Concerns over climate change are never far from the headlines. From wildfires in Australia, to record flood levels in Venice, to fast-shrinking polar ice caps and glaciers, the last few years have witnessed a huge increase in awareness of the significant role that fossil-fuel emissions are playing in accelerating global warming.
Such concerns were reflected in Newton’s 2019 Charity Investment Survey, which revealed that 64% of charity respondees believed it was their responsibility to think about climate change, with almost a third coming under pressure from their stakeholders to look at topics related to climate change. The proportion of charities that are set to discuss fossil-fuel-free investing in the next 12 months (having previously done so and taken no action) has also doubled, from 24% in 2018, to 48% in 2019.1
This increased concern and rising interest in more sustainable investment options is well justified; it is hard to ignore the fact that 18 of the hottest 19 years since records began in 1884 have occurred since 2001, while the Intergovernmental Panel on Climate Change (IPCC) estimates that global temperatures are currently on track for a potentially catastrophic rise of between 3.1 and 3.5°C by 2100.
The Paris Agreement has the long-term aim of limiting the increase in global average temperatures to well below 2°C. Why 1.5°C and not 2°C? The difference between 1.5°C and 2°C is significant; a 1.5°C increase is likely to mean an ice-free Arctic once every 100 years, while a 2°C increase would change that to once every decade, which would spell the end for biodiversity in the region.
The International Renewable Energy Agency (IRENA) estimates that $21 trillion (2% of annual global GDP) needs to be invested in clean technology between 2016 and 2050 to keep us below a 2°C warming, and, while there is a very long way to go, we are starting to see an increase in clean energy deals by conventional energy companies.
However, a huge collective effort is required to get back on track to limit the increase to 1.5°C, and while it would be easy to become disheartened by the potential scale of the task ahead, it is important to realise that there are opportunities to change the conversation.
Divestment from fossil fuels is growing in popularity, which is perhaps understandable, given that it allows individuals to feel like they are taking positive action for change. However, we would argue that by owning shares in companies, we earn the right to exercise our vote at annual general meetings, to engage with them, and have the chance to act as a positive influence on strategy as businesses seek to make the energy transition to a lower-carbon world. Meanwhile, through our investment themes, we are able to focus our efforts on finding greener investment opportunities and directing capital towards them.
As Newton’s chief executive, Hanneke Smits, has said on numerous occasions, climate change is a hard reality that all of us have to address, and, in our role as active, responsible investment managers, we will continue to do so.
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1 A total of 102 UK charities responded to our 2019 survey, with fieldwork taking place between April and July. Our 2018 survey saw a total of 97 charity respondents.
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