‘Code Red’ – How Savers Can Save The Planet


Earlier this month a sobering document, years in the making and approved by 195 nations, was published by the International Panel on Climate Change. The report shines a spotlight on governments dithering in the face of mounting evidence that climate change is a real threat.

Bali and Indonesia in general have a long history of natural disasters such as earthquakes and volcanic eruptions. The country has also had more than its fair share of floods and fires. What we are seeing now however are extreme events around the world, in many cases more extreme than in living memory. From America to Siberia, from Germany to Australia, the past 12 months have seen an unprecedented series of massive bush and forest fires, together with devastating floods and landslides.

Deforestation has played its part but the dominant cause has been a steady rise in global temperatures. The rise is expected to reach 1.5 degrees Celsius above pre-industrial levels by 2050. It doesn’t sound a lot but it is enough to seriously disrupt the world’s weather systems. What we have seen so far is the impact of a rise of ‘only’ 1.1 degrees. The prognosis is not good for the state of the planet in 2050. What if the temperature keeps rising beyond the predicted level? In that case the pictures currently coming to us from Mars should give an idea of what earth will look like!

 

Can the process be halted or reversed?

Clearly the process of climate change and rising temperatures has to be halted or future generations are doomed. The Paris Agreement represents a major step in the right direction, but it needs the full support of all nations. When former President Trump announced the withdrawal of the US from the Agreement it was a major blow to the global effort but now there is an adult in the White House the US is back on board. As for reversing the process, that is a pipe dream at the moment but it is theoretically possible.

 

What can individuals do to help?

When governments cannot agree amongst themselves and put their own interests before the best interests of humanity it is easy for individuals to feel helpless. But there are many opptunities for individuals. Energy saving is something anyone can contribute to. A most obvious example is the installation of solar panels to become independent of national grids that depend on the burning of fossil fuels to generate electricity. Buying an electric car once they become available and affordable is another.

The pandemic has ironically helped to slow carbon emissions as fewer planes are flying and road traffic has drastically reduced. But we all know that once the pandemic is over it will be business as usual again. And who can blame anyone for hoping that day comes sooner rather than later? It is hoped however that some lessons will have been learnt. Our resourcefulness during lockdowns and restrictions has enabled us to keep businesses going by holding meetings and conferences via Skype, Zoom or other facitilities that have sprung up. Cost-conscious companies have no doubt seen the savings that can be made by continuing to use them after the pandemic has passed. Not good news for Bali or the hotel and conference industry of course but some sacrifices have to be made.

 

Put your money where it can save the planet

Most adults and certainly expatriates will have savings in some form or another. It may only be cash in a bank deposit or perhaps membership of a personal or company pension scheme. In the past two years there has been a huge awakening to the fact that our savings and pension money can be directed to contributing to a better world than just making money.

This is not a new idea. So-called ‘ethical’ funds have been around since the time of the Quakers. The original concept was to avoid investing in any ‘sinful’ products or activities such as gambling, tobacco, alcohol etc. In my earlier days in the industry the odd client or two would enquire about investing in ‘ethical’ funds of which there were a small number accessible to retail investors. I showed them details of the funds and the performances relative to conventional funds.

Invariably the performance of the ethical funds was inferior to that of conventional funds so the investor had to make some hard choices; invest in the conventional funds and make good money or the ethical funds and make less. It is the same kind of hard economic choice that governments such as those of China and Indonesia have had to make. Do you use cheap, indigenous coal to fire electricity generating plants or pay a higher price (at the moment anyway) to use alternative, non-polluting fuels? The first choice is for your own benefit, the second for that of the whole world.

 

But there has been a seismic shift in the investment world

The dilemma for governments who have access to cheap but environmentally-unfriendly fossil fuels is unchanged. Only political and social pressure can force them to change. Activists can help too, so do not hesitate to get involved. Interestingly, Greenland has announced a permanent ban on all future exploration for oil. Admittedly, Greenland’s economy is somewhat smaller than that of the US, China or Indonesia so they can afford to be a bit more generous.

But for individuals there has been a major change. Not only are there now many more ‘ethical’ funds but their scope has widened and in the past couple of years they have outperformed conventional funds and even the major stock market indices. In 2020 many of these funds returned in excess of 50% which was exceptional but even though they are now more subdued most are already showing double digit returns this year to date. Certainly beats a near zero return on cash or less than 2% on US or other major currency bonds. But above all, the money is being put to good use for the betterment of the planet.

 

The three letters to watch: ESG

The industry no longer labels these funds as ‘ethical’ although there are still some that focus mainly on excluding negative assets which now include fossil fuels, non-defensive weapons etc. Some of the funds focus on companies that are involved in ‘alternative’ energies such as solar or geothermal, or in ‘clean’ products like electric cars. Others focus on renewable commodities such as water or timber. The scope of some of the funds is widened to embrace the social responsibilities of companies in terms of equal opportunities, prevention of child labour, a high level of professionalism etc.

The all-embracing scope of this new investment sector is covered by the term Environmental, Social and Governance or ESG. Companies and fund managers now ignore these features at their peril. As do investors since the many funds in the sector not only produce strong returns but actually contribute to the effort to contain climate change and its impact.

I will give more details on the scope of these funds and where they invest together with the latest developments and also some words of caution in a future article. In the meantime you may wish to pause and reflect on how you could realign your savings plans to help both yourself and the planet.

Colin Bloodworth, Chartered Member of the Chartered Institute for Securities and Investment (UK), has spent over 20 years in Indonesia. He is based in Jakarta but visits Bali regularly in normal times! If you have any questions on this article or related topics or would like to receive a free monthly newsletter on financial matters you can contact him at colin.bloodworth@ppi-advisory.com

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