Did you know that 32% of millennials would divest themselves of any investment if it was contributing negatively to climate change, even if it was performing well?
Did you also know that current estimates state that $30 trillion will be passed from the baby-boomer to the millennial generation over the next couple of decades.
The second fact is the reason why the first is significant.
It matters what millennials think about investing, because soon they’re going to be the dominant force.
I just read Alice Ross’ Investing to Save the Planet.
Al Gore wrote that “this book presents a salient truth: every investor, no matter how large or small, has the power to help address our climate crisis and build a more sustainable world. Together we can and must act now.”
But more importantly by far, here’s what I have to say about it…
This is the first book anyone should read who’s interested in this kind of investing.
It’s a very murky and complex new beast, trying to invest sustainably, but this book well help take your first few steps along the path.
Here are some difficult questions:
If I’m concerned by climate change, should I forgo the dividends and avoid investing in big oil companies?
How green are most funds really?
What’s the likely relationship between financial returns and sustainability credentials?
Other than energy, what sectors matter to investors who want to help drive global decarbonisation?
Ross answers these questions in a beautifully clean and simple manner, befitting that of a Financial Times journalist (now deputy news editor I believe).
The chapter on divestment was especially refreshing.
Bill Gates has said that divestment has “to date, probably reduced about zero tonnes of emissions”.
He believes that to make a difference and to make money, people should be putting their capital behind disruptive technologies that slow carbon emissions.
This may not matter of course; divestment can become a self-fulfilling prophecy as the millennials take control of the largest chunk of wealth in financials assets over the next 20 years.
But broadly I think he’s right, and it certainly seems to me that divestment barks up the wrong tree (more vengeful than impactful – never a good thing). Ross carefully dissects the logic, both moral and economic, which underpins the movement.
There are some caveats though, as she shrewdly points out.
Public shaming associated with divestment can have an impact. Look at how Shell and BP have responded to public and investor pressure. The threat of divestment can be reasonably said to have contributed to more aggressive transition strategies at some major oil companies.
It also can be more impactful in the bond market, where the cost of capital is more directly impacted, as oil companies try to fund raise new projects.
My main objection to divestment though, is what happens if it works. (I think we’re about to find out by the way.)
What happens is no new oil gets found and produced, supply dwindles faster than demand and prices rise. Prices can really spike during supply shortages. Oil prices are nearly back to pre-Covid levels by the way, if you hadn’t noticed.
If divestment works, supply falls and prices spike, and so the developing world faces much higher costs in trying to catch up to our excessive standards of living.
It will also drive inflation, just like back in the 70s when oil price spikes were the result and the cause of higher inflation, to a hugely damaging extent.
Anyway, I come at this excellent book from an interesting position.
I’ve been on the frontline of investing in the energy transition for the last couple of years now. I’ve looked mainly at equities, technologies, business models and investment trends.
While extensively researched and immaculately put together, it’s fair to say that it is aimed at the broad retail market. So you don’t have to worry about getting bogged down in deep dives into the energy cost of energy, or the thermodynamics behind nuclear. It’s immensely readable.
It comes at things from the point of view of a normal investor interested in working out how they can incorporate sustainability into their investing.
In a massive simplification, there are three types of investor: cautious, medium, and high-risk.
There are also three strategies in sustainable investing: impact, responsible, and thematic.
Impact investors care more about the real-world impact of their investments than their financial returns.
Responsible investors want to make their investments more sustainable, and would like the same returns – so a bit of divestment here, a smattering of renewables there.
Thematic investors would argue that investing in the drivers of the transition will deliver higher financial returns. This is me, and here’s why:
Oil and gas ETF (black line) vs clean energy ETF (green line)
The point is that there’s more than one way to invest sustainably. There’s a difference between wanting to make a difference and wanting better returns. One is a choice, the other is analysis. But setting up this framework is very helpful I think, for people to think more clearly about what they want from their investments.
Within that framework, there are also so many themes and sectors, trends, problems, and solutions.
Something like agriculture, for example, is responsible for 11% of global emissions. But include things like storage, transportation, packing, etc, and the number can climb as high as 37%.
Ross also delves into the revolution that’s happening in food, protein, and agriculture. From AI technologies in farming to the thousands of food technology start-ups trying to challenge the established players, it’s a hugely exciting sector.
And it’s not just about equities either. Ross goes to a place I never would, and talks about bonds… Yawn, I know. But hold on, what about sustainability-linked loans? They adjust the interest rate owed by the borrower depending on whether they meet certain pre-agreed climate criteria.
That’s a really cool concept!
I saw one commentator recently saying that the 2020s would be the decade of “olive”. And not because my Greek flatmate is going to finally start the high-quality olive oil business he’s long been promising us.
But because it’s not just a story of replacing “brown” companies with “green” ones.
It’s a transition, a process, and in every sector from banking to Brazil nuts, a million small steps in the right direction add up to a very meaningful leap forward.
Energy efficiency, another admirable topic covered by Ross in Investing to Save the Planet, is hugely important on this front.
So many companies could easily cut their emissions by improving their energy efficiency. Even Tesla, whose cars replace petrol emissions on the road, isn’t the cleanest when it comes to its production or its CEO’s flight calendar.
Agriculture and goods are great examples of this. By electrifying farm equipment or delivery vehicles, using better software and technology in the farming process or taking measures to reduce water usage, they can improve their costs and profits, while lowering their contributions to climate change too.
The economics are now aligning to make improving energy efficiency a win-win. Buildings will be a key battleground – heck, single glazing is still very common and a huge source of wasted heat.
Overall, Investing to Save the Planet gives a well-structured and helpfully laid out guide to sustainable investing, in all its many forms.
This looks set to be one of the defining themes of the coming decade or two, and I’d say this book is something of a minimum requirement for all investors.
If you finish and find yourself desperate for further guidance, allow me to point you in the direction of our own energy transition investing service.
Just as Lord Bill Gates commanded, we are seeking out the very best companies which are driving varies aspects of the energy transition forward.
Breakthrough technologies in fuel cells, batteries, solar and wind, lithium mining and more.
But with clean tech stocks finishing 2020 on such an incredible high – what’s the next move?
All the best,
Editor, UK Uncensored
PS You shouldn’t buy into any clean tech stocks without the right research and help.
With many companies in this space having soared hundreds of per cent over the last year or two, it wouldn’t do for me to send you blindly into the fray. Much better to know what our resident energy transition expert and investor extraordinaire James Allen has to say.
Because he has identified where the next great opportunity is, rather than the one that’s already made the headlines.