Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest.
I woke up this morning to the song ‘Some Might Say’ by Oasis playing on the radio, in celebration of the 25th anniversary of their album ‘(What’s The Story) Morning Glory?’ - one of my favourites. Immediately following the song was the announcement that Donald and Melania Trump have tested positive for Coronavirus.
But, one piece of news that has managed to slip by most people’s morning updates this week is Cambridge University’s pledge to divest from all direct and indirect investments in fossil fuels by 2030. This comes as part of the university’s plan to cut its greenhouse gas emissions to zero by 2038 - more than a decade before the date set by the UK government.
The university has long come under pressure to reduce its exposure to the energy sector, which by the end of last year stood at almost £100m of its £3.5bn endowment fund. The student-led movement Cambridge Zero Carbon Campaign described the decision as ”an historic victory for the divestment movement".
You’re likely to hear increasing numbers of organisations divesting from fossil fuel companies over the next few years, as pressure ramps up and views harden against extractive energy sources.
Divestment is just one of several ways that a large investor can put the pressure on companies to get greener. When an institution like Cambridge divests, the decision is as political as it is economic. The shares that Cambridge sell over the next 10 years will be bought by someone else - in terms of capital, the impact is slight.
The real effects of announcements like these lie in the message they send out. Well publicised divestment keeps up the already intense pressure on fossil fuel companies to meet the shifting demand towards more sustainable energy sources. It’s unfortunate for Cambridge that the announcement came less than 24 hours before Mr and Mrs Trump’s.
It is, however, a significant message, and it’s one that private investors should pay attention to. For some, news like this is a welcome break from the daily doom and gloom of most other headlines - for others, climate change is the least of their problems. But ultimately, divestment from oil companies does mark a shift in the makeup of the UK economy which will have a bearing on all our investments.
Energy has long been one of the largest sectors in the FTSE 100, with companies like BP and Royal Dutch Shell serving as traditional stalwarts of the UK economy. Yet their future will now depend on their capacity to transition their practices (and image) towards sustainable energy sources. It will be a tough process - earlier this week, Shell announced plans to cut up to 9,000 jobs, following in the footsteps of a 10,000-cull announced by BP back in June.
As long-term investors, it’s important that we think about what future trends are likely to impact our portfolios in the long run. The environment is one of those themes that is certain to influence how economies and companies perform in the coming years, and those that want to thrive need to take the problem seriously. Though not solely focussed on environmental investing, a Bank of America study estimates that over the next 20 years there could be $15-20 trillion of asset growth in ESG funds — just shy of the current size of the S&P 500.
Getting ahead of the curve now could pay dividends in the future. Not only do ESG funds allow investors to match their money with their morals, they’re also a good way to diversify your portfolio. Increasingly niche ESG funds allow investors the opportunity to invest in a range of assets which are building for a more sustainable future. Incorporating some of these into your own fund choices could be a good way to branch out from traditional revenue streams and into sectors which are only likely to grow in prominence over the coming years. I recently wrote elsewhere about how environmental investing is on the rise and how you can get in on the act.
To answer Oasis’ question, the story right now is about Mr Trump. But issues around sustainable investing are here to stay, and provide plenty more for investors to be thinking about long after the virus has passed - you certainly don’t want to be looking back in anger.
Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
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