funding</a> of any of the SDGs. </p>
<figure class="align-center ">
<img alt="Windmills" src="https://images.theconversation.com/files/501406/original/file-20221215-12-9gcc7c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/501406/original/file-20221215-12-9gcc7c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=438&fit=crop&dpr=1 600w, https://images.theconversation.com/files/501406/original/file-20221215-12-9gcc7c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=438&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/501406/original/file-20221215-12-9gcc7c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=438&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/501406/original/file-20221215-12-9gcc7c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=551&fit=crop&dpr=1 754w, https://images.theconversation.com/files/501406/original/file-20221215-12-9gcc7c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=551&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/501406/original/file-20221215-12-9gcc7c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=551&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Canada is a global leader in clean tech innovation.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Andrew Vaughan</span></span>
</figcaption>
</figure>
<p><a href="https://www.canadaaction.ca/cleantech-innovation-index-ranking">Canada is a global leader in clean tech innovation</a> and many companies at the nexus of nature and climate are emerging across the country, including innovation in ocean tech, clean marine transportation and regenerative agriculture. </p>
<p>But financing remains a challenge, especially at early stages when risk is high and scale is lacking to attract large investors. More innovative financing mechanisms and instruments are needed to fill this gap. </p>
<p>Investing in Indigenous-led projects can also advance both reconciliation and biodiversity goals, because Indigenous lands contain <a href="https://www.un.org/development/desa/indigenouspeoples/wp-content/uploads/sites/19/2018/04/Indigenous-Peoples-Collective-Rights-to-Lands-Territories-Resources.pdf">80 per cent of the world’s remaining biodiversity</a>. </p>
<p>The <a href="https://www.cbd.int/article/cop15-finance-and-biodiversity-day">Finance and Biodiversity Day</a> at COP15 stimulated important discussions on how to align financial flows with the new biodiversity framework, but real actions remain to be seen. We need action now, as time is not on our side.</p><img src="https://counter.theconversation.com/content/196640/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Basma Majerbi receives funding from Canada's Social Sciences and Humanities Research Council (SSHRC), Mitacs and the Pacific Institute for Climate Solutions (PICS) at the University of Victoria. She's a volunteer Board member with the South Island Prosperity Partnership and a member of the Research Advisory Council of the Institute for Sustainable Finance.</span></em></p>We need more targeted investments in solutions that have a positive impact on nature to reverse biodiversity loss.Basma Majerbi, Associate Professor, Peter B. Gustavson School of Business, University of VictoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1948682022-11-28T16:59:38Z2022-11-28T16:59:38ZOur US$10 trillion global energy bill dwarfs what’s needed to limit global heating<figure><img src="https://images.theconversation.com/files/497665/original/file-20221128-12-mduqne.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C6006%2C4016&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">William Potter / shutterstock</span></span></figcaption></figure><p>The world’s energy bill for 2022 is set to be the highest ever, topping <a href="https://iea.blob.core.windows.net/assets/b0beda65-8a1d-46ae-87a2-f95947ec2714/WorldEnergyInvestment2022.pdf">US$10 trillion</a> (£8.3 trillion). This is the total price paid for all forms of energy across all sectors by all people. Something like 80% of this bill is for coal, oil or gas, or for electricity generated from these fossil fuels.</p>
<p>Our addiction to energy is equivalent to more than 10% of <a href="https://data.worldbank.org/indicator/NY.GDP.MKTP.CD">global GDP</a>. Infuriatingly, a lot of the energy we buy goes up in smoke or wasted heat before it even gets a chance to do any useful heating, cooling, cooking, transporting or manufacturing. Energy spending is now greater than total global <a href="https://www.mckinsey.com/capabilities/sustainability/our-insights/the-economic-transformation-what-would-change-in-the-net-zero-transition">tax revenue</a> or <a href="https://www.mckinsey.com/capabilities/sustainability/our-insights/the-economic-transformation-what-would-change-in-the-net-zero-transition">corporate profits</a> and dwarfs <a href="https://milex.sipri.org/sipri">military expenditure</a>. When energy prices are high, as they are now, a good proportion of our overall energy bill becomes profit in the pockets of oil and gas producers.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/497647/original/file-20221128-17-y5rec9.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Chart with different sized circles" src="https://images.theconversation.com/files/497647/original/file-20221128-17-y5rec9.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/497647/original/file-20221128-17-y5rec9.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=424&fit=crop&dpr=1 600w, https://images.theconversation.com/files/497647/original/file-20221128-17-y5rec9.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=424&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/497647/original/file-20221128-17-y5rec9.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=424&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/497647/original/file-20221128-17-y5rec9.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=533&fit=crop&dpr=1 754w, https://images.theconversation.com/files/497647/original/file-20221128-17-y5rec9.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=533&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/497647/original/file-20221128-17-y5rec9.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=533&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Global climate finance, investment and key climate negotiation numbers (to scale).</span>
<span class="attribution"><span class="source">Author's work (data: OECD, World Bank, IEA 2020-22, latest available year used)</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>In the natural world, most species thrive by exquisite optimisation of their energy consumption. <a href="https://theconversation.com/sloths-arent-lazy-their-slowness-is-a-survival-skill-63568">Seemingly-lazy animals</a> ensure they use just enough energy to survive – and no more. </p>
<p>Our high-energy, high-carbon human society is rather different. Each year, we spend no less than four times more on our energy bills than we do investing to minimise and avoid those bills in the future. The good news is that the tide has turned and <a href="https://www.iea.org/reports/world-energy-investment-2022/overview-and-key-findings">annual investments in clean energy</a> (US$1.4 trillion) are now greater than investments in fossil fuel systems (US$1 trillion). </p>
<p>But we still waste energy spectacularly, and we could quickly and practically do something about it. The IPCC has <a href="https://www.ipcc.ch/2022/04/04/ipcc-ar6-wgiii-pressrelease/">said</a> that “there are options available now in every sector that can at least halve emissions by 2030.”</p>
<p>When energy is expensive and the climate clock is ticking, this is a massive missed opportunity to pump solar and wind energy instead of oil and gas.</p>
<h2>COP in context</h2>
<p>Numbers involved in the recent COP27 climate negotiations are put to shame by the amount being spent in the real world outside the negotiating rooms. </p>
<p>For instance, a goal to send US$100 billion a year to climate-vulnerable nations by 2020 was introduced in 2009 and enshrined in the 2015 Paris Agreement but has still not been met. The latest figure was <a href="https://www.oecd-ilibrary.org/docserver/286dae5d-en.pdf?expires=1668262973&id=id&accname=guest&checksum=09CCCBC4498885E611CCBB06D7581A58">US$83.3 billion</a> in 2020. </p>
<p>US$100 billion is just 1% of global consumers’ energy bills. Even the US$1 trillion cost of climate-related <a href="https://theconversation.com/its-the-big-issue-of-cop27-climate-summit-poor-nations-face-a-1trillion-loss-and-damage-bill-but-rich-nations-wont-pay-up-194043">loss and damage</a> is still just 10% of our current annual energy bill.</p>
<p>It is still possible, even now, to stick to the Paris Agreement and limit global heating below 2°C through a rapid transition towards clean energy systems. But it will require a lot of investment. By the end of the decade, the amount of extra funding and investment needed to achieve our climate and sustainable development goals will be double the amount the world <a href="https://iea.blob.core.windows.net/assets/b0beda65-8a1d-46ae-87a2-f95947ec2714/WorldEnergyInvestment2022.pdf">invests in all kinds of energy</a> this year.</p>
<h2>Harnessing the rules of finance and economics</h2>
<p>The global economy is of course dynamic. The IEA’s latest <a href="https://www.iea.org/reports/world-energy-outlook-2022">energy scenarios</a> are based on a global economy in 2050 of more than double its current size and an increase in human population from 8 billion to just under 10 billion. With long-term historic growth at around 3% a year, things are always changing. This in turn means a lot of investment in infrastructure happens “naturally”. Indeed, each year, around a quarter of our GDP is spent on <a href="https://data.worldbank.org/indicator/NE.GDI.FTOT.CD">new machinery, buildings and infrastructure</a>. </p>
<p>But, as part of a shift away from fossil fuels, we could reduce some of that investment in fossil fuel infrastructure, meaning fewer new oil wells, coal power plants, gas pipelines and so on. That money could instead be invested in clean energy systems. </p>
<p>There’s more: investments in energy efficiency and renewables can take into account the avoided future costs of energy along with the environmental and social problems associated with fossil fuels. We call this net <a href="https://www.mckinsey.com/capabilities/sustainability/our-insights/the-economic-transformation-what-would-change-in-the-net-zero-transition">incremental investment</a> and cost accounting.</p>
<p>It may not sound sexy, but this way of thinking is possibly our greatest weapon in the fight to limit the costs of climate change. It is why capital investments in the real world are being redirected towards energy efficiency and modern clean energy systems.</p>
<p>While the <a href="https://www.livescience.com/50941-second-law-thermodynamics.html">second law of thermodynamics</a> means we always have to work (often hard) to gather and concentrate energy into forms and products we need, we can do much better at exploiting the laws of finance and economics to tackle climate change. Reducing our global energy bill is the key.</p><img src="https://counter.theconversation.com/content/194868/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Peake does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>We can be much better at exploiting finance and economics to tackle climate change.Stephen Peake, Professor of Climate Change and Energy, The Open UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1924682022-10-28T15:26:34Z2022-10-28T15:26:34ZWhat long-term economic stagnation means for climate change<figure><img src="https://images.theconversation.com/files/491438/original/file-20221024-5833-nxah0r.jpg?ixlib=rb-1.1.0&rect=6%2C0%2C4287%2C2413&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">maradon 333 / shutterstock</span></span></figcaption></figure><p>The financial shock the UK has recently suffered is of course bad for green investment. The Rishi Sunak-led government is also likely to use this crisis to push for <a href="https://www.independent.co.uk/news/uk/politics/rishi-sunak-economy-austerity-cuts-b2209896.html">further public spending cuts</a> that will rule out a truly transformative green agenda.</p>
<p>However, in my <a href="https://journals.sagepub.com/doi/full/10.1177/10245294221120986">recent academic paper</a> I argue that the economic obstacles to effective decarbonisation are more deeply entrenched than that. We can’t simply blame a bad government budget or even the global market turmoil sparked by Russia’s invasion of Ukraine.</p>
<p>Instead, the global economy has been trapped in a state of relative stagnation in rates of growth, productivity, investment and profitability since at least the 2008 financial crisis, with some scholars even dating the onset of the malaise to the 1970s. This so-called <a href="https://www.imf.org/en/Publications/fandd/issues/2020/03/larry-summers-on-secular-stagnation">secular stagnation</a> is a global trend, but the UK has performed <a href="https://journals.sagepub.com/doi/full/10.1177/13691481211044638">particularly poorly</a>.</p>
<p>This represents a colossal problem for mainstream visions of decarbonisation. Most states, business groups and international organisations believe it must be driven by a tremendous global boom in private investment in renewable energy and sustainable infrastructure – estimates range from <a href="https://irena.org/newsroom/pressreleases/2021/Jun/IRENAs-World-Energy-Transitions-Outlook-Re-Writes-Energy-Narrative-for-a-Net-Zero-World">US$4.4 trillion</a> a year until 2050 up to <a href="https://www.mckinsey.com/capabilities/sustainability/our-insights/the-economic-transformation-what-would-change-in-the-net-zero-transition">$9.2 trillion</a> a year.</p>
<p>In this view, the role of states is to shepherd investors away from “brown” fossil fuel assets and towards green ones. The problem with this “green growth” vision is that for decades it has proven very difficult for states to generate any global, sustained boom in private investment – whether green or brown.</p>
<p>There is no consensus on the causes of this long-term stagnation, with different scholars pointing to <a href="https://www.aeaweb.org/articles?id=10.1257/aer.p20151102">slowing population growth</a>, <a href="https://www.tandfonline.com/doi/full/10.1080/08911916.2017.1407742">anti-labour policy agendas</a>, or <a href="https://journals.sagepub.com/doi/full/10.1177/10245294211044314">industrial overproduction</a>. Yet what is clear is that stagnation acts as a fundamental drag on efforts to green the world economy. A few examples can illustrate this.</p>
<h2>Steel and solar</h2>
<p>The steel industry is a key driver of climate change and is responsible for around <a href="https://cen.acs.org/environment/green-chemistry/steel-hydrogen-low-co2-startups/99/i22">7% to 9% of global carbon emissions</a>. Currently, many steel plants burn coke to heat their blast furnaces, releasing carbon dioxide in the process. There are several ways to <a href="https://theconversation.com/steel-is-vital-to-the-green-transition-heres-how-to-scrub-out-the-industrys-emissions-154768">green this process</a>, with perhaps the most plausible involving the use of green hydrogen and electric arc furnaces.</p>
<p>The problem is that these green solutions are expensive, in an industry that is already wracked by <a href="https://www.ft.com/content/992ad270-b4d3-11e7-aa26-bb002965bce8">overproduction</a> and weak profitability. Reorganising production and retooling factories worldwide would require firms to make massive investments, but glutted steel markets mean that such investments would be unlikely to yield high returns. The stagnant state of the industry therefore militates against its rapid decarbonisation.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/489821/original/file-20221014-27-1tuhb7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Steel tubes on construction site" src="https://images.theconversation.com/files/489821/original/file-20221014-27-1tuhb7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/489821/original/file-20221014-27-1tuhb7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/489821/original/file-20221014-27-1tuhb7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/489821/original/file-20221014-27-1tuhb7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/489821/original/file-20221014-27-1tuhb7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/489821/original/file-20221014-27-1tuhb7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/489821/original/file-20221014-27-1tuhb7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Most of the world’s steel is made in China, and China makes more than it can sell.</span>
<span class="attribution"><span class="source">chinahbzyg / shutterstock</span></span>
</figcaption>
</figure>
<p>At first glance, solar power looks like the polar opposite of an old, heavy industry like steel. The production of solar panels is literally a <a href="https://www.investopedia.com/terms/s/sunriseindustry.asp">sunrise industry</a>: from the early 2000s, when generous renewable energy subsidies were introduced in Europe, investment has flooded in and generated a boom.</p>
<p>And yet there are signs that this industry too is increasingly hampered by chronic overcapacity and vanishing profitability. As production has become increasingly concentrated in China, where it is most cost-effective, the industry has been transformed by automation and massive economies of scale. It now resembles a typical commodities business with a high output of standardised products, and low prices and profits. As <a href="https://www.economist.com/technology-quarterly/2021/01/07/how-governments-spurred-the-rise-of-solar-power">The Economist</a> recently labelled the industry: “Good for the planet – but hardly a gold mine”. Many solar firms have gone bankrupt or simply abandoned the sector.</p>
<p>There has yet to be a grinding slowdown in solar panel production in response to these weak profits, partly due to <a href="https://chinadialogue.net/en/digest/china-special-purpose-firms-to-tackle-unpaid-renewables-subsidies/">massive subsidies in China</a>. </p>
<h2>Democratising decarbonisation</h2>
<p>These dynamics can be found across many sectors that require urgent decarbonisation, from industry to energy to transport. For those who think climate change can only be resolved by markets and private investors, it’s an existential threat to their worldview. Yet the stagnation doesn’t actually show that decarbonisation is impossible, rather that it will be difficult to do so by capitalist means.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/491660/original/file-20221025-23-e3t7a8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="People in hi-vis stood on solar panels" src="https://images.theconversation.com/files/491660/original/file-20221025-23-e3t7a8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/491660/original/file-20221025-23-e3t7a8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/491660/original/file-20221025-23-e3t7a8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/491660/original/file-20221025-23-e3t7a8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/491660/original/file-20221025-23-e3t7a8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/491660/original/file-20221025-23-e3t7a8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/491660/original/file-20221025-23-e3t7a8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The solar industry could be collectively owned and democratically run.</span>
<span class="attribution"><span class="source">ME Image / shutterstock</span></span>
</figcaption>
</figure>
<p>For this reason, it is important to take seriously <a href="https://www.versobooks.com/books/3818-half-earth-socialism">radical visions of decarbonisation</a> that involve using collective ownership and democratic economic planning to rapidly expand renewable infrastructure. Faced with an unprecedented environmental catastrophe and the inertia of private markets, why should key industries like steel or solar be run according to the principle of profit maximisation instead of climate stability? </p>
<p>Run in a collective and democratic manner, the production of solar panels could be carefully managed to address a range of social concerns, from meeting carbon emissions goals to protecting communities where <a href="https://news.abs-cbn.com/spotlight/10/26/21/a-rare-form-of-quartz-is-key-to-xinjiangs-solar-boom-and-almost-all-of-it-is-in-the-us">quartz mining</a> is located to ensuring fair working practices in silicon factories. Deliberation between stakeholders would replace the blind imperative of money making.</p>
<p>While similar proposals can be found in some strands of <a href="https://viewpointmag.com/2019/05/16/plan-mood-battlefield-reflections-on-the-green-new-deal/">green new deal</a> and <a href="https://www.plutobooks.com/9780745342023/exploring-degrowth/">degrowth</a> thought, these measures remain marginal to the broader debate on decarbonisation. Such a radical departure from contemporary economic orthodoxy is unlikely to be adopted by governments unless they are pushed by powerful social movements. Building such movements is the challenge of our time.</p><img src="https://counter.theconversation.com/content/192468/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jack Copley does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Decarbonisation is not impossible, but it will be difficult to achieve through capitalism.Jack Copley, Assistant Professor in International Political Economy, Durham UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1922182022-10-12T16:39:06Z2022-10-12T16:39:06ZFinancing the transition to net-zero – here’s how the EU will advise investors where to put their money<figure><img src="https://images.theconversation.com/files/489057/original/file-20221010-25-lxsokg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Scaling up public and private investment will be crucial to finance the transition to net-zero.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/solar-power-station-736731844">Mark Agnor/Shutterstock</a></span></figcaption></figure><p>Ahead of next month’s COP27 climate summit we have been given a stark reminder of the lengths still required to tackle climate change. A new report estimates that investments of <a href="https://www.iea.org/events/breakthrough-agenda-report-2022">US$1 trillion (£904 billion) a year</a> in renewable power will be needed by 2030 to avoid the effects of climate change. Scaling up private and public investment will be crucial in financing this transition.</p>
<p>Yet directing investment to where it can have the most decisive impact represents a challenge. “Greenwashing”, where organisations exaggerate their environmental credentials, is rife and impedes the flow of investment towards truly sustainable projects. One way to address this issue is by ranking activities in terms of how sustainable they are – producing something called a “taxonomy” of sustainable activities.</p>
<p>Set to become law in 2023, the <a href="https://finance.ec.europa.eu/sustainable-finance/tools-and-standards/eu-taxonomy-sustainable-activities_en#:%7E:text=%E2%80%9CEU%20taxonomy%E2%80%9D.-,What%20is%20the%20EU%20taxonomy%3F,implement%20the%20European%20green%20deal.">EU Taxonomy for Sustainable Activities</a> is one recent example of this. Embedded within many different regulations, financing mechanisms and subsidy schemes it is designed to direct investment in line with the <a href="https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal_en">European Green Deal</a> – the EU’s strategy for achieving carbon neutrality by 2050.</p>
<p>But the EU taxonomy has <a href="https://www.ecowatch.com/eu-plan-gas-nuclear-power-sustainable.html">attracted criticism</a>, among them that many of its decisions are subjective and attract intense political lobbying. The decisions to classify gas and nuclear as climate-friendly investments, for example, have <a href="https://www.ft.com/content/42320458-dfeb-4f5e-9655-aba281cef662">angered environmental groups</a> and may be subject to a legal challenge. As the UK considers developing its own green taxonomy, there are concerns that it will suffer from similar issues. </p>
<h2>Making green activities visible to investors</h2>
<p>The taxonomy classifies what activities can be marketed as sustainable investments and provides a standard definition throughout the EU. Rather than having to assess what is sustainable from scratch, investors can simply refer to the taxonomy. </p>
<p>To be deemed as sustainable, an economic activity must contribute to various climate objectives. These range from climate change mitigation, to the sustainable use of natural resources and biodiversity restoration and include zero emissions transportation and afforestation. There is a broad consensus on most of the activities classified as sustainable. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/489105/original/file-20221011-17-vdu3dn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A coal-fired power plant with a large chimney in the centre in front of a large wall of coal deposits." src="https://images.theconversation.com/files/489105/original/file-20221011-17-vdu3dn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/489105/original/file-20221011-17-vdu3dn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=397&fit=crop&dpr=1 600w, https://images.theconversation.com/files/489105/original/file-20221011-17-vdu3dn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=397&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/489105/original/file-20221011-17-vdu3dn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=397&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/489105/original/file-20221011-17-vdu3dn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=499&fit=crop&dpr=1 754w, https://images.theconversation.com/files/489105/original/file-20221011-17-vdu3dn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=499&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/489105/original/file-20221011-17-vdu3dn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=499&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The EU taxonomy excludes coal power generation.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/jaworzno-silesia-poland-november-24-2019-1584621979">Eva Alex/Shutterstock</a></span>
</figcaption>
</figure>
<p>If an activity is not on the list, then it is classified as unsustainable and its access to investment is limited. Carbon intensive coal-fired power generation is one such activity. Phasing out coal generation will reduce demand, with further impacts on investment in mines and coal-related infrastructure.</p>
<p>This will carry social and economic implications for coal-dependent economies, such as Poland. In 2019, the Polish coal industry accounted for <a href="https://www.statista.com/statistics/422202/number-of-employees-mining-quarying-sector-poland/">84,000 jobs</a>, all of which could be at risk.</p>
<h2>Some decisions are contentious</h2>
<p>This is where the main drawback of the taxonomy lies. The power of any list to make or break an industry like coal in Poland means that its construction will be fiercely contested and certain decisions will involve subjectivity. This is particularly true where the criteria can have a profound impact on a country’s future growth.</p>
<p>Agriculture was initially excluded from the taxonomy. The decision was driven by the fear that its inclusion would conflict with the EU’s <a href="https://agriculture.ec.europa.eu/common-agricultural-policy/cap-overview/cap-glance_en">Common Agricultural Policy</a> and limit farmers’ access to subsidies. The risk of disrupting subsidies worth €58.0 billion (£50.9 billion) and damaging EU food security was considered too high. </p>
<p>This has been subsequently reconsidered, reflecting the possibility that specific animal and crop production practices could make substantial contributions to biodiversity. Crop production often relies on <a href="https://agriculture.ec.europa.eu/sustainability/environmental-sustainability/biodiversity_en">natural processes</a> such as pollination, while making the switch to crop production will cause less greenhouse gas emissions than livestock farming. In the future, various farming practices can be included in the taxonomy.</p>
<p>While the EU taxonomy’s construction was a long, carefully orchestrated process, it was also subject to intense political lobbying.</p>
<p>Despite unresolved concerns regarding the disposal of radioactive waste, <a href="https://reclaimfinance.org/site/wp-content/uploads/2021/07/Report-EU-taxonomy-Out-with-science-in-with-lobbyists-RF.pdf">pro-nuclear lobbyists</a> fought hard to earn nuclear power generation its “green” classification. The inclusion of nuclear power was subject to a detailed series of technical studies.</p>
<figure class="align-center ">
<img alt="An aerial view of a nuclear power plant surrounded by pools of water with a large cloud of steam drifting through the sky." src="https://images.theconversation.com/files/489114/original/file-20221011-20-sskvjv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/489114/original/file-20221011-20-sskvjv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/489114/original/file-20221011-20-sskvjv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/489114/original/file-20221011-20-sskvjv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/489114/original/file-20221011-20-sskvjv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/489114/original/file-20221011-20-sskvjv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/489114/original/file-20221011-20-sskvjv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The inclusion of nuclear in the EU taxonomy is still being contested.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/nuclear-power-plant-aerial-view-panorama-1029049147">Andrea Izzotti/Shutterstock</a></span>
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</figure>
<p>Some countries say investments in gas are necessary to transition towards cleaner fuels. Under certain conditions, <a href="https://op.europa.eu/en/publication-detail/-/publication/3eb4d1ac-1505-11ec-b4fe-01aa75ed71a1/language-en/format-PDF/source-230246876">natural gas</a> can now be included as a sustainable activity. This will allow the construction of new natural gas plants, locking countries into high-carbon energy generation.</p>
<p>In many cases, politically constructed taxonomies can maintain environmental injustice rather than solve it.</p>
<h2>Lessons for the UK</h2>
<p>Following Brexit, the UK is considering developing its own sustainable taxonomy in line with its growth objectives. But concerns have been raised that any taxonomy in the UK will be constructed to satisfy political short-termism. This could divert investment towards environmentally destructive activities.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1578265324637544448"}"></div></p>
<p>Recent policy announcements, such as the reversal of the 2019 ban on fracking and increased oil and gas production suggest that this is a real possibility. Under a new leader in Liz Truss, the UK government has already <a href="https://www.theguardian.com/business/2022/oct/07/uk-offers-new-north-sea-oil-and-gas-licences-despite-climate-concerns">announced plans</a> to award more than 100 North Sea oil and gas exploration licenses.</p>
<p>But if constructed correctly, a taxonomy for sustainable activities remains a valuable tool as the world searches for sustainability. It holds the key for accessing the resources needed to support a sustainable transition.</p>
<p>Given the power that any taxonomy holds, greater transparency and scrutiny over how these criteria are constructed is needed. A robust independent evidence base for activities that may be considered sustainable is required. This would enable a classification that is closely aligned with climate targets, includes truly sustainable activities, and omits harmful activities that would otherwise continue. A taxonomy may be a list, but it has the power to shape the future.</p><img src="https://counter.theconversation.com/content/192218/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ian Thomson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The transition to net zero will require huge investments, but how do we make sure investment goes to the right place?Ian Thomson, Director of the Centre for Responsible Business, University of BirminghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1888022022-08-26T02:00:02Z2022-08-26T02:00:02ZHow do I find out what my superannuation fund invests in? A finance expert explains<figure><img src="https://images.theconversation.com/files/480730/original/file-20220824-20-d0ker3.jpg?ixlib=rb-1.1.0&rect=0%2C617%2C8756%2C4371&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>You want your superannuation savings to be invested in things that also serve the planet’s long-term interests. But how can you be sure your fund’s values align with yours – or even its own claims?</p>
<p>This question has become increasingly pertinent as demand for environmentally and socially sustainable investments <a href="https://asic.gov.au/about-asic/news-centre/find-a-media-release/2022-releases/22-141mr-how-to-avoid-greenwashing-for-superannuation-and-managed-funds/">grows</a> – and with it incentives for financial institutions to put the best spin on their offerings. </p>
<p>One consultancy specialising in “responsible investment” reckons <a href="https://thenewdaily.com.au/finance/superannuation/2021/08/16/greenwashing-super-funds/">10% of the funds</a> it has examined do not have the sustainability orientation they claim.</p>
<p>Among those <a href="https://www.edo.org.au/2022/08/10/hestas-fossil-fuel-investments-may-amount-to-a-breach-of-the-law/">accused of greenwashing</a> in recent months is one of Australia’s biggest super funds, HESTA (the industry fund for health and community service workers), which has promoting its “clean energy” credentials while still holding shares in fossil-fuel companies <a href="https://www.ai-cio.com/news/australias-hesta-accused-of-greenwashing/">Woodside and Santos</a>.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/super-funds-are-feeling-the-financial-heat-from-climate-change-146191">Super funds are feeling the financial heat from climate change</a>
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</em>
</p>
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<p>So how can you check what your superannuation fund invests in? </p>
<p>Super funds are legally obliged to disclose how they invest your money in two different disclosure documents – a Product Disclosure Statement and a Portfolio Holdings Disclosure. </p>
<p>Both will be available on a super fund’s website, though how easily you can find them will vary.</p>
<p>The rest of this article is going to explain what information these documents provide, how useful this information is likely to be, and your best bet to ensure your super fund reflects your values.</p>
<h2>The Product Disclosure Statement</h2>
<p>Product disclosure statements are required by the financial regulator (the Australian Securities and Investments Commission) for all financial products. </p>
<p>This document outlines the most basic but important information of an investment product’s features, benefits, risks and costs, including fees and taxes. The format is standardised, with one section (Section 5) covering with “How we invest your money”. </p>
<p>The information it contains is broad. At best you’ll learn how the fund splits its investments between safe and riskier assets, and between different asset classes – Australian shares, international shares, property trusts, infrastructure trust, cash and so on. </p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/480747/original/file-20220824-22-3i57gn.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Examples of the 'how we invest your money' sections in product disclosure statements from the REST and HESTA super funds." src="https://images.theconversation.com/files/480747/original/file-20220824-22-3i57gn.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/480747/original/file-20220824-22-3i57gn.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=426&fit=crop&dpr=1 600w, https://images.theconversation.com/files/480747/original/file-20220824-22-3i57gn.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=426&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/480747/original/file-20220824-22-3i57gn.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=426&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/480747/original/file-20220824-22-3i57gn.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=535&fit=crop&dpr=1 754w, https://images.theconversation.com/files/480747/original/file-20220824-22-3i57gn.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=535&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/480747/original/file-20220824-22-3i57gn.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=535&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Examples of the ‘how we invest your money’ sections in product disclosure statements from the REST and HESTA super funds.</span>
<span class="attribution"><span class="source">REST; HESTA</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<h2>Portfolio Holding Disclosure</h2>
<p>For a comprehensive look at where your money is invested in, you can consider the Portfolio Holdings Disclosure. </p>
<p>This document lists a fund’s complete holdings – including the percentage and value of every single company stock held.</p>
<p>Portfolio holdings disclosures are relatively new, being obligatory only since March 2022 under <a href="https://www.legislation.gov.au/Details/F2021L01531">legislation</a> meant to improve transparency in the sector.</p>
<p>However, super funds aren’t obliged to provide this information in a consistent, easily understandable way. </p>
<p>For a non-expert who doesn’t know what to look for, the level of detail can be mind-boggling. You may find yourself scrutinising a spreadsheet listing thousands of items.</p>
<p>The Australian Retirement Trust’s Portfolio Holdings Disclosure for its “Lifecycle Balanced Pool”, for example, has more than <a href="https://www.australianretirementtrust.com.au/investments/what-we-invest-in/superannuation-investments">8,000</a> line items.</p>
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<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/481022/original/file-20220825-20-rwd589.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/481022/original/file-20220825-20-rwd589.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=383&fit=crop&dpr=1 600w, https://images.theconversation.com/files/481022/original/file-20220825-20-rwd589.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=383&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/481022/original/file-20220825-20-rwd589.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=383&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/481022/original/file-20220825-20-rwd589.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=481&fit=crop&dpr=1 754w, https://images.theconversation.com/files/481022/original/file-20220825-20-rwd589.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=481&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/481022/original/file-20220825-20-rwd589.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=481&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A fragment of the portfolio holding disclosure for the Lifecycle Balanced Pool fund.</span>
<span class="attribution"><a class="source" href="https://www.australianretirementtrust.com.au/investments/what-we-invest-in/superannuation-investments">Australian Retirement Trust</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<p>Some super funds have made the effort to provide this information in a more user-friendly format. An example is Future Super, which allows you to <a href="https://www.futuresuper.com.au/everything-we-invest-in/?utm_source=google&utm_medium=cpc&utm_campaign=1757241588&utm_content=68234193065&utm_term=future%20super&campaigntype=SearchNetwork-1757241588&device=c&campaignid=1757241588&adgroup=68234193065&keyword=future%20super&matchtype=p&placement=&adposition=&location=9069039&gclid=CjwKCAjwmJeYBhAwEiwAXlg0AYOEe2tJViZiZBgUk3bt1h9LNuHx1jWnGy6VzqGaNjBzOEi60852JRoCel8QAvD_BwE">search and filter</a> portfolio holdings by asset class and country of origin. </p>
<p>But if your concern is to avoid investing in some specific activity such as in mining fossil fuels or gambling, you’ll need to know the companies and other assets you want to avoid for this to be helpful.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/vital-signs-no-we-wont-change-the-corporate-world-with-divestment-and-boycotts-145021">Vital Signs: No, we won't change the corporate world with divestment and boycotts</a>
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</em>
</p>
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<h2>Your best options</h2>
<p>This is not to say portfolio holding disclosure obligations are useless. They are incredibly useful – a huge leap forward in the sector’s accountability. They just aren’t designed for consumers. </p>
<p>So there is still much work to be done to make the sector truly transparent. </p>
<p>What would really help is independent certification and ratings of super products, similar to government websites and programs that certify energy efficiency and allow comparison of electricity plans. </p>
<p>In the meantime, I can offer you one big tip.</p>
<p>Choose a specific superannuation product that markets itself on its environmental or social sustainability credentials. Most super funds now provide these choices alongside their more traditional investment options.</p>
<p>There is a variety of “screening” approaches to ethical investments. Some exclude entire sectors. Others include the best environmental and social performers even among “sinful” industries such as tobacco or weapons. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/sustainable-investment-is-it-worth-the-hype-heres-what-you-need-to-know-182533">Sustainable investment: is it worth the hype? Here's what you need to know</a>
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</em>
</p>
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<p>So just because a super product is marketed as “ethical” or “sustainable” doesn’t guarantee you will agree with all its investments. </p>
<p>But there is a much higher likelihood of it living up to its claims due to greater scrutiny by third parties such as environmental groups as well as the financial regulator. </p>
<p>The Australian Securities and Investments Commission put super funds on notice earlier this year with a “<a href="https://asic.gov.au/regulatory-resources/financial-services/how-to-avoid-greenwashing-when-offering-or-promoting-sustainability-related-products/">guidance note</a>” about the growing risk of greenwashing in sustainability-related financial products. </p>
<p>It reminded funds that “making statements (or disseminating information) that are false or misleading, or engaging in dishonest, misleading or deceptive conduct in relation to a financial product or financial service” is against the law.</p>
<p>So super funds know their portfolios are being scrutinised.</p>
<p>Switching your investment option or fund is simpler than you think. You only need to fill out and lodge a form. Just be sure to compare fees and performance, and seek a second opinion from trustworthy adviser before “voting with your wallet”.</p><img src="https://counter.theconversation.com/content/188802/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Natalie Peng does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Making sure your fund’s financial values align with your ethical values isn’t that simple – but here’s what you can do.Natalie Peng, Lecturer in Accounting, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1797242022-03-23T15:06:31Z2022-03-23T15:06:31ZGreen investing: the global system for rating companies’ ethical credentials is meaningless<p>As the war in Ukraine rages, finance professionals on <a href="https://www.nytimes.com/2022/03/04/business/military-stocks-russia-ukraine.html">Wall Street</a> and in <a href="https://www.moneymarketing.co.uk/features/has-russias-invasion-of-ukraine-made-defence-stocks-esg-friendly/">Europe</a> recently attracted outrage by suggesting that investing in arms manufacturers should be treated as ethical investing. In the fight against tyranny, they argued that such an investment “preserves peace and global stability” and defends “the values of liberal democracies”. As such, it belongs in the increasingly lucrative investment category known as ESG or environmental, social and governance.</p>
<p>ESG is viewed as a kitemark for socially conscious investing. If you tick a box that says you want your pension or savings to be invested ethically, whoever looks after your money will put it into ESG funds – meaning funds that hold only companies with an ESG rating. </p>
<p>Unfortunately, the label is not currently worth the paper that it’s written on – and not only because of the controversy over defence contractors. <a href="https://www.kcl.ac.uk/people/marc-lepere">My recent research</a> shows that this completely undermines ESG’s potential as a force for good. As we shall see, however, regulators are at least making moves in the right direction. </p>
<h2>How ESG works</h2>
<p>ESG investing conjures up ideas of companies devoted to a fairer and more sustainable world. You imagine them reducing carbon emissions and water usage, creating good jobs with equal pay and opportunity, or ensuring that they are well managed and accountable to shareholders, employees and customers. </p>
<p>From a standing start around a decade ago, Bloomberg reckons that <a href="https://www.bloomberg.com/news/articles/2022-02-03/esg-by-the-numbers-sustainable-investing-set-records-in-2021">US$41 trillion</a> (£31 trillion) of financial assets under management will carry the ESG label by the end of 2022. This is projected to rise to <a href="https://www.bloomberg.com/professional/blog/esg-assets-may-hit-53-trillion-by-2025-a-third-of-global-aum/">US$53 trillion</a> by 2025, or one-third of all the assets under management in the world – an incredible statistic. Yet the more closely you look at what ESG means, the harder it is to get clear answers. </p>
<p>Companies are scored on their ESG performance by a host of ratings agencies, the biggest of which are MSCI and Refinitiv, both headquartered in New York, and Amsterdam-based Sustainalytics. These agencies produce opaque scores using differing methodologies. Scores aggregate hundreds of inputs that mask often inconsistent and incomplete data provided by the company being rated. There is no standardisation across the industry, and no regulation of the ratings. </p>
<p>Equally troubling is the way that fund managers assemble the ESG funds that they offer to financial advisers and amateurs as investment opportunities. Any fund can be labelled ESG so long as the fund manager has taken ESG factors into account, but some funds turn out to be much more ethical than others. </p>
<p>There are broadly <a href="http://www.gsi-alliance.org/">three types</a> of funds. The ones likely to be the most ethical have sustainable investment or a reduction in carbon emissions as their objective. Then there are those that exclude whole sectors such as tobacco or the aforementioned weapons manufacturers. You know you’re definitely not getting exposure to whatever is excluded, but the logic behind what is included might be harder to discern. </p>
<p>The third category is funds that have been relabelled as ESG. <a href="https://www.morningstar.com/lp/global-esg-flows">According to</a> investment research firm Morningstar (which owns Sustainalytics), 536 funds across Europe were relabelled in this way in 2021, double the number that were relabelled similarly 2020, so we’re talking about a huge chunk of the industry. Many funds have higher fees than non-ESG funds, which suggests that this is one attraction of relabelling.</p>
<h2>What scores mean</h2>
<p>There is also a fundamental issue with what ESG scores mean. For example, <a href="https://www.bloomberg.com/graphics/2021-what-is-esg-investing-msci-ratings-focus-on-corporate-bottom-line/">recent research</a> found that tens of leading banks including Wells Fargo, Citi and Morgan Stanley were awarded higher ESG scores despite increasing their lending and investments in fossil fuel companies. </p>
<p>This was possible because ratings agencies are solely concerned with assessing the external environmental, social and governance risks to a company’s ability to generate cash flow and profits in future (known as “<a href="https://www.sec.gov/news/speech/lee-living-material-world-052421">materiality</a>”). They are not concerned – contrary to what most people probably assume – with the risks that the company poses to the environment or society. So when the ratings agencies increased the ESG scores of those leading banks, they were simply saying that the environmental and social risks to profits were lower than previously. </p>
<p>Were weapons manufacturers to be considered ESG, you could apply similar logic: the Ukraine war has reduced the risks that these companies will be hit by a peaceful period in which they don’t sell much hardware, so arguably their ESG score should rise. The only reason this is not happening is because the defence sector gets excluded from ESG funds for not being considered ethical <em>per se</em>. Sector exclusions are arguably the only ethical judgement in this entire business. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/453864/original/file-20220323-13-1beq8p2.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="An oil rig against a setting sun" src="https://images.theconversation.com/files/453864/original/file-20220323-13-1beq8p2.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/453864/original/file-20220323-13-1beq8p2.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/453864/original/file-20220323-13-1beq8p2.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/453864/original/file-20220323-13-1beq8p2.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/453864/original/file-20220323-13-1beq8p2.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=504&fit=crop&dpr=1 754w, https://images.theconversation.com/files/453864/original/file-20220323-13-1beq8p2.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=504&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/453864/original/file-20220323-13-1beq8p2.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=504&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Fossil fuel investments are not incompatible with higher ESG scores.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/offshore-oil-gas-rig-platform-beautiful-1265844952">Red Ivory</a></span>
</figcaption>
</figure>
<p>ESG ratings agencies have also been using artificial intelligence and machine learning to make scoring even more unhelpful. They scan the internet for company ESG disclosure statements and public sentiment about company activities on social media, and feed this data into algorithms that often increase the ESG scores of the companies in question. </p>
<p>The problem is that ESG disclosures are usually just marketing documents. Unlike company financial reports, there is no legal requirement for them to be assured by certified public accountants. Companies can cherry-pick positive facts and ignore whatever they don’t want us to see. The entire US$41 trillion of stocks with ESG ratings is being coloured in this way. <a href="https://www.kcl.ac.uk/people/marc-lepere">My research</a> terms this the “ESG echo effect”. It means that the more a company markets its ESG disclosures, the better its ESG ratings are likely to be.</p>
<h2>Hope for the future</h2>
<p>So what are the regulators doing? <a href="https://ec.europa.eu/info/business-economy-euro/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en">New EU rules</a> introduced in 2018 make ESG reporting more meaningful by requiring large listed companies to report on a series of metrics annually alongside their financial reporting. They have to not only weigh the external risks to their profits and cash flow, but also the ways in which their activities threaten environment and society (including both types of risks is known as “double materiality”). From April 6, large <a href="https://www.gov.uk/government/news/uk-to-enshrine-mandatory-climate-disclosures-for-largest-companies-in-law">UK-listed companies</a> must meet similar requirements (though only for climate issues initially). </p>
<p><a href="https://www.nytimes.com/2022/03/21/business/sec-climate-disclosure-rule.html?campaign_id=51&emc=edit_mbe_20220322&instance_id=56357&nl=morning-briefing%3A-europe-edition&regi_id=152653229&segment_id=86170&te=1&user_id=d20b094c4910500c2749233a90bd32cc">The US</a> has also just published proposals requiring company ESG disclosures, but only for climate-related risk and there’s no double materiality requirement. The <a href="https://www.china-briefing.com/news/china-esg-reporting-disclosing-enterprise-environmental-information/">Chinese appear</a> to have taken a similar approach in new rules introduced in February.</p>
<p>The EU <a href="https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/sustainability-related-disclosure-financial-services-sector_en">also introduced rules</a> in 2021 requiring fund managers to define and label ESG funds in specific ways for the first time. This is a massive shift which gives investors much more clarity over what they’re putting their money into. Meanwhile, the EU and China have published proposals for <a href="https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents/211104-ipsf-common-ground-taxonomy-instruction-report-2021_en.pdf">international standards</a>
for defining green investments and guiding investments towards sustainable projects across six industrial sectors, with a focus on mitigating the climate crisis. </p>
<p>Overall, progress is promising but it’s still patchy. Many parts of the world still need to get on board with requiring companies to do a <a href="https://ec.europa.eu/commission/presscorner/detail/en/QANDA_21_1806">double materiality</a> analysis. Small and medium businesses everywhere need disclosure requirements, albeit with a lighter reporting requirement than bigger companies (just like with financial reports). Disclosures need to be assured by certified public accountants – even in the EU this is still voluntary. And ESG ratings agencies must be regulated: they have broadly been ignored by regulators to date. </p>
<p>The point is that there’s a huge business opportunity in sustainable business. But if ESG is to live up to its potential, we’re still a long way from making it meaningful.</p><img src="https://counter.theconversation.com/content/179724/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Marc Lepere is a Co-founder of ESGgen. </span></em></p>The recent row over whether arms makers could be treated as ethical investments is just the tip of the iceberg.Marc Lepere, PhD Candidate in Political Economy, King's College LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1764152022-02-11T12:00:21Z2022-02-11T12:00:21Z‘Levelling up’ the UK is a golden opportunity for climate action – but the government is failing<figure><img src="https://images.theconversation.com/files/445083/original/file-20220208-20-jv21im.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C6016%2C4016&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/engineer-under-inspection-checking-construction-process-1488595826">APChanel/Shutterstock</a></span></figcaption></figure><p>Economists no longer talk of decarbonisation <a href="https://www.theccc.org.uk/wp-content/uploads/2020/12/The-Sixth-Carbon-Budget-The-UKs-path-to-Net-Zero.pdf">as a cost</a>; climate action is now widely seen as an investment. Like any investment in new economic sectors, money spent is expected to be more than made back by the benefits it brings. </p>
<p>Since the 1970s, one sector of the UK economy which has particularly benefited from government support is <a href="http://speri.dept.shef.ac.uk/2018/10/05/uk-finance-curse-report/">finance</a>. The UK finance sector has grown to be the largest of any in <a href="https://orca.cardiff.ac.uk/103188/1/The%20Role%20of%20the%20State%20in%20the%20Financialization%20of%20the%20UK%20Economy.pdf">the G7</a> relative to the rest of the national economy. This was accompanied by the fastest decline in manufacturing as a percentage of GDP among its economic peers.</p>
<p><a href="https://www.tandfonline.com/doi/full/10.1080/13563467.2018.1473355">Nurturing</a> the financial centre of the City of London at the expense of the wider economy has contributed to <a href="https://www.ons.gov.uk/economy/grossvalueaddedgva/bulletins/regionalgrossvalueaddedincomeapproach/december2016">the gulf</a> in economic activity between the capital and the rest of the country. Into this scenario came the government’s recent <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1052064/Levelling_Up_White_Paper_HR.pdf">white paper</a> for “levelling-up” the UK’s regions – an effort to ensure that it makes “good business sense for the private sector to invest in areas that have for too long felt left behind”, according to the Prime Minister’s foreword.</p>
<p>Taking climate change seriously offers the UK a way to do just that: diversifying the UK economy and in doing so, shifting the focus from London. But despite its rhetoric, the Conservative government is ignoring this historic opportunity.</p>
<figure class="align-center ">
<img alt="A view of London's skyline from the south side of the Thames." src="https://images.theconversation.com/files/445082/original/file-20220208-15-10vhezp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/445082/original/file-20220208-15-10vhezp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=332&fit=crop&dpr=1 600w, https://images.theconversation.com/files/445082/original/file-20220208-15-10vhezp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=332&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/445082/original/file-20220208-15-10vhezp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=332&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/445082/original/file-20220208-15-10vhezp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=418&fit=crop&dpr=1 754w, https://images.theconversation.com/files/445082/original/file-20220208-15-10vhezp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=418&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/445082/original/file-20220208-15-10vhezp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=418&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Britain’s golden goose?</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/long-exposure-panoramic-view-london-cityscape-714957370">I Wei Huang/Shutterstock</a></span>
</figcaption>
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<p>Let’s consider one example. Replacing gas boilers with electric heat pumps and upgrading all home insulation in line with the recommendations of the government’s official <a href="https://www.theccc.org.uk/wp-content/uploads/2020/12/The-Sixth-Carbon-Budget-The-UKs-path-to-Net-Zero.pdf">climate change advisor</a> (the Climate Change Committee) could create between <a href="https://www.ukonward.com/reports/greening-the-giants/">900,000 and 1.3 million jobs</a>, dispersed across every village, town and city in the UK. </p>
<p>The stable geology and empty, well-explored oil reservoirs beneath the North Sea make for one of the best places in the world for <a href="https://theconversation.com/carbon-capture-and-storage-where-should-the-world-store-co-its-a-moral-dilemma-167453">long-term carbon storage</a>. The UK could be a part of the <a href="https://www.ft.com/content/195bb547-8b01-4c99-a789-f77e8b779620">global race</a> to invest in this and other low-carbon industries like green steel, but <a href="https://ca1-eci.edcdn.com/reports/ECIU_stuck_starting_line.pdf?v=1621866013">it’s not</a>.</p>
<p>Investing in low-carbon industries would allow regions to draw on their own unique advantages and find new growth models to replace lost industry. There are already fledgling examples. Cornwall is exploring its potential as a <a href="https://www.theguardian.com/environment/2021/jul/01/full-steam-ahead-for-cornwalls-geothermal-energy-project">geothermal energy hub</a> thanks to a geological endowment of hot granite. </p>
<p>With the right support, the UK’s declining steel industry could be retooled to outfit an expanding wind energy sector with low-carbon steel, allowing more places to follow the path of Humberside where the offshore wind boom has <a href="https://www.bbc.co.uk/news/uk-england-humber-56127541">revived manufacturing</a>. </p>
<h2>Missed opportunities</h2>
<p>Climate change didn’t even get a mention in the <a href="https://www.gov.uk/government/news/government-unveils-levelling-up-plan-that-will-transform-uk">announcement</a> accompanying the launch of the government’s levelling-up proposals. In the white paper itself, the transition to a net zero economy came second from bottom in a list of 16 priorities. </p>
<p>The result is that chances for regional investment are squandered. Take the UK steel industry. In a prior policy announcement the government promised to “<a href="https://www.gov.uk/government/publications/industrial-decarbonisation-strategy">consider the implications</a>” of expert recommendations that steelmaking should be <a href="https://www.theccc.org.uk/wp-content/uploads/2020/12/Sector-summary-Manufacturing-and-construction.pdf">carbon-neutral by 2035</a>. But no money will flow from the government’s own clean steel fund, announced in 2019, until 2023. Meanwhile, the UK steel industry is <a href="https://committees.parliament.uk/committee/365/business-energy-and-industrial-strategy-committee/news/158691/government-must-act-to-support-crisishit-uk-steel-industry/">foundering</a>. </p>
<p>The government could have delivered on its net zero agenda and levelling-up proposals simultaneously by bringing forward investment in a green steel manufacturing boom. This would enrich the regions of Wales and northern England where Britain’s steel industry was first forged.</p>
<figure class="align-center ">
<img alt="A distant offshore windfarm." src="https://images.theconversation.com/files/445086/original/file-20220208-13-18zl2xo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/445086/original/file-20220208-13-18zl2xo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=298&fit=crop&dpr=1 600w, https://images.theconversation.com/files/445086/original/file-20220208-13-18zl2xo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=298&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/445086/original/file-20220208-13-18zl2xo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=298&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/445086/original/file-20220208-13-18zl2xo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=374&fit=crop&dpr=1 754w, https://images.theconversation.com/files/445086/original/file-20220208-13-18zl2xo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=374&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/445086/original/file-20220208-13-18zl2xo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=374&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Wanted: low-carbon steel.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/wind-turbines-sea-offshore-power-farm-1721667865">NAPA/Shutterstock</a></span>
</figcaption>
</figure>
<p>The levelling-up white paper instead lays out a set of “missions” for addressing regional inequalities which include increasing pay and productivity across the country, ensuring 200,000 more people are completing high-quality skills training annually, and making the connectivity of transport systems nationwide more similar to London by 2030.</p>
<p>The funding for these missions encompasses a dizzying array of separate pots of money, some of which had already been announced: £26 billion in capital investment for the net zero transition, £5 billion for buses and active travel, and £3.8 billion for skills training were all in the <a href="https://www.gov.uk/government/publications/autumn-budget-and-spending-review-2021-documents">2021 Autumn Budget</a>. Failing to supplement this funding leaves both the UK’s climate targets and levelling-up agenda in doubt.</p>
<p>The most promising part of the plan let regions apply for new devolved powers from central government. Around <a href="https://www.climateemergency.uk/blog/list-of-councils/">three-quarters</a> of local authorities have declared climate emergencies and many have been <a href="https://www.lgcplus.com/politics/governance-and-structure/citizens-assemblies-a-new-dawn-for-democracy-02-01-2020/">working with residents</a> to develop climate plans. Devolving more powers to let people decide what direction their regions should take makes sense. But the newly announced funding to support this devolution must be considered against over a decade of cuts to <a href="https://www.localgov.co.uk/Mind-the-gap-between-levelling-up-rhetoric-and-reality-think-tank-warns-/53551">local authority budgets</a>. </p>
<p>An alternative approach would have been to marry the government’s climate change responsibilities with the levelling-up agenda. Be they decarbonising home heating, becoming a world leader in green steel production or addressing emissions from UK agriculture, these objectives could have directed investment towards specific regions and structured support for education and skills. </p>
<p>Such a move would have helped reassure local authorities, private businesses and young people making decisions about further education and training that the government is firmly behind achieving net zero. </p>
<p>Re-orienting the UK’s economic model away from the current finance-centred model that benefits London at the expense of the rest of the country is a Herculean task. But yoking together a programme of radical climate action, regional development, and genuine devolution offers a blueprint for achieving it. The Conservatives have begun gesturing towards such a programme, but their levelling-up proposals show they have much further to go.</p>
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<img alt="Imagine weekly climate newsletter" src="https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p class="fine-print"><em><span>Jacob Ainscough does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Behind the government’s net zero bluster there has been little progress in decarbonising the UK.Jacob Ainscough, Senior Research Associate in Environmental Governance, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1758672022-02-04T15:00:07Z2022-02-04T15:00:07ZNatural gas is a fossil fuel, but the EU will count it as a green investment – here’s why<figure><img src="https://images.theconversation.com/files/444545/original/file-20220204-13-1no7mtr.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C7680%2C4320&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/chemical-pipeline-networks-infrastructure-europe-3d-2101649962">Tomasz Makowski/Shutterstock</a></span></figcaption></figure><p>The European Commission has decided that power plants burning natural gas can be considered generators of green energy. This means they can count as sustainable investments along with nuclear power. The commission’s <a href="https://media.euobserver.com/bd56bf392217835ed7d4c5f115fa5ddb.pdf">technical rules</a> on <a href="https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/eu-taxonomy-sustainable-activities_en">sustainable finance</a> classify a list of sustainable economic activities in the EU. Under these guidelines, economic activities that may help EU countries meet their energy needs while shifting from coal power can be considered sustainable. </p>
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<p>As soon as the rules were made public in late December 2021, a chasm emerged. <a href="https://www.theguardian.com/world/2022/jan/03/fury-eu-moves-ahead-plans-label-gas-nuclear-green">Austria</a> threatened to sue the commission, arguing that classifying natural gas investments as sustainable will breach the EU’s <a href="https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32021R1119&from=EN">legal obligation</a> to reduce its greenhouse gas emissions 55% by 2030, compared with 1990 levels. Denmark, Luxembourg, and Spain flayed the rules <a href="https://twitter.com/UeEspana/status/1484244587673702400/photo/1">in an open letter</a>, saying they would divert investment away from renewables. <a href="https://www.ft.com/content/48d44c9a-298e-4203-a160-772a032d1c36">Spain</a> also announced that it will set its own rules that weed out investments in the natural gas sector. </p>
<p>Eastern and central European countries, such as <a href="https://hungarytoday.hu/fidesz-meps-welcome-inclusion-nuclear-energy-gas-eu-taxonomy/">Hungary</a>, <a href="https://www.euractiv.com/section/energy-environment/news/poland-others-step-up-push-for-gas-in-eu-green-finance-rules-document/">Poland</a> and <a href="https://www.euractiv.com/section/politics/short_news/romanias-president-reiterates-support-for-nuclear-energy-natural-gas/">Romania</a>, along with France and others <a href="https://www.euronews.com/2021/10/11/led-by-france-10-eu-countries-call-on-brussels-to-label-nuclear-energy-as-green-source">backed</a> the technical rules as practical and implementable. The UK, US and other major economies meanwhile are keeping a close eye on what the EU <a href="https://www.economist.com/finance-and-economics/2022/01/08/the-eus-green-investing-taxonomy-could-go-global">classifies as sustainable</a> – it could inform their own investment decisions. </p>
<h2>Preventing or enabling greenwash?</h2>
<p>The EU claims that <a href="https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/eu-taxonomy-sustainable-activities_en">the rules</a> “help investors…by providing a common language and uniform criteria” to determine “which economic activities may be considered environmentally sustainable”. </p>
<p>Guidelines are indeed necessary to prevent <a href="https://enveurope.springeropen.com/articles/10.1186/s12302-020-0300-3">financial greenwashing</a>. Without regulatory criteria determining what qualifies as sustainable, businesses can easily dress up their activities as more environmentally benign than they really are to attract investment. </p>
<p>The EU needs <a href="https://www.eib.org/attachments/efs/economic_investment_report_2020_chapter04_en.pdf">more investment</a> in low-carbon industries to meet its 2030 target. But the rules only oblige companies operating in the EU to disclose the proportion of their expenditure and turnover coming from sustainable activities. Mandatory disclosures allow, in theory at least, environmentally conscious investors to make informed decisions.</p>
<p>The basic framework of the guidelines was <a href="https://www.europarl.europa.eu/legislative-train/theme-deeper-and-fairer-internal-market-with-a-strengthened-industrial-base-financial-services/file-sustainable-finance-establishment-of-a-framework">adopted</a> in June 2020. It states that economic activities must contribute towards one of the six EU <a href="https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/eu-taxonomy-sustainable-activities_en">environmental objectives</a>, including climate change mitigation. It must not impede any other objective and it must <a href="https://www.unglobalcompact.org/library/2">comply</a> with <a href="http://mneguidelines.oecd.org/annualreportsontheguidelines.htm">minimum social safeguards</a>, such as <a href="https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents/finance-events-210226-presentation-social-taxonomy_en.pdf">respect for human rights</a>.</p>
<p>But the EU took until December 2021 to finalise the technical rules defining sustainable investments. Gas-dependent eastern European countries, pro-nuclear France and oil firms <a href="https://reclaimfinance.org/site/en/2021/07/22/out-with-science-in-with-lobbyists-gas-nuclear-and-the-eu-taxonomy/">lobbied</a> to get natural gas and nuclear listed in the guidelines.</p>
<p>To break the deadlock, a compromise was reached. Gas power plants which secure a permit by 31 December 2030 and emit greenhouse gases equivalent to 270g of CO₂ for each kilowatt-hour (kWh) of electricity will be labelled as sustainable. Firms operating such plants must provide a plan demonstrating they will completely shift from natural gas to low-carbon fuels or renewables by December 31, 2035.</p>
<figure class="align-center ">
<img alt="Five chimneys tower above an industrial facility webbed with pipes." src="https://images.theconversation.com/files/444546/original/file-20220204-27-nzj49j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/444546/original/file-20220204-27-nzj49j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/444546/original/file-20220204-27-nzj49j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/444546/original/file-20220204-27-nzj49j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/444546/original/file-20220204-27-nzj49j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/444546/original/file-20220204-27-nzj49j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/444546/original/file-20220204-27-nzj49j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The rules are intended to replace coal power with gas-fired plants.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/gas-turbine-electrical-power-plant-dusk-559380220">Factory_Easy/Shutterstock</a></span>
</figcaption>
</figure>
<h2>How green is natural gas?</h2>
<p>The European Commission claims that including electricity generated from natural gas in its green investment guidelines will help the EU meet its 2030 targets for decarbonising power as coal-dependent EU countries will switch to natural gas, lowering their overall emissions. </p>
<p>But some experts <a href="https://groenlinks.nl/sites/groenlinks/files/2022-01/letter-rapporteurs-taxonomy.pdf">involved in drafting</a> the technical rules highlighted that all future energy generation in the EU must be under the threshold of 100g of CO₂ per kWh, not 270g, if the bloc is to honour its <a href="https://www.consilium.europa.eu/en/policies/climate-change/paris-agreement/">commitments</a> under the Paris Agreement and help limit global warming to well below 2°C. Some argue that listing electricity generated from natural gas as sustainable violates the EU’s own legal principle of <a href="https://eeb.org/library/green10-statement-on-the-do-not-significant-harm-principle/">doing no significant harm</a>, as such a move could <a href="https://www.reuters.com/markets/commodities/eu-drafts-plan-label-gas-nuclear-investments-green-2022-01-01/">divert investment</a> from renewables to gas. </p>
<p><a href="https://greencentralbanking.com/2021/04/21/eu-taxonomy-is-greenwash-say-ngos/">Spain, Denmark and Luxembourg</a> claim that the guidelines unwittingly legitimise what they were adopted to fix in the first place: the greenwashing of investments. And while gas power companies must detail how to switch to renewables or low-carbon sources, the rules do not impose legal sanctions on them if they fail to do so – or if their future commitments fall flat.</p>
<p>The prospect of rampant misuse of the rules leaves investors with no legal certainty that their money would only fund sustainable activities. The Institutional Investors Group on Climate Change, a global consortium with 50 trillion Euros (£42 trillion) of assets under management, <a href="https://www.iigcc.org/news/iigcc-publishes-open-letter-calling-for-gas-to-be-excluded-from-the-eu-taxonomy/">berated</a> the commission for frustrating investors with green ambitions.</p>
<p>The EU investment guidelines have <a href="https://corpgov.law.harvard.edu/2020/06/10/the-ripple-effect-of-eu-taxonomy-for-sustainable-investments-in-u-s-financial-sector">attracted attention</a> from multinational corporations, regulators, and international banks. This is partly as the US and UK have yet to develop a comprehensive guide on sustainable finances. Although China has had <a href="https://www.oecd-ilibrary.org/sites/5abe80e9-en/index.html?itemId=/content/component/5abe80e9-en">rules</a> in place since 2015 which largely help Chinese banks determine what qualifies as sustainable investment when they lend to corporations, it is working to <a href="https://www.ft.com/content/cddd464f-9a37-41a0-8f35-62d98fa0cca0">harmonise</a> its guidelines with the EU’s. </p>
<p>The EU investment rules are set to pass <a href="https://www.euractiv.com/wp-content/uploads/sites/2/2022/01/Taxonomy-Letter-1.pdf">later in 2022</a>. They could stir up legal battles, as courts hold countries to account for not reducing emissions fast enough.</p>
<p>Since the guidelines are expected to set a <a href="https://corpgov.law.harvard.edu/2020/06/10/the-ripple-effect-of-eu-taxonomy-for-sustainable-investments-in-u-s-financial-sector/">global template</a> for measuring the sustainability of investments, the <a href="https://www.wwf.eu/?5796416/EU-Taxonomy-Commissions-expert-group-says-no-to-EUs-greenwashing-of-fossil-gas-and-nuclear-energy">greenwashing of investments</a> in dirty fuels is likely to continue unabated.</p>
<hr>
<figure class="align-right ">
<img alt="Imagine weekly climate newsletter" src="https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption"></span>
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<p><strong><em>Don’t have time to read about climate change as much as you’d like?</em></strong>
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<p class="fine-print"><em><span>Shashi Kant Yadav receives funding from the Faculty of Arts and Social Sciences at University of Surrey</span></em></p>The new EU rules on sustainable finance defeat their own objective.Shashi Kant Yadav, Doctoral Researcher in Environmental Regulations, University of SurreyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1686142021-09-28T11:56:26Z2021-09-28T11:56:26ZChina will no longer build overseas coal power plants – what energy projects will it invest in instead?<p>Chinese President <a href="https://estatements.unmeetings.org/estatements/10.0010/20210921/AT2JoAvm71nq/KaLk3d9ECB53_en.pdf">Xi Jinping recently announced</a> at the UN General Assembly that China “will not build new coal-fired power projects abroad”. </p>
<p>Chinese banks have already swung into gear. Three days after Xi’s speech, the <a href="https://www.reuters.com/business/sustainable-business/bank-china-stop-financing-new-coal-mining-power-projects-overseas-q4-2021-09-24/">Bank of China declared</a> it would no longer provide financing for new coal mining and power projects outside China from the last quarter of 2021. </p>
<p>Xi’s statement is expected to affect <a href="https://www.theguardian.com/world/2021/sep/22/china-pledge-to-stop-funding-coal-projects-buys-time-for-emissions-target">at least 54 gigawatts</a> of proposed China-backed coal plants that are not yet under construction. Shelving these would save CO₂ emissions equivalent to three months of global emissions. </p>
<p>This pledge from <a href="https://www.bu.edu/gdp/files/2021/07/GCI_PB_008_FIN.pdf">the world’s largest public financier</a> of overseas coal plants could usher in a new era of low-carbon development. But that depends on what happens in the countries where China had funnelled money into coal power. Many of these places urgently need new energy infrastructure. Will China’s investments here be redirected to renewable energy – or simply disappear?</p>
<h2>Chinese support for renewables abroad</h2>
<p>One positive sign came in the same speech to the UN, when Xi indicated that “China will step up support for other developing countries in developing green and low-carbon energy”. </p>
<p>China’s overseas energy investments grew as part of the <a href="https://eng.yidaiyilu.gov.cn/ztindex.htm">belt and road initiative</a>. Launched in 2013, Xi’s signature foreign-policy effort increased China’s cooperation with the rest of the world through infrastructure development, unimpeded trade, financial integration and policy coordination. China has <a href="https://www.nbr.org/publication/adapting-or-atrophying-chinas-belt-and-road-after-the-covid-19-pandemic/">continued</a> to provide finance for the belt and road initiative during the pandemic, and <a href="https://green-bri.org/china-belt-and-road-initiative-bri-investment-report-2020/">investment in renewables</a> made up most (57%) of the country’s financial support for overseas energy projects in 2020 – up from 38% in 2019.</p>
<p>Beijing has supported wind and solar projects in more than 20 developing countries since 2013, including <a href="https://global.chinadaily.com.cn/a/202107/31/WS6104cdc7a310efa1bd665b55.html">Ethiopia</a> and <a href="https://ieefa.org/chinese-firm-completes-construction-of-50mw-garissa-solar-farm-in-kenya/">Kenya</a>. And Chinese banks and companies have also expanded their overseas investments in renewable energy over the last decade.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/423236/original/file-20210926-125184-9j1o4j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A line graph showing Chinese solar and wind energy investments abroad." src="https://images.theconversation.com/files/423236/original/file-20210926-125184-9j1o4j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/423236/original/file-20210926-125184-9j1o4j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=357&fit=crop&dpr=1 600w, https://images.theconversation.com/files/423236/original/file-20210926-125184-9j1o4j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=357&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/423236/original/file-20210926-125184-9j1o4j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=357&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/423236/original/file-20210926-125184-9j1o4j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=448&fit=crop&dpr=1 754w, https://images.theconversation.com/files/423236/original/file-20210926-125184-9j1o4j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=448&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/423236/original/file-20210926-125184-9j1o4j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=448&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">China’s overseas renewable energy portfolio has grown with the belt and road initiative.</span>
<span class="attribution"><a class="source" href="https://www.bu.edu/cgp/">China's Global Power Database/Boston University</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>While the trends are positive, challenges remain. China’s overseas investment policy remains guided by <a href="http://afe.easia.columbia.edu/special/china_1950_forpol_principles.htm">the non-interference principle</a>. This means that Beijing is supposed to let host countries determine the type of energy projects, and only requires Chinese firms to comply with <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/1758-5899.12952">host-country regulations</a>.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/chinese-investment-why-the-buck-stops-with-african-governments-51531">Chinese investment: why the buck stops with African governments</a>
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</em>
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<p>Research shows that China’s finance for coal in Asia was largely driven by <a href="https://www.sciencedirect.com/science/article/pii/S2214629620304023">demand in recipient countries</a>. This is because the domestic policies of these countries prioritised improving energy access over reducing emissions, and coal was a cheap and proven source. Inadequate grid infrastructure and politicians sceptical of renewable energy in countries receiving Chinese investment have also hampered development. In <a href="https://www.sciencedirect.com/science/article/abs/pii/S2214629620301699">Indonesia</a>, business leaders and politicians formed pro-coal lobby groups to influence the design of China-backed projects.</p>
<p>China’s new pledge tells prospective recipient countries that coal finance is no longer an option. China must now promote its offer of investment in renewables. Drawing on its domestic experiences, Beijing should provide <a href="https://www.bloomberg.com/news/articles/2020-06-18/china-raises-renewable-power-subsidies-7-5-to-13-billion">subsidies or tax cuts</a> to companies willing to build renewable energy projects outside China. </p>
<p>Chinese energy developers are often wary of <a href="https://doi.org/10.1080/01436597.2016.1199262">investment risks</a> in developing countries due to their unfamiliarity with local politics. The Chinese government can help by <a href="https://sais-isep.org/wp-content/uploads/2020/04/ISEP-BSG-BRI-Report-.pdf">increasing coordination</a> between Chinese companies and local governments, businesses, and communities in host countries. </p>
<p>Over the past decade, China has supported many developing countries to increase their energy generating capacity with financing, affordable technology and quick project delivery. China has taken the first step to stop funding coal. It’s now time to adopt policies that support the overseas activities of its renewable energy developers.</p><img src="https://counter.theconversation.com/content/168614/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Yixian Sun does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>China’s Belt and Road initiative offers advantages and drawbacks for renewable energy development worldwide.Yixian Sun, Lecturer (Assistant Professor) in International Development, University of BathLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1545622021-02-08T05:32:38Z2021-02-08T05:32:38Z5 tips to figure out if a tech company on the stock market is an ethical investment<figure><img src="https://images.theconversation.com/files/382945/original/file-20210208-15-1kyxeyx.jpg?ixlib=rb-1.1.0&rect=36%2C36%2C4883%2C3216&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>These days people trading on the stock market want more than just a strong financial return. They’re increasingly opting for investments that will also have a positive societal impact.</p>
<p>The coronavirus pandemic showed us even established tech companies can suffer downturns in the short term. <a href="https://edition.cnn.com/2020/01/30/tech/apple-coronavirus-response/index.html">Apple</a>, a tech behemoth, was left <a href="https://www.economist.com/business/2020/02/20/apples-chinese-troubles">reeling</a> when Chinese manufacturing hubs were temporarily <a href="https://edition.cnn.com/2020/01/30/tech/apple-coronavirus-response/index.html">shut down</a> last year. </p>
<p>In the longer term, however, technology stocks remain a first choice for many investors. <a href="https://www.fool.com/investing/2020/01/06/the-10-best-performing-stocks-of-the-decade.aspx">Historically</a>, they’ve dominated global stock markets and continue to grow at a remarkable rate.</p>
<p>Even during the downward spiral of the pandemic, tech stocks such as <a href="https://fortune.com/2020/08/31/zoom-stock-zm-shares-q2-earnings-customer-base/">Zoom</a> and <a href="https://www.afr.com/markets/equity-markets/microsoft-shares-surge-to-new-high-on-work-from-home-revenue-boost-20210127-p56x8f">Microsoft</a> soared in value as an influx of people started working from home. The question for many investors now is: how can one find profitable investments without supporting unethical activity?</p>
<h2>Growth of tech stocks</h2>
<p>According to investment advisers <a href="https://www.morningstar.com/articles/1011300/is-your-portfolio-too-heavy-on-technology-stocks">Morningstar</a>, technology stocks account for 24.2% of the top 500 stocks in the United States. Facebook, Apple, Amazon, Netflix and Alphabet (which owns Google) dominate the market, with a combined value of <a href="https://groww.in/blog/faang-stocks-performance-over-the-last-decade/">more than US$4 trillion</a>. </p>
<p>Tech stocks also take centre stage in Australia. We’ve seen the rapid rise of “buy now, pay later” companies such as Australian-owned Afterpay and Zip.</p>
<p>At the same time, we’ve seen an increase in the number of Australians moving to ethical superannuation funds and ethically-managed investment schemes. The latter lets investors contribute money (to be managed by professional fund managers) which is pooled for investment to produce collective gain.</p>
<p>It’s estimated indirect investment through these schemes has increased <a href="https://www.morningstar.com.au/etfs/article/sustainable-etfs-outpace-the-rest-during-mark/202652">by 79%</a> over the past six years.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/wall-street-isnt-just-a-casino-where-traders-can-bet-on-gamestop-and-other-stocks-its-essential-to-keeping-capitalism-from-crashing-154154">Wall Street isn't just a casino where traders can bet on GameStop and other stocks – it's essential to keeping capitalism from crashing</a>
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<h2>What is ethical investing?</h2>
<p>While ethical investing is a broad concept, it can be understood simply as putting your money towards something that helps improve the world. This can range from companies that advocate for animal rights, to those aiming to limit the societal prevalence of gambling, alcohol or tobacco.</p>
<p>Although there is no strict definition of ethical investment in Australia, many managed funds and super funds seek accreditation by the <a href="https://responsibleinvestment.org/">Responsible Investment Association Australasia</a>. The “ethical” aspect can be grouped into three broad categories:</p>
<ol>
<li><p><strong>environmental</strong> — such as developing clean technology or engaging in carbon-neutral manufacturing</p></li>
<li><p><strong>social</strong> — such as supporting innovative technology, reducing social harms such as poverty or gambling, boosting gender equality, protecting human and consumer rights or supporting animal welfare</p></li>
<li><p><strong>corporate governance</strong> — such as being anti-corruption, promoting healthy employee relations or institutional transparency.</p></li>
</ol>
<p>As investors we must be very careful about the fine print of the companies we invest in. For example, accreditation guidelines dictate that a managed investment fund excluding companies with “significant” ties to fossil fuels could still include one that earns <em>up to</em> a certain amount of revenue from fossil fuels.</p>
<p>So while investment manager <a href="https://www.ampcapital.com/content/dam/capital/03-funds-files-only/aus-funds/responsible-investment-leaders/RIL_PDS_Class_A.pdf">AMP Capital</a> is accredited, it can still include companies earning up to 10% of their revenue from fossil fuel distribution and services. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/382946/original/file-20210208-19-1px82kr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Wind turbines in a field" src="https://images.theconversation.com/files/382946/original/file-20210208-19-1px82kr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/382946/original/file-20210208-19-1px82kr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=352&fit=crop&dpr=1 600w, https://images.theconversation.com/files/382946/original/file-20210208-19-1px82kr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=352&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/382946/original/file-20210208-19-1px82kr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=352&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/382946/original/file-20210208-19-1px82kr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=442&fit=crop&dpr=1 754w, https://images.theconversation.com/files/382946/original/file-20210208-19-1px82kr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=442&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/382946/original/file-20210208-19-1px82kr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=442&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The terms ‘ethical’, ‘sustainable’ and ‘green’ are sometimes used interchangeably when referring to environmentally-responsible investing.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<h2>5 tips for ethical tech investment</h2>
<p>Many technology stocks are well placed for ethical investment and you can choose to invest on your own, or indirectly via a managed investment fund. In either case, you should do some basic homework first.</p>
<p>1) <strong>Monitor the fund or company to ensure standards are maintained</strong></p>
<p>For a company to be listed with the Australian Securities Exchange (ASX) it has to be publicly listed. It is therefore required to submit an annual audit report (audited by third-party auditors) to the Australian Securities and Investments Commission (ASIC), as per the <a href="https://asic.gov.au/regulatory-resources/financial-reporting-and-audit/preparers-of-financial-reports/lodgement-of-financial-reports/">Corporations Act 2001</a>.</p>
<p>You can also contact ASIC for <a href="https://asic.gov.au/regulatory-resources/financial-reporting-and-audit/users-of-financial-reports/">further information</a> about a company listed on the ASX. The equivalent body for American companies is the US <a href="https://www.sec.gov/">Securities and Exchange Commission</a>.</p>
<p>If a company backtracks on the very ethical standards that prompted your initial investing, you should consider withdrawing your investment.</p>
<p>2) <strong>Stay updated on reported ethical breaches</strong></p>
<p>Reputable news reports are useful on this front. <a href="https://slate.com/technology/2020/01/evil-list-tech-companies-dangerous-amazon-facebook-google-palantir.html">Amazon, Facebook and Alphabet</a> are recurring names in reports about <a href="https://theconversation.com/the-ugly-truth-tech-companies-are-tracking-and-misusing-our-data-and-theres-little-we-can-do-127444">unethical practices</a> in the tech sector. </p>
<p>While you can access plenty of information about a tech company from its own website and distribution channels, this is usually embellished and/or handpicked by the company itself. Make sure your information comes from diverse sources.</p>
<hr>
<p>
<em>
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Read more:
<a href="https://theconversation.com/google-is-leading-a-vast-covert-human-experiment-you-may-be-one-of-the-guinea-pigs-154178">Google is leading a vast, covert human experiment. You may be one of the guinea pigs</a>
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<hr>
<p>3) <strong>Consider how employees rate the company and why</strong></p>
<p>Keep in mind a technology company might be environmentally ethical but still fall down on other issues, such as gender pay parity, for instance. It’s important to listen to <a href="https://www.buzzfeednews.com/article/ryanmac/facebook-employee-leaks-show-they-feel-betrayed">employees’ claims</a> about a company’s internal workings as such insight may otherwise <a href="https://www.theverge.com/2019/6/19/18681845/facebook-moderator-interviews-video-trauma-ptsd-cognizant-tampa">be unavailable</a>. </p>
<p>There are a number of independent sites reporting on corporate culture ratings, including <a href="https://www.glassdoor.com.au/index.htm">Glassdoor</a>. </p>
<p>4) <strong>Assess the environmental, social and corporate governance (ESG) score</strong> </p>
<p>One benefit of investing in large to medium-sized tech companies is the ability to analyse their ESG score, issued by agencies such as <a href="https://www.refinitiv.com/en/financial-data/company-data/esg-data">Refinitiv</a>. This score reflects how well the company adheres to ethical practice across environmental, social and corporate governance-related matters. </p>
<p>5) <strong>Watch out for buzzwords</strong></p>
<p>If you’re looking to invest in clean technology, watch out for buzzwords used in company reports. These are terms which at face value may seem to align with your own ethical investment values, without actually delivering. </p>
<p>For instance, “carbon net zero” and “carbon neutral” are <a href="https://www.climatecouncil.org.au/resources/what-does-net-zero-emissions-mean/">not the same thing</a>. This is an important distinction to consider if you’re wanting to make environmentally-responsible investments.</p><img src="https://counter.theconversation.com/content/154562/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Historically, tech stocks have dominated global stock markets. Despite the pandemic, many continue to grow at remarkable rate.Angel Zhong, Senior Lecturer in Finance, RMIT UniversityBanita Bissoondoyal-Bheenick, Associate Professor and Associate Dean Finance, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1409162020-06-23T14:40:36Z2020-06-23T14:40:36ZSocially responsible investing can be like searching for fool’s gold<figure><img src="https://images.theconversation.com/files/342736/original/file-20200618-41213-108yo7c.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C7481%2C4990&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Many companies claim they're socially and environmentally responsible and attract investors who value strong corporate environmental, social and governance policies. But is it true?</span> <span class="attribution"><span class="source">(Takaharu Sawa/Unsplash)</span></span></figcaption></figure><p><a href="https://www.blackrock.com/ca">Investors are pushing companies</a> to develop environmental plans, consider the social impacts of their operations and improve the integrity of how they are governed to ensure that women, workers and all stakeholders are fairly represented. </p>
<p>In other words, environmental, social and governance policies — ESG for short — are now important business considerations.</p>
<p>ESG proponents argue that when companies place importance on reducing their carbon footprint, emphasizing workplace management or improving board diversity, they are doing good business that will generate greater long-term financial returns for their investors.</p>
<p><a href="https://www.msci.com/documents/1296102/7943776/ESG+Investing+brochure.pdf/bcac11cb-872b-fe75-34b3-2eaca4526237">ESG investors base their objectives</a> on achieving competitive financial returns along with one or more of the following:</p>
<ul>
<li><p>The belief that ESG principles can help companies contribute to investment returns through long-term value creation.</p></li>
<li><p>Their values are consistent with the investments they hold. For example, those with strong views against nuclear energy will not invest in any mining or utility company involved in nuclear power.</p></li>
<li><p>Investments should make a positive impact on the world. Extending the previous example, an ESG investor would buy shares in green energy companies, ultimately wishing to see those companies replace carbon-based energy sources.</p></li>
</ul>
<h2>How successful are ESG investors?</h2>
<p>If ESG projects impact business performance, then it stands to reason that they should help drive financial returns. Many academic and industry studies have looked into this, however, and there is <a href="https://dansif.dk/wp-content/uploads/2019/01/Litterature-review-UK-Sep-2017.pdf">no conclusive evidence</a> that ESG investing leads to superior returns for investors.</p>
<p>There is, however, evidence that ESG stock portfolios using negative screens (for example, by eliminating questionable companies such as tobacco producers or gun manufacturers) produce lower returns. </p>
<p>Finance theory shows that a well-diversified portfolio reduces risk without affecting returns. Eliminating stocks, especially entire industries, from a portfolio leads to a less diversified portfolio and therefore higher risks with the same return, or lower returns with the same risk. There is also evidence that <a href="https://www.cambridge.org/core/services/aop-cambridge-core/content/view/890ABEB47947178A652D7ABD1E991C43/S0022109016000910a.pdf/social_screens_and_systematic_investor_boycott_risk.pdf">morally questionable companies</a>, divested by ESG investors, see their stock prices initially fall, but earn higher returns for their non-ESG investors going forward.</p>
<p>Studies also suggest that stock prices do not fully reflect the value of intangible assets, which include sustainability initiatives. In this case, ESG investors that identify such intangible assets and buy those undervalued stocks should logically earn superior returns once the market recognizes the stock’s true worth and efficiently values those assets into the company’s stock price. <a href="https://econpapers.repec.org/article/eeeempfin/v_3a22_3ay_3a2013_3ai_3ac_3ap_3a159-175.htm">Research indicates this occurs</a> to some degree.</p>
<h2>How to determine ESG measures</h2>
<p>There is <a href="https://www.reuters.com/article/us-climate-ratings-analysis-idUSKBN19H0DM">concern within the investment community</a> that there is no standard definition of what comprises ESG measures. Take the case below. There are two lists, <a href="https://www.spglobal.com/marketintelligence/en/solutions/sp-capital-iq-platform">with data from Capital IQ</a>. One is the 10 largest investments in a large, established American ESG mutual fund, while the other is the largest 10 companies in the S&P 500 index. Which list, A or B, represents the ESG fund?</p>
<table><thead>
<tr>
<th>List A</th>
<th>List B</th>
</tr>
</thead><tbody>
<tr>
<td>Microsoft</td>
<td>Apple</td>
</tr>
<tr>
<td>Apple</td>
<td>Microsoft</td>
</tr>
<tr>
<td>Amazon.com</td>
<td>Amazon.com</td>
</tr>
<tr>
<td>Visa</td>
<td>Alphabet</td>
</tr>
<tr>
<td>Danaher Corp.</td>
<td>Facebook</td>
</tr>
<tr>
<td>Adobe</td>
<td>Berkshire Hathaway</td>
</tr>
<tr>
<td>BlackRock</td>
<td>Visa</td>
</tr>
<tr>
<td>Thermo Fisher Scientific</td>
<td>Johnson & Johnson</td>
</tr>
<tr>
<td>Fidelity National Info Services</td>
<td>Walmart</td>
</tr>
<tr>
<td>Bank of America</td>
<td>JPMorgan Chase</td>
</tr>
</tbody></table>
<p>You can forgive yourself if you had difficulty choosing the correct list. It’s list A. </p>
<p>Four of the ESG mutual fund’s top 10 holdings are the same as the S&P 500 index’s top 10 holdings. In another example, a well-established Canadian ESG fund includes Suncor Energy, the largest oilsands producer, as one of its top investments.</p>
<p>Well-known financial services firms such as MSCI, S&P Global and FTSE Russell rate companies for their handling of ESG issues. It is big business. Portfolio managers then use those ratings to identify which firms should be considered for their ESG portfolios. </p>
<p>In 2018, MSCI ranked electric car-maker <a href="https://www.wsj.com/articles/is-tesla-or-exxon-more-sustainable-it-depends-whom-you-ask-1537199931">Tesla No. 1 in ESG</a> for auto manufacturers, while FTSE Russell ranked Tesla last on its ESG auto ratings. This is an example of how subjective these ratings are. The obvious problem is that it leaves investors in the dark about whether Tesla is in fact an ESG-positive company.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/342749/original/file-20200618-41230-fux4ly.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/342749/original/file-20200618-41230-fux4ly.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=347&fit=crop&dpr=1 600w, https://images.theconversation.com/files/342749/original/file-20200618-41230-fux4ly.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=347&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/342749/original/file-20200618-41230-fux4ly.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=347&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/342749/original/file-20200618-41230-fux4ly.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=436&fit=crop&dpr=1 754w, https://images.theconversation.com/files/342749/original/file-20200618-41230-fux4ly.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=436&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/342749/original/file-20200618-41230-fux4ly.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=436&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Is Tesla an ESG-conscious company? Depends on who you ask.</span>
<span class="attribution"><span class="source">(AP Photo/Ben Margot)</span></span>
</figcaption>
</figure>
<p>Recently, the U.S. Securities Exchange Commission announced it has launched an investigation and “<a href="https://www.bloomberg.com/news/articles/2020-03-02/esg-funds-might-soon-have-to-prove-to-sec-they-re-actually-esg">… wants to know whether money managers are engaging in false advertising by saying funds are devoted to doing good when the reality is much murkier</a>,” according to Bloomberg.</p>
<h2>Unintended consequences</h2>
<p>To the extent that companies successfully carry out their ESG plans, positive environmental or social outcomes can occur. There may, however, be unintended consequences.</p>
<p>Vincent Deluard, a director at INTL FCStone Inc., a financial advisory firm, found that companies that are likely to do well on ESG scores typically produce more revenue and higher profit margins with few employees, are often found in higher human capital sectors such as health care or information technology. </p>
<p>Shareholders may get rich with these companies, but they do little to improve the lot of the average hourly wage earner. <a href="https://ftalphaville.ft.com/2020/05/21/1590056178000/ESG-without-the--S-/">He writes:</a></p>
<blockquote>
<p>“ESG investing was originally designed as a response to the flaws of capitalism, as a way to turn the profit motive in a force for good. However, ESG filters (unintentionally) reward the greatest illnesses of post-industrial societies: winner-take-all capitalism, monopolistic concentration, and the disappearance of jobs for normal people.”</p>
</blockquote>
<p>The average market capitalization per employee of the 10 ESG stocks (in List A above) is US$6.4 million per employee, while the S&P 500 company average is US$3.6 million. While this is simply anecdotal evidence, it is consistent with Deluard’s findings.</p>
<p>Is investing for competitive financial returns based on ESG principles like searching for fool’s gold? We can say the intent is noble, and the actions are sincere, but the execution is simply not developed enough to deliver the types of benefits socially responsible investments claim to deliver.</p><img src="https://counter.theconversation.com/content/140916/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jerome Gessaroli does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Is investing for competitive financial returns based on ESG principles like searching for a needle in a haystack? There’s often conflicting information about the ESG bona fides of many companies.Jerome Gessaroli, Faculty, Financial Management, School of Business, British Columbia Institute of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1192662019-06-25T23:13:58Z2019-06-25T23:13:58ZWithout changes, Scheer’s climate plan will be expensive or useless<figure><img src="https://images.theconversation.com/files/281164/original/file-20190625-81776-1v6qh84.jpg?ixlib=rb-1.1.0&rect=69%2C79%2C3124%2C2180&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Conservative Leader Andrew Scheer delivers a speech on the environment in Chelsea, Que. on June 19, 2019.</span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Adrian Wyld</span></span></figcaption></figure><p>When <a href="https://www.cbc.ca/news/politics/scheer-climate-environment-plan-election-von-scheel-1.5177187">Conservative Leader Andrew Scheer unveiled his long-awaited climate plan</a>, he said he could eliminate the federal carbon tax and still meet Canada’s emissions targets by focusing on investments into green technology. Tech, not taxes, he said.</p>
<p>Under the plan, major emitters would not pay a carbon tax and would, instead, have to invest in “emissions-reducing technology.” But if you look closer, these investments may not actually reduce emissions. </p>
<p>Instead of investing in proven green technology such as wind farms and solar power, Scheer’s plan allows industries to fund things with the potential to reduce emissions, like research or green companies. This flexibility reduces the guaranteed benefits of these green investments.</p>
<p>Although the details remain sparse, Scheer’s proposal isn’t entirely off base: My own research shows that investment into green technologies can offset the emissions of an entire industry, but it can only work in certain circumstances. With a couple of modifications, policies like Scheer’s can bring more predictable and affordable emissions reductions.</p>
<h2>A disguised carbon tax</h2>
<p>Scheer’s plan includes “<a href="https://arealplan.ca">green investment standards</a>” that would force major emitters to invest a set amount, based on their emissions. Investments must go to activities, technologies, companies or research that might eventually reduce emissions.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/281226/original/file-20190625-81741-12l88eg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/281226/original/file-20190625-81741-12l88eg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/281226/original/file-20190625-81741-12l88eg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/281226/original/file-20190625-81741-12l88eg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/281226/original/file-20190625-81741-12l88eg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=504&fit=crop&dpr=1 754w, https://images.theconversation.com/files/281226/original/file-20190625-81741-12l88eg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=504&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/281226/original/file-20190625-81741-12l88eg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=504&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Unless large emitters invest in proven technologies, emissions may continue to rise.</span>
<span class="attribution"><span class="source">Shuttersock</span></span>
</figcaption>
</figure>
<p>These mandatory investments would create financial pressure to lower emissions, much like a carbon tax. But, unlike many carbon taxes, these investments aim to reduce emissions in the “medium term,” according to Scheer. </p>
<p>It’s not clear how long that might be or what the investment amounts will be. Surprisingly, the standards let emitters invest in indirect emissions reductions, including funding research or a purchasing a clean-tech start-up company. </p>
<p>Allowing investments that do not create substantial short-term emissions reductions creates a major loophole. For example, a $1 million factory expansion that also reduced factory emissions by 0.01 per cent might be considered an eligible investment under Scheer’s plan, but that $1 million would have little effect on emissions. </p>
<p>Scheer could improve his plan with this change: Make explicit emissions-reduction targets for investments, and let the private sector innovate and find cheaper paths to those targets.</p>
<h2>Affordable or effective?</h2>
<p><a href="https://repository.law.umich.edu/articles/52/">Typical climate policies fall into two categories</a>. Defined costs, like a carbon tax, where fixed financial penalties encourage greener choices, but the benefits can vary. Or, defined benefits, like cap-and-trade, where regulations require emissions to change, but the costs can vary. </p>
<p>While <a href="https://doi.org/10.3386/w19338">research suggests that the details of a climate policy matter more than its structure</a>, Scheer is proposing a new policy structure without providing details. Without details, Scheer’s plan may seem like the best of both a carbon tax and a cap-and-trade system. But without firm emissions-reduction targets, Scheer’s policy relies on its financial incentives for emissions reductions and will behave like a carbon tax.</p>
<p>To be effective, therefore, the required investments per tonne of emissions in Scheer’s plan would need to be similar to the per tonne costs of the carbon tax. Yet Scheer decries projections that an effective federal carbon tax would need to climb north of $100 per tonne. Both Scheer’s plan and the federal carbon tax rely on financial incentives to reduce emissions. Either policy will force Canadians to choose between an affordable climate policy and an effective one. </p>
<p>My research team has found a way to ease this dilemma. With a couple of modifications, the efficiency of policies like Scheer’s can be improved by as much as five times.</p>
<h2>A savings opportunity</h2>
<p>We looked at what would happen to emissions if fossil fuel producers were forced to invest in green technologies that were known to be profitable or save costs, and were further required to reinvest a portion of those profits or cost savings. We created a simulation where oil and gas producers in North Dakota were forced to invest in wind turbines — and reinvest a fraction of the wind turbines’ revenue into more wind turbines.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/281225/original/file-20190625-81766-y94swh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/281225/original/file-20190625-81766-y94swh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/281225/original/file-20190625-81766-y94swh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/281225/original/file-20190625-81766-y94swh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/281225/original/file-20190625-81766-y94swh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/281225/original/file-20190625-81766-y94swh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/281225/original/file-20190625-81766-y94swh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">In a simulation, researchers found that when oil and gas producers in North Dakota invested and reinvested in wind turbines, emissions and costs decreased.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<p>The initial investments in wind turbines turned a profit and some of that profit went towards growing the wind farm. This feedback loop allowed the wind farm and its emissions offsets to grow exponentially and reduced the necessary initial investments. In North Dakota, <a href="https://doi.org/10.1016/j.apenergy.2019.03.158">the investments needed to offset all of the emissions from producing and consuming oil and gas dropped from about 50 per cent of the value of the hydrocarbons to 10 per cent because of reinvestments</a>. </p>
<p>Combining investment and reinvestment into proven and successful green technologies allows green technologies to expand more quickly. Policies with reinvestment are like a savings account with a high interest rate — over time, the balance is funded by more than the initial investment. </p>
<p>Reinvestment makes green technologies and their emissions reductions available at a lower cost to consumers and businesses. Owning profitable and growing green technologies gives businesses, consumers and heavy emitters a transition plan, which my colleagues and I call “black-into-green,” or the BIG transition. </p>
<h2>Mandate reinvestments</h2>
<p>While our case study is not directly applicable everywhere (and <a href="https://doi.org/10.1016/j.seta.2017.01.003">is not as favourable in the Athabasca oil sands</a> due to lower wind speeds and greener Canadian electricity), it demonstrates the benefits of pairing investments and reinvestments into profitable or cost-saving green technologies.</p>
<p>Our work suggests Scheer should make another modification to his plan: The green investment standards should mandate that heavy emitters make profitable or cost-saving green investments and reinvest a portion of those profits or savings.</p>
<p>Scheer’s green investment plan is missing key details and needs two major improvements. The Conservatives should mandate the efficacy of investments and require reinvestments. Without these modifications, the proposed green investment standards, like a carbon tax, are another climate policy that can be either affordable or effective — but not both. </p>
<p>Given this trade-off, Canadians should fear promises of affordability and advocate for more efficient climate policies.</p><img src="https://counter.theconversation.com/content/119266/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Taylor has and continues to receive some funding from the Natural Sciences and Engineering Research Council of Canada (NSERC). Were the Green Investment Standards implemented, David Taylor might be eligible for some of the funding allocated to "research" as part of these standards. </span></em></p>The Conservatives’ green investment standards may not have a direct impact on emissions. But with a few tweaks, it could be effective and affordable.David Meyer, Assistant Professor in Global and Civil Engineering, University of TorontoLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/914422018-02-09T17:03:31Z2018-02-09T17:03:31ZThe EU wants to fight climate change – so why is it spending billions on a gas pipeline?<figure><img src="https://images.theconversation.com/files/205470/original/file-20180208-180813-ifievy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:TAP_in_Albania.jpg">Albinfo/Wikipedia</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Over the past few years there has been <a href="https://www.enelgreenpower.com/media/news/d/2017/12/renewables-exponential-growth">exponential growth</a> in clean energy investment – while fossil fuel assets are increasingly considered to be <a href="https://www.fsb-tcfd.org/wp-content/uploads/2017/06/FINAL-TCFD-Annex-062817.pdf">risky</a>. Yet, on February 6, the European Investment Bank, the EU’s long-term lending institution, voted to provide a <a href="http://www.eib.org/infocentre/press/releases/all/2018/2018-030-eib-backs-eur-6-5-billion-energy-sme-transport-and-urban-investment">€1.5 billion loan</a> to the controversial Trans Adriatic Pipeline (TAP).</p>
<p>The TAP is the Western part of a larger Southern Gas Corridor proposal that would ultimately connect a large gas field in the Caspian Sea to Italy, crossing through Azerbaijan, Turkey, Greece and Albania. And while gas might be cleaner than coal, it’s still a fossil fuel. </p>
<p>So how does the EU’s support for this major project fit in with its supposed goal of addressing climate change?</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/205365/original/file-20180207-74487-1cg5u8d.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/205365/original/file-20180207-74487-1cg5u8d.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/205365/original/file-20180207-74487-1cg5u8d.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/205365/original/file-20180207-74487-1cg5u8d.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/205365/original/file-20180207-74487-1cg5u8d.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/205365/original/file-20180207-74487-1cg5u8d.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/205365/original/file-20180207-74487-1cg5u8d.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/205365/original/file-20180207-74487-1cg5u8d.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The proposed Trans Adriatic Pipeline will run nearly 900km from Greece to Italy.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Trans_Adriatic_Pipeline.png">Genti77 / wiki</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<h2>Influencing investors</h2>
<p>A key problem is the message this sends to the private sector, where renewable energy is increasingly seen as a good investment. Technologies once perceived as too risky and too expensive are now delivering worthwhile returns thanks to reduced costs and breakthroughs in energy storage. The price of electricity generated by solar, wind or hydro is now comparable with the national grid. Over the past decade, investor meetings have shifted from discussing whether the transition to a low carbon economy will start before 2050, to whether it will be completed in the same period. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"949194987337650176"}"></div></p>
<p>But there is still not enough money being spent on renewables. While clean energy investment in 2017 <a href="https://about.bnef.com/blog/runaway-53gw-solar-boom-in-china-pushed-global-clean-energy-investment-ahead-in-2017/">topped US$300 billion for the fourth year in a row</a>, this is far short of what is needed to unlock the technology revolution necessary to tackle climate change. There is clearly a gap between what is required and what is being delivered. </p>
<p>The private sector will continue to invest significant capital into energy projects over the next few decades, so one issue facing policy makers is how to influence investors away from fossil fuels and <a href="https://www.sciencedirect.com/science/article/pii/S0301421511005064">towards renewable projects</a>. To really scale up investment into renewable infrastructure, <a href="http://www.unepfi.org/fileadmin/documents/Investment-GradeClimateChangePolicy.pdf">long-term and stable policy is required</a> – which investors <a href="https://www.sciencedirect.com/science/article/pii/S0959652615006277">see as clearly lacking</a>. </p>
<p>By funding the Trans Adriatic Pipeline, the EU’s investment bank is hardly signalling to the private sector that governments are committed to a green energy transition. </p>
<h2>Risky business</h2>
<p>If Europe really was to follow through and successfully switch to green energy – and such a transition is partially underway – then the pipeline project may even represent a risk to public finances.</p>
<p>Studies on climate change point to the need for a greater sense of urgency and ambition and, to stay within its “carbon budget” under current agreed emissions targets, the EU needs to be <a href="http://www.foeeurope.org/sites/default/files/extractive_industries/2017/can_the_climate_afford_europes_gas_addiction_report_november2017.pdf">fossil fuel free by 2030</a>. </p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/HSKcvoBKYxc?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
</figure>
<p>So any large oil and gas infrastructure projects with investment returns beyond 2030 are saddled with risk. In just a decade or two, super-cheap solar and wind power could mean that gas pipelines such as TAP would no longer make financial sense and would become worthless “<a href="https://www.carbontracker.org/terms/stranded-assets/">stranded assets</a>”. Yet TAP backers are touting economic benefits for countries such as <a href="http://www.oxfordeconomics.com/Media/Default/economic-impact/economic-impact-home/Economic-Impact-trans-Adriatic-Pipeline.pdf">Albania</a> extending to 2068 – well beyond the date when Europe must entirely ditch fossil fuels.</p>
<p>The EU’s official stance is to hail natural gas as a cleaner “bridge fuel” between coal and renewables. But <a href="http://science.sciencemag.org/content/343/6172/733.summary">high leakage rates</a> and the <a href="http://www.climatechange2013.org/images/uploads/WGIAR5_WGI-12Doc2b_FinalDraft_All.pdf">potent warming impact</a> of methane (the primary constituent of natural gas) means that the Southern Gas Corridor’s climate footprint may be <a href="https://bankwatch.org/publication/smoke-and-mirrors-why-the-climate-promises-of-the-southern-gas-corridor-don-t-add-up">as large, or larger, than equivalent coal</a>. Abundant natural gas is also highly likely to <a href="http://iopscience.iop.org/article/10.1088/1748-9326/9/9/094008/meta">delay the deployment of renewable technologies</a>. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"952216497123835906"}"></div></p>
<p>For the first decade of this century Europe prided itself on leading the political debate on tackling climate change. Now, it appears to be losing its boldness. To drive through a new technology revolution, the public sector needs to lead from the front and take bold decisions about its energy strategy.</p>
<p>A gas pipeline is not a technology of the future. If California can release <a href="https://www.youtube.com/watch?v=HSKcvoBKYxc">YouTube videos</a> describing the importance of considering stranded assets during this energy transition, and New York City can announce plans to <a href="https://twitter.com/NYCMayor/status/952216497123835906">divest from fossil fuels</a>, then maybe it is time for the EU to turn off the TAP.</p><img src="https://counter.theconversation.com/content/91442/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Aled Jones does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The European Investment Bank’s funding of the Trans Adriatic Pipeline will harm the climate and makes little financial sense.Aled Jones, Professor & Director, Global Sustainability Institute, Anglia Ruskin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/809082017-07-31T13:19:40Z2017-07-31T13:19:40ZHow to reshape the financial system? First ditch the idea of the free market<figure><img src="https://images.theconversation.com/files/180357/original/file-20170731-4035-1y35e4j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">shutterstock.com</span></span></figcaption></figure><p>Ten years ago the financial system collapsed and governments around the world <a href="https://www.theguardian.com/business/2008/oct/13/creditcrunch-marketturmoil1">intervened</a> to save it. Much of the subsequent legislation, regulation and angst has attempted to make the system less risky so it does not collapse again. But few have asked a more fundamental question: what is the purpose of the financial system and does it do what it’s supposed to do? </p>
<p>Ten years on and the global financial system remains chronically dysfunctional. My concern is not that it collapses again but that it continues on its current course. </p>
<p>Yet an alternative way of doing things <a href="http://www.palgrave.com/us/book/9781137560605">is possible</a>. Over many years the finance industry has developed a set of powerful tools which could be used to improve well-being and solve our environmental problems. For example, to avoid dangerous climate change, the required rapid shift away from fossil fuels requires enormous levels of investment into low carbon infrastructure. </p>
<p>We mostly know how to do this technically, and the funds are available; there is a savings surplus where <a href="http://www.cnbc.com/2016/06/29/there-are-now-117-trillion-dollars-worth-of-bonds-with-negative-yields.html">trillions of dollars</a> are sitting in government bonds earning negative returns that could be mobilised into the low carbon economy. So why is this investment not happening at the scale required?</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/180363/original/file-20170731-15340-ix66eu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/180363/original/file-20170731-15340-ix66eu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/180363/original/file-20170731-15340-ix66eu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/180363/original/file-20170731-15340-ix66eu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/180363/original/file-20170731-15340-ix66eu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/180363/original/file-20170731-15340-ix66eu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/180363/original/file-20170731-15340-ix66eu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A sustainable future requires investment but the payoff is worth it.</span>
<span class="attribution"><span class="source">shutterstock.com</span></span>
</figcaption>
</figure>
<p>Instead, these powerful financial tools have been co-opted by the finance industry for the purpose of growing its own revenue and importance, with resultant collateral damage to society and the environment. </p>
<p>Blame is commonly attributed to the <a href="https://theconversation.com/how-neoliberalisms-moral-order-feeds-fraud-and-corruption-60946">neoliberal rule of the market</a>, <a href="https://theconversation.com/banking-crisis-signalled-end-of-greed-is-good-time-for-ceos-to-get-in-touch-with-inner-guru-31145">greed</a> and <a href="https://www.theguardian.com/business/2012/may/06/shout-rooftops-bank-deregulation-leads-to-disaster">deregulation</a>. </p>
<p>My diagnosis is different: financial markets are the creation of society, and we have set them up in the wrong way, based on faulty economic theories. Governments have outsourced the management of societies’ assets to the finance industry and set the industry the wrong incentives. So we need to rethink how we want our assets managed and reset the incentives to achieve this.</p>
<h2>Government power</h2>
<p>The tools of finance are powerful because they are used to allocate society’s capital, and this determines the future direction of the economy. So, <a href="https://www.imf.org/en/News/Articles/2015/09/28/04/53/sp030706">the Chinese government</a>, for example, has decided to direct finance, in co-ordination with other policies, towards manufacturing-export industries, and these sectors have rapidly grown. </p>
<p>In the UK economy, this decision has been given to the finance sector, which invests people’s savings, for example via pension funds and bank accounts. The justification is that free markets will make the best decision on where to allocate resources. The most efficient users of capital will be able to pay the best return so everyone will be better off. </p>
<p>Yet, the reality is that we don’t have free financial markets. People mostly save via capital markets because they are induced to do so by the government. The most important financial variable is the interest rate, which is set by a government agency, the largest asset class are government bonds, only a restricted group of government-mandated banks can accept deposits, and government regulation shapes the way markets work. For example there are over 100,000 pages of pension regulations alone. Plus, the whole system owes <a href="http://couragetoactbook.com/">its existence to the 2008 bail out</a>. So, seeing that financial markets are not free, the theory that free markets are efficient and reflect peoples’ social preferences is not applicable.</p>
<p>It is evident that the financial system does not efficiently allocate people’s money. The finance sector has grown to an enormous size and looks anything but efficient: half of all savings are ultimately <a href="https://www.thersa.org/discover/publications-and-articles/reports/seeing-through-the-british-pension-system">eaten up by charges</a>, less than 4% of savings <a href="http://www.palgrave.com/us/book/9781137560605">are actually invested at all</a> (the rest spends its life as perpetually traded abstract financial assets), the system is <a href="https://www.penguin.co.uk/books/187623/the-shifts-and-the-shocks/">prone to asset bubbles and crashes</a>, returns have been driven down to close to zero <a href="http://www.palgrave.com/us/book/9781137560605">making a pension unaffordable</a>, the level of debt in the economy <a href="http://press.princeton.edu/titles/10546.html">has increased unsustainably</a>. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/180362/original/file-20170731-15340-ygv9yl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/180362/original/file-20170731-15340-ygv9yl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/180362/original/file-20170731-15340-ygv9yl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/180362/original/file-20170731-15340-ygv9yl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/180362/original/file-20170731-15340-ygv9yl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/180362/original/file-20170731-15340-ygv9yl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/180362/original/file-20170731-15340-ygv9yl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Only a small percentage of savings are invested in the real economy.</span>
<span class="attribution"><span class="source">shutterstock.com</span></span>
</figcaption>
</figure>
<p>Instead of stewarding the corporates they oversee, investment managers encourage corporates to make short-term decisions <a href="https://www.ft.com/content/d583baa2-823f-11e5-8095-ed1a37d1e096?mhq5j=e1">to boost their share price</a>. The example of banks’ behaviour in the run up to the financial crisis was a dramatic manifestation. More pernicious are incentives for companies to return money to shareholders rather than invest in staff or infrastructure, undermining social cohesion (through inequality) and the long-term prospects of the economy.</p>
<h2>Deciding what we want</h2>
<p>So how could we achieve a better system? The government currently supports, promotes and sets incentives for finance based on an inapplicable economic theory to perpetuate a system that doesn’t work. Instead, we need to decide on what we want finance to do and set incentives to achieve the outcomes we want. </p>
<p>For example, in return for the continued support of the finance system, the finance industry should have to demonstrate that it is socially useful. Banks that have the right to create money and are guaranteed by governments should preference lending to create jobs and other social benefits (the proportion of lending to the “real” economy by banks is negligible). </p>
<p>To benefit from a tax rebate, pensions and savings products should have to demonstrate a positive social benefit or invest in sustainable infrastructure and R&D. The sustainable finance tools <a href="http://wedocs.unep.org/bitstream/handle/20.500.11822/20716/The_Financial_System_We_Need_From_Momentum_to_Transformation.pdf?sequence=1&isAllowed=y">to do this exist</a> and have been tried and tested over an extended period.</p>
<p>Defining what is socially useful is problematic, but it is not a problem that we can duck. Currently the government support for finance has an ethical basis – theoretically efficient free markets to ensure that the economy runs at maximum potential. This may be a worthy value, but it does not apply to our current non-free financial markets. We need to decide what values we want finance to embody, and then set the rules to achieve these.</p><img src="https://counter.theconversation.com/content/80908/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nick Silver is author of "Finance, Society and Sustainability: How to Make the Financial System Work for the Economy, People and Planet" and a director of Radix, the think tank of the radical centre, and of Climate Bonds Initiative.</span></em></p>The finance industry has developed a powerful set of tools over the years, which could be used to improve well-being and solve our environmental problems.Nick Silver, Honorary Senior Visiting Fellow at CASS, City, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/627712016-07-20T05:50:06Z2016-07-20T05:50:06ZThe environment-energy superportfolio can deliver real action – here’s how<p>When Victorian Premier Daniel Andrews <a href="http://www.abc.net.au/news/2016-05-23/victorian-premier-daniel-andrews-cabinet-reshuffle/7436658">reshuffled his cabinet in May</a>, most of the headlines were about Wade Noonan’s return after suffering mental health issues, and Lisa Neville who became the state’s first female police minister.</p>
<p>But from an environmental perspective there was <a href="http://www.thefifthestate.com.au/jobs-news/lily-dambrosio-adds-environment-and-climate-change-to-energy-portfolio/82435">another significant change</a>. Energy and resources, long regarded as twin portfolios, were split. Instead, the energy brief was partnered with climate change and environment under a single minister, Lily D’Ambrosio. </p>
<p>On Monday, Prime Minister Malcolm Turnbull followed suit, creating a <a href="https://theconversation.com/under-a-single-minister-will-energy-and-the-environment-be-friends-or-foes-62681">new super-portfolio of environment and energy</a>, with Josh Frydenberg as the minister.</p>
<p>Linking policy development and decision-making for the energy and climate change portfolios makes sense. As a result of the historic <a href="https://theconversation.com/the-paris-climate-agreement-at-a-glance-50465">Paris Agreement</a> struck last year, the world – including Australia – is committed to achieving net zero emissions by 2050. </p>
<p>This calls for a major transformation, shifting the world’s energy away from fossil fuels and towards renewable sources like solar and wind, newer technologies such as wave and geothermal energy, and innovations like battery storage and <a href="https://theconversation.com/slash-australians-power-bills-by-beheading-a-duck-at-night-27234">energy demand management</a>. </p>
<p>In that sense, energy and climate (and therefore the environment) go hand in hand. Decisions about energy sources have direct implications for our ability to deal with climate change. Conversely, decisions taken to reduce emissions will invariably impact on the energy portfolio. The two sectors have been crying out for better integration.</p>
<p>Many of the technologies needed to decarbonise our electricity system are already available. But we need to move faster. Our <a href="http://www.climateworksaustralia.org/story/insights/invest-now-achieve-50pc-renewable-energy-target">research</a> at ClimateWorks Australia shows we will need at least 50% renewable electricity by 2030 if we are to decarbonise the electricity sector in time to avoid the worst effects of climate change. </p>
<p>This means we need policies that will push harder to help large-scale clean energy technologies reach the necessary level of commercialisation and integration.</p>
<h2>Renewables and efficiency</h2>
<p>Within these broad portfolios, there are particular policy areas that also need to be linked more closely with one another. In particular, renewable energy policy needs to be combined with measures to promote energy efficiency.</p>
<p>There is a natural synergy between renewable energy and energy efficiency, yet the two have never been systematically linked at either a national or state level. The better our energy efficiency performance, the less investment we need in new renewable energy sources to replace carbon-intensive ones. This in turn helps to lower the overall network costs and can protect households against rising power bills.</p>
<p>While unit prices of electricity are <a href="https://theconversation.com/australias-energy-sector-is-in-critical-need-of-reform-61802">expected to rise</a> as we modernise and decarbonise the energy system, household bills need not. If governments promote energy efficiency at the same time, households can reduce their energy use to offset the rising energy costs, keeping bills flat or even reducing them.</p>
<p>The lack of joined-up thinking between these two areas has led to missed opportunities. Some 1.5 million Australian homes have solar panels, thanks in part to the <a href="https://www.environment.gov.au/climate-change/renewable-energy-target-scheme">federal incentive scheme</a>. Meanwhile, there are separate state-based incentive schemes for household energy efficiency. Why have these two never been linked? If solar panel installers could also provide household energy efficiency audits, householders could kill two birds with one stone and further reduce their demands on the electricity grid. </p>
<p>Household battery storage technology provides the next key opportunity to link installation incentives with renewable energy and energy efficiency. But this opportunity will again be missed if policies are not better integrated within the portfolio. </p>
<p>The <a href="https://theconversation.com/australias-energy-productivity-plan-promises-more-bang-for-our-buck-but-lacks-commitment-53734">National Energy Productivity Plan</a> is a new policy with 34 measures aimed at improving energy efficiency. Frydenberg led this process when he chaired the <a href="http://www.scer.gov.au/news/energy-and-resources-ministers-met-canberra-4-december-2015-fourth-coag-energy-council-meeting">COAG Energy Council</a> last year. He has retained these responsibilities within his expanded portfolio, giving him a golden opportunity to take a truly integrated approach.</p>
<p>In the meantime, D’Ambrosio has taken the opportunity to review Victoria’s upcoming action plans on renewable energy and energy efficiency, to take advantage of the opportunity in her joint portfolio to ensure energy and climate policies have the close integration they need.</p>
<h2>Whole-of-government support</h2>
<p>Of course, integrating the energy and climate portfolios is not the whole solution. Cabinet support will still be needed to introduce integrated policies in other areas that are critical to hitting Australia’s emissions reduction targets. Examples include: putting specific regulations on emissions-intensive industries; creating market enablers for low-carbon technologies; ratcheting up green standards for buildings, vehicles and infrastructure; and ensuring planning approval systems are designed to take account of these targets.</p>
<p>The real work will need to happen in the federal government’s 2017 review of policies to achieve Australia’s Paris emissions target of 26-28% below 2005 levels by 2030. A recent <a href="http://www.pwc.com.au/publications/low-carbon-economy-index">Pricewaterhouse Coopers report</a> found that “Australia will need to nearly double its historic rate of decarbonisation, to 4.4% annually”, if it is to meet even the lower end of this goal.</p>
<p>Ministers often talk about taking a “whole-of-government approach” to major issues. Yet plenty of silos still need breaking down if we are to achieve meaningful action on climate change. </p>
<p>The moves in both Canberra and Spring Street to bring environment, climate and energy under a single umbrella are a positive step towards better policy and real action. But, as ever, there is still plenty of hard work ahead.</p><img src="https://counter.theconversation.com/content/62771/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anna Skarbek is CEO of ClimateWorks which receives funding from philanthropy and project-based income from federal, state and local government and private sector organisations.</span></em></p>There’s a wider trend towards linking the energy and climate portfolios, and not before time – the race is on towards a low-carbon economy, and joined-up policy gets faster results.Anna Skarbek, CEO at ClimateWorks Australia, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/612172016-06-19T20:09:45Z2016-06-19T20:09:45ZCatholic church starts small but is clearly thinking big on fossil fuel divestment<p>This week’s decision by four Australian Catholic orders to <a href="https://www.theguardian.com/environment/2016/jun/16/catholic-orders-take-their-lead-from-the-pope-and-divest-from-fossil-fuels">divest fully from fossil fuels</a> can be interpreted as a direct response to the <a href="http://w2.vatican.va/content/francesco/en/encyclicals/documents/papa-francesco_20150524_enciclica-laudato-si.html">encyclical on the environment</a>, issued by Pope Francis <a href="https://theconversation.com/the-popes-environmental-encyclical-promises-to-shake-up-the-climate-debate-43328">almost exactly a year ago</a>. </p>
<p>The amounts of money managed by these Australian groups may be modest, but the announcement is part of the launch of a much wider initiative by the <a href="http://catholicclimatemovement.global/divest-and-reinvest/">Global Catholic Climate Movement</a>, which aims to encourage Catholics to reconsider their investment options, on both an individual and organisational level. </p>
<p>The movement will be holding seminars and provides an <a href="http://catholicclimatemovement.global/divest-and-reinvest/">online divestment hub</a> to encourage Catholics to take their money out of fossil fuels and promote reinvestment in low-carbon technologies.</p>
<h2>The papal view</h2>
<p>A year ago, Pope Francis was very clear in his assessment of the fossil fuel industry. His encyclical warned of the dangers of climate change, <a href="http://www.abc.net.au/news/2015-06-19/pope-francis-warns-humanity-about-pace-of-consumption/6557822">arguing that</a>:</p>
<blockquote>
<p>…technology based on the use of highly polluting fossil fuels – especially coal, but also oil and, to a lesser degree, gas – needs to be progressively replaced without delay. </p>
</blockquote>
<p>He also noted that “politics and business have been slow to react in a way commensurate with the urgency of the challenges facing our world”, <a href="http://www.abc.net.au/news/2015-06-19/pope-francis-warns-humanity-about-pace-of-consumption/6557822">and stressed</a>:</p>
<blockquote>
<p>Doomsday predictions can no longer be met with irony or disdain. We may well be leaving to coming generations debris, desolation and filth. </p>
</blockquote>
<p>It is only a small step from this position to argue that continued investment in fossil fuels, which profit from activities that damage the natural environment, cannot be morally justified. As Bill McKibben, founder of the campaign group 350.org <a href="http://350.org.au/campaigns/go-fossil-free/">which strongly advocates divestment</a>, puts it: </p>
<blockquote>
<p>If it’s wrong to wreck the climate, then it’s wrong to profit from that wreckage. </p>
</blockquote>
<p>The same sentiment was echoed in a <a href="http://agenciabrasil.ebc.com.br/en/geral/noticia/2015-10/catholic-church-leaders-call-just-and-transformational-climate-agreement">2015 statement by Catholic bishops</a> from all continents in response to the encyclical. The bishops called on the world to:</p>
<blockquote>
<p>…put an end to the fossil fuel era … and provide affordable, reliable and safe renewable energy access for all.</p>
</blockquote>
<h2>Practical steps</h2>
<p>What does this Catholic divestment drive mean in practice? Contrary to popular imagination, the Catholic Church is not a monolithic command structure controlled by the Pope. It consists of hundreds of thousands of organisations, all relatively autonomous: dioceses, religious orders, lay organisations (such as the St Vincent de Paul Society), charitable and social welfare bodies, educational bodies, superannuation institutions, insurance groups and so on.</p>
<p>All have bank accounts and many have investment portfolios of one type of another. While their funds might vary from thousands to many millions of dollars, the total amount of money within the church as a whole is very substantial. </p>
<p>In my experience, Catholic bodies are also quite tribal. For example, while many other religious bodies in Australia and internationally – including Anglican, Uniting Church, Presbyterian, Quaker and Jewish groups – have divested, Catholic bodies have been slow to take the first step within their own denomination. Each has been waiting for some other Catholic organisation to take the lead. </p>
<p>That is why the recent announcement by four religious orders in Australia is so important, in symbolic terms if nothing else. They have taken the lead where others have been hesitant.</p>
<p>The focus in Australia will now shift to bodies such as Catholic dioceses, <a href="http://ccinsurance.org.au/Pages/Home.aspx">Catholic Church Insurance</a> and <a href="http://www.arrcc.org.au/divest_catholic_super">Catholic Super</a>. All of them operate under investment guidelines that are consistent with the church’s teaching on various matters. So, for example, they would not invest in firms that produce contraceptives. </p>
<p>Given the Pope’s strong position on climate change, the onus is firmly on these organisations to show how they are responding constructively to his teaching. Saying it is “too hard” is not a responsible option.</p>
<p>Any institution as long-lived and as large as the Catholic Church will have accumulated significant assets over the 2,000 years of its existence. This wealth is used to fund activities in welfare, international aid, health care, education and pastoral support around the world. In more recent times it has been used to fund the church’s liabilities in relation to the sexual abuse scandals that have engulfed it. </p>
<p>It is naïve and simplistic to argue that the church should not be wealthy. What is at issue here is where this wealth is invested. While Pope Francis has made no explicit statement on divestment, many in his church are now poised to respond to his environmental message by reassessing their investments in fossil fuels.</p><img src="https://counter.theconversation.com/content/61217/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Neil Ormerod is married to Thea Ormerod, president of the Australian Religious Response to Climate Change (ARRCC) which is campaigning for divestment among religious bodies in Australia. </span></em></p>A year ago Pope Francis called for better protection for the environment. Now Catholic institutions look poised for widespread divestment from fossil fuels.Neil Ormerod, Professor of Theology, Australian Catholic UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/600132016-05-30T15:02:00Z2016-05-30T15:02:00ZWhat Africa must do to make green industrialisation a reality<figure><img src="https://images.theconversation.com/files/123964/original/image-20160525-25205-1fu02li.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Moroccan Environment Minister Hakima El Haite at the Noor solar plant, one of the biggest in the world.</span> <span class="attribution"><span class="source">Fadel Senna/AFP</span></span></figcaption></figure><p>The <a href="http://www.uneca.org/publications/economic-report-africa-2016">latest report</a> from the United Nations Economic Commission for Africa features an in-depth examination of green industrialisation opportunities across the continent. The challenge lies in transforming production methods and creating infrastructure to secure food, water and energy supplies.</p>
<p>Africa only plays a <a href="http://www.uneca.org/publications/economic-report-africa-2016">small part</a> in environmental degradation. But the continent is <a href="http://www.uneca.org/publications/economic-report-africa-2016">extremely vulnerable</a> to climate-related risks. The goal of green industrialisation is to keep Africa’s greenhouse gas emissions low and to mitigate the fallout from climatic change and famines.</p>
<p>The agricultural sector is one of the key players in green industrialisation. So, it’s crucial to <a href="http://www.un.org/fr/africa/osaa/peace/caadp.shtml">implement</a> the Comprehensive Africa Agriculture Development Programme. This will aim to stimulate trade between African countries, boost agricultural products and services, and shore up livelihoods and production systems against climate change and its risks. </p>
<p>These ideas were echoed by AU Commission head Nkosazana Dlamini-Zuma at <a href="http://www.madagate.org/editorial/madagate-video-et-affiche/4298-union-africaine-eradiquer-la-faim-dici-2015-par-une-agriculture-solide.html">the 23rd AU summit</a> when she said: “It is time for heads of state to make agriculture a chief national development priority, and open the way to sustainable development for their people. Prosperity is at hand; it is in our hands.”</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/121751/original/image-20160509-20605-1qngyut.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/121751/original/image-20160509-20605-1qngyut.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/121751/original/image-20160509-20605-1qngyut.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/121751/original/image-20160509-20605-1qngyut.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/121751/original/image-20160509-20605-1qngyut.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/121751/original/image-20160509-20605-1qngyut.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/121751/original/image-20160509-20605-1qngyut.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">In the village of Wote, Kenyan farmers are developing plant species that are better adapted to climate change.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/cgiarclimate/16029273864/in/photolist-qqsdEL-r48eCX-5VYNQW-4fvw1N-74PTmY-763mdp-4fvqvJ-bnLXnC-bCYVHG-5VYLyN-4frqPk-74x3UE-5VUvNR-5VUqwn-74tmJi-4fvqN9-5VYRJ1-74PPqm-74t72i-5VYPed-74xcbs-767hbq-77aGkA-5VUt3r-74xvTG-5VYJMG-bnYLhN-767kd1-5VYRY9-74KRt8-a6gmV5-74P8gw-5VUxwT-5VYTcs-74PMrN-77aH2A-5VUp5n-5VYSeq-bATiNp-5VYMQ9-767itY-bnLXH1-bnLY2N-77aFGC-74xePf-DwaaHo-5VYJ1G-74KEQg-74xfo5-5VYLS1">Climate Change, Agriculture and Food Security/Flickr</a></span>
</figcaption>
</figure>
<h2>Four main strategies</h2>
<p>There are a few development strategies to make green industrialisation a reality in Africa. The four main ones are: changing price incentives, regulating environmental standards, greening public infrastructure, and promoting less resource-intensive economic growth – decoupling growth from environmental impact.</p>
<ul>
<li><p><strong>Changing price incentives</strong> will help a gradual withdrawal from fossil fuel subsidies. Economic growth rates for African countries are closely linked to the <a href="http://www.banquemondiale.org/fr/news/press-release/2016/04/11/africa-low-commodity-prices-continue-to-impede-growth">price of primary commodities</a>, and therefore to fossil fuels. There are already moves underway to remedy this situation. Namibia and Kenya have introduced <a href="https://www.imf.org/external/french/pubs/ft/dp/2013/afr1302f.pdf">fuel subsidy reforms</a>. The use of public transport is being promoted in Kenya.</p></li>
<li><p><strong>Regulating environmental standards</strong> is a way to prevent and combat environmental damage from production activities. The African continent has an exceptional history of <a href="http://www.jeuneafrique.com/3997/economie/p-trole-trente-ans-d-incidents-environnementaux-en-afrique/">environmental incidents</a>. Shell’s 2008 pipeline leak in the Niger delta is the most notable. The 500 tons of toxic substances spread around Abidjan in the Ivory Coast in 2006 by the global corporation Trafigura, which poisoned local communities and killed 17 people, is another. There was also the spillage in August 2013 of millions of gallons of petrol by a subsidiary of China National Petroleum Corporation in Koudalwa, Chad. These countries have since established national environmental protection standards. But enforcing them is difficult, hindered by a lack of human and financial resources.</p></li>
<li><p><strong>Greening public infrastructure</strong> means equipping African countries with environmentally friendly services. This allows them to skip ahead in the process of industrialisation. Examples of this process can be found in South Africa’s new <a href="http://www.gov.za/about-government/government-programmes/expanded-public-works-programme">public works programme</a> and in the city of Durban’s <a href="http://www.gov.za/about-government/government-programmes/expanded-public-works-programme">local climate protection programme</a>. Tanzania and Zimbabwe also hint at this strategy with their national cleaner production centres. Uganda’s leather industry, the Ghanaian wood value chain and the agro-industries of both Ivory Coast and Nigeria are all examples of such initiatives.</p></li>
<li><p><strong>Decoupling growth from environmental impact</strong> will limit the use of environmental inputs in production. It will also decrease toxic emissions and discharge. Hydroelectric power stations like Inga III in the DRC, the Mphanda Nkuwa dam in Mozambique and Sambagalou in Senegal are a move in this direction. Malawi, Rwanda and Kenya are investing in biofuels, solar energy and geothermal energy, respectively. Angola, Botswana and Namibia jointly operate the cross-border Cubango-Okavango River Basin hydropower project. Mauritius is greening its maritime chain. In South Africa, efforts are centred on water management and sustainable mining. Lastly, it is worth mentioning Ethiopia’s eco-industrial park in Hawassa.</p></li>
</ul>
<p>Green industrialisation could therefore provide the basis for an African renaissance. Shared projects like hydropower stations, roads and smart cities are the first tangible signs of this future federation.</p>
<p><em>Translated from the French by Alice Heathwood for <a href="http://www.fastforword.fr/">Fast for Word</a>.</em></p><img src="https://counter.theconversation.com/content/60013/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Adam Abdou Hassan is a member of the Institute for Research and Teaching on Peace in Africa (Thinking Africa).</span></em></p>Climate change stands to hit Africa the hardest. That’s why green industrialisation is critical to help keep the continent’s greenhouse gas emissions low.Adam Abdou Hassan, Enseignant chercheur, Université de Rouen NormandieLicensed as Creative Commons – attribution, no derivatives.