Investment advisors who have practiced socially responsible investing (SRI) going back decades as some on our team at Natural Investments have, remember well the doubters’ refrains of our means for social and environmental change: using investment capital does not advance social progress and environmental preservation. There is now evidence to refute them.
One way socially responsible investors create impact is by identifying which companies are exhibiting objectionable practices that undermine social progress or create environmental harm, and will decide to withhold financial backing from such companies. This is known as “avoidance” investing, one of several SRI leverage methods.
In January, The National Oceanic and Atmospheric Administration (NOAA) reported that 2019 was the second hottest year on record, following closely behind 2016. The planet’s five warmest years have all occurred since 2015, and nine of the ten warmest years have occurred since 2005.
There is now overwhelming scientific consensus that CO2 emissions from fossil-fuels are a primary cause for our rising average global temperatures. The US Environmental Protection Agency (EPA) states, “Human activities are responsible for almost all of the increase in greenhouse gases in the atmosphere over the last 15 years.” The obvious remedy? A steep reduction of CO2 emissions.
“Utility Death Spiral?” This provocative title jumped off the agenda page at the recent SRI Conference. What could that mean? Well, with a title like that, I knew I had to attend, though the session description’s litany of tech terms—gigawatts, levelized cost of energy, photovoltaic grid parity, net metering time of use—had my eyes going a little blurry. Spending an hour with a bunch of energy nerds turned out to be the standout presentation of the year for me.
A year ago, Amory Lovins and the team at Rocky Mountain Institute (RMI) released a report called “The Economics of Grid Defection” that highlighted the forces and timing that will drive commercial and residential electricity users to unplug from the grid. Lo and behold, the time is almost here that solar photovoltaic (PV) in combination with new battery technology is/will be cheaper than staying plugged in to the grid. Wow, that changes things! Ever since the initial boom in the 1970’s, PV systems with batteries have been only appropriate for far-off-grid folks, people who lived a mile or more from an electric line. But now, with the cost of PV panels dropping dramatically, coupled with the slow but accelerating reduction in the price of batteries, even someone living in a city house that’s already connected to the grid might choose to unplug. In some parts of Hawaii, the time has already passed—folks there are unplugging, not just to “go green” but to “save green.” In California and New York the report’s most optimistic scenarios suggest it could make economic sense to “defect from the grid” in as little as two years! In places with lower electric rates, including Kentucky and Texas, the time frame is much longer, though well within the thirty-year planning scope of electric utility infrastructure development.
A key factor that will drive “grid defection” is the ongoing monthly cost to stay connected to the utility and the grid. In our current net-metering model, once businesses and homeowners are generating sufficient electricity to cover their own use, then they are using the grid as a giant battery. When the sun is shining the PV system is pumping energy into the grid, and when it’s dark the user is pulling energy out. As the cost of using the grid as a battery increases and the prices for an actual, at-home battery system decreases, users start to look at using their own batteries to perform the same function. If it costs $10 a month to have the convenience of the grid, for example, but it only costs $5 a month to finance a battery pack at your house, well, you can see the appeal—especially if utility fees rise as their customer base shrinks.
A recent Bloomberg national poll has shown that Americans are willing to bear the costs of combating climate change, and most are more likely to support a candidate seeking to address the issue. By an almost two-to-one margin, 62% to 33%, Americans say they would pay more for energy if it would mean a reduction in pollution from carbon emissions. “It is a rare poll where people responding will stand up and say ‘tax me,’” said Ann Selzer, of Selzer & Co., which conducted the June poll.
Carbon markets are another innovation designed to combat climate change. California began its Cap-and-Trade market in 2011. The system is a market-based regulation which sets a limit or “cap” on overall greenhouse gas emissions and allows trading of permits or “credits” to release CO2. The government requires industries to acquire credits sufficient to equal their emissions. Companies that need credits buy them, either from the government or on a commodity market, with the value set by supply and demand. Over time, the government reduces the cap and the number of credits, driving up their value. The expense of securing credits creates incentives to reduce CO2 levels through investments in clean technologies and better practices.
Another tool in the effort to fight climate change is the growing fossil fuel divestment campaign championed by Bill McKibben’s 350.org. With echoes back to the South Africa apartheid divestment campaign, this approach is gaining traction as more and more individuals and institutions sell their investments in fossil fuel companies, for reinvestment in clean technologies or the broader market. The goal is to bring pressure to bear on corporations, politicians, and investors to create greater urgency and action on the climate change issue.
Natural Investments began offering fossil fuel free portfolios in January of 2013. The portfolios have performed competitively and illustrate the viability of our economy moving away from fossil fuels. We’re now seeing increasing investment options of this kind becoming available, which is further expanding our diversification in these portfolios.
Legendary investor Warren Buffet, whose Berkshire Hathaway investment company owns significant holdings in alternative energy and related companies, recently stated that he would like to double his investment in the sector. With attention like this, the alternative energy and clean technology sectors are indeed gathering momentum. At Natural Investments we’ve been pleased with these developments and looking forward to expansion in these sectors.
This commentary first appeared as part of Scott’s quarterly market recap in the Summer 2014 edition of the Natural Investment News
I’m not much of a football fan, but around playoff time I perk up and start rooting for underdog teams to dethrone the champs. With all the problems that Big Energy has been having lately, the odds of upsets in the energy games have been steadily increasing.
Japan is on everyone’s mind. Despite the shocking destruction caused by the massive quake/tsunami, our attention has been on the radiation leaking from Fukushima Daiichi. We’re all praying the damage to the environment and human health can be contained, but it’s too early to know. This event has made it impossible to ignore the consequences of nuclear accidents, and has already had in impact on the future of nuclear energy.
Socially responsible investors have long had this on their radar. In our 1992 book Investing from the Heart, Jack Brill wrote that “most SRI investments are screened for nuclear energy. The reasons are not exclusively environmental, because nuclear power plants have also proven to be financial black holes for the utilities that built them.” Twenty years later nuclear is still a standard negative screen for SRI funds, though recently some former opponents of nuclear power have become converts. Nuclear plants do not emit CO2, so many people who are deeply concerned about global warming have reluctantly embraced nukes as a necessary path towards stabilizing the climate.
NI continues to recommend avoiding investments in nuclear power. Accident safety hasn’t been adequately addressed, and the lack of safe, permanent solutions for radioactive waste has been a deal killer for us. I’ve always felt it was a wacky way to boil water, but I’ve tried to keep an open mind. President Obama surprised progressives with his vision of a new generation of smaller, safer nuclear plants. Still, private investors have been unwilling to invest in nuclear power, despite huge government subsidies and limitations on liability for accidents.
If nuclear power is eliminated from our near-term future, how exactly will we meet energy demands without cooking the planet?