Guest essay by Eric Worrall
Coming soon to the USA? Pathfinder Ethical Investment Fund manager John Berry advising on what sectors to avoid to protect your money from New Zealand’s Climate Emergency. But the reality is there is likely now no safety from damaging political interference, even if your interest is green energy.
Monday thoughts: Investors can’t afford to ignore climate change
05:00, Dec 07 2020
OPINION: This week, our government announced a climate emergency, following the lead of the UK, France, Canada and Argentina. This reinforces our target to be carbon neutral by 2050 and supports our Paris accord commitments.
Declaring a climate emergency challenges investors by highlighting the future impact on corporate operations and profitability.
The most widely used tool for investing responsibly is exclusions. This means avoiding investments that cause harm, and is typically applied to weapons, gambling and alcohol companies.
But simply avoiding companies will not bring change. For this reason, exclusions do not go far enough.
A positive lens to investing can be applied by using environmental, social and governance (ESG) factors to assess companies alongside traditional financial metrics. There’s plenty of research globally showing this analysis helps create lower risk, better performing portfolios.
A final strategy for responsible investors concerned about climate change is to narrow the investment universe only to positive themes that benefit our planet. These themes could include water companies, forestry and renewable energy like wind and solar manufacturers.
John Berry is co-founder of ethical investment manager Pathfinder Asset Management, and ethical KiwiSaver provider CareSaver.Read more: https://www.stuff.co.nz/business/opinion-analysis/300176326/monday-thoughts-investors-cant-afford-to-ignore-climate-change
What a nasty uncertain regulatory environment for New Zealand investors.
At any moment oil companies or airlines could be slammed with punitive taxes, under the aegis of addressing the climate emergency. But history suggests that when unfashionable but vital business sectors begin to collapse under the weight of punitive regulations, they could also receive surprise government handouts to enable them continue operating.
Australia is already in the midst of experiencing this sorry mess. When vital coal power plants started closing thanks to a hostile business environment maintained through successive administrations, the Australian government panicked and started signing murky support deals which likely included substantial cash subsidies to keep ageing coal plants operating – Australia still needs the power they produce.
But you cannot rely on handouts arriving in time to save your investment, or being continued for a predictable period – so those decrepit coal plants are likely being run into the ground with minimal maintenance. Nobody is interested in replacing them with new plants.
“Ethical” green investments are no better. Even if you stick to Berry’s advice and invest in wind farms or solar plants, the subsidies your investment needs to be profitable only exist at the pleasure of politicians and bureaucrats. As Green investors in Spain learned in 2010, such subsidies can be withdrawn without warning if the government runs out of money.
Even fostering a special relationship with government won’t necessarily provide protection; plenty of very large investors, regardless of what relationships they thought they had, were badly caught out when Spain abruptly broke all their agreements and slashed renewable energy subsidies.
The unpredictable investment landscape created by New Zealand’s climate emergency declaration amounts to a substantial reason not to invest in New Zealand, even if your interest is green energy. Politicians have effectively seized control of the formerly free market. The investment capital of New Zealand investors is now effectively under the control of politicians and bureaucrats. Profits now exist at the whim of social justice warriors.
History suggests fair treatment of investors will be at the bottom of a very long list of SJW concerns.