Oil an ethical investment? No. Just no.
Climate change keeps me up at night
As I have mentioned a few times before, worrying about climate change is one of the things that keeps me up at night … genuinely. I am busily trying to put climate change at the heart of my personal investment roadmap, and when it comes to the SDGs, Goal 13 on Climate Action is a big one for me.
It turns out that many other women feel the same! Not sure if you have seen it yet, but last week Moxie Future published findings from its recent survey. 61% of women who responded to our online survey believe that climate change is THE top priority when it comes to their investment strategy.
of the female investors that we surveyed believe climate change is THE top priority
Oil an ethical investment?
With this in mind, I get increasingly frustrated when I read headlines such as ‘Oil is an ethical investment, says BP’. I really struggle to see the logic in this.
The energy sector remains the largest contributor to emissions over any other sector, standing at 72% of global emissions. And fossil fuels dominate the energy sector. If you are an ‘ethical’ investor (not a term I like to use – I’d prefer to use sustainable investor!) then you will likely care about climate change. And if you want to use your investible dollars to help avoid the climate catastrophe then you probably won’t look to invest in more fossil fuel production.
And yet Spencer Dale, BP’s chief economist, argues that the company is doing social good by helping to lift billions of people out of poverty. As such, it should be counted in environmental, social and governance funds, investment portfolios chosen for those criteria.
Reliable energy critical for lifting people out of poverty
Yes. Solving the energy conundrum is front and center for solving the poverty crisis. Absolutely. But ending poverty ALSO requires confronting climate change. Why? Because the poorest and most vulnerable will be the hardest hit. They already are the hardest hit by climate change.
In order to achieve this, we need to decouple economic growth from carbon emissions. And the bottom line is that means moving away from fossil fuels. Dale’s argument is weak at best.
Fossil fuels and our future
The problem is that fossil fuels still seem firmly embedded in our future. Even though the use of renewables is expected to grow faster than fossil fuels, the US Energy Information Administration (EIA) says coal, oil and natural gas will still account for 77% of our energy in 2040.
And yet according to the IPCC, the intergovernmental body of climate scientists, oil and gas production needs to fall by about 20% by 2030 and 55% by 2050 to prevent the Earth’s temperature rising by more than 1.5 °C above pre-industrial levels.
These two realities are seriously scary.
Voting with our feet
This is where I believe the power of investors comes into play. Over recent years institutional investors have finally begun to respond to climate risks by getting out of fossil fuels. Big fund managers and pension funds are pushing and prodding firms to become greener. And clean energy is making a big splash with names like Warren Buffett are taking big stakes in the sector.
For us, individuals looking to make an impact with our money, we can do one of two things. First, we can get out of funds that hold fossil fuel companies. Fossil fuel investments carry real financial risks and it’s time to divest. I love this tool from As You Sow – Fossil Free Funds – which looks at what thousands of mutual funds are holding. Alas it only covers the US but it’s great to see these types of tools coming available to help us make smarter decisions.
Second, we can look at what is going on in the clean energy sector. We’re seeing a lot of ETFs (exchange traded funds) come online, making it easier for investors tap into trends we are seeing in renewable and clean energy sectors. Now to me, that’s what I call ‘ethical’ (sustainable!) investing … voting for the kind of world I want to live in.