A Perspective on Responsible Investment in Times of Global Change

In this article, Stephen Porter examines some of the arguments arStephen Porteround the issue of responsible investment – and raises provocative and pertinent questions about the risks of divestment in relation to personal pensions and charity endowment funds.  He challenges us to carefully consider if divestment from our major sources of fuel really is ‘responsible’ if we leave future generations without the ability to meet the energy gap for at least half a century! In this sense does divestment really align with the principles of Sustainable Development?

As far as winters go, Edinburgh’s this year has so far been rather mild.  The mercury has fallen below zero in the city only a handful of times, and even then just at night.  The gas company should be getting less of my hard-earned dosh than may have otherwise been the case (price-rises excepted, of course).  Global warming? Bring it on and hand me the sun-cream! Turn this pasty Northerner into an olive-skinned Mediterranean type.

However, if I were with our friends across the pond, perhaps I might see things a bit differently – at least at the moment.  As I sit here writing at the end of January 2014, yet another cold snap and snowstorm are hitting the East Coast of the US.  And this is after even Hell froze over (well, Hell, Michigan anyway) in the midst of the Artic Vortex that gripped North America over Christmas and New Years.  Global warming? What global warming?  Thank heavens for cheap shale gas to keep the frostbite away by turning the heating up without busting the bank.  Drill, baby, drill!  Or has this year merely been a typical winter that seems cold relative to recent, mild ones? Our memories are sometimes rather short…..

Those in many parts of Africa and Asia may have yet a different perspective on this global warming business.  Failing monsoons, droughts, floods, rising sea levels.  While this may be “weather”, the longer-term climate patterns are changing, becoming less reliable and more extreme.  People living (or trying to live…) in these regions are likely to feel the effects of changing weather patterns much more profoundly that I am, sitting here on a hill in Edinburgh (which may become beachfront if Antarctic ice-sheets melt – the irony, living on a tropical island in a world destroyed).  These countries and regions are less able to adapt to and/or combat these changes – the simply don’t have the same level of resources as, for example, the EU does.  To paraphrase: It’s the climate, stupid!

Whilst I’m certainly no historian, I ask you: where we might be today if we had not discovered the uses of wood, charcoal and coal to create heat, and through heat create work, and through work initiate the Industrial Revolution?   And we still use a heap of coal today for generating energy (in addition to other fossil fuels).  I might also argue that the Industrial Revolution continues – it’s merely moved South and East.  If it weren’t for the abundance such energy-rich compounds, what would our life be like today? Would it be better or worse?  I don’t have an answer to such a philosophical question.  Hmm, where can I get my hands on Dr. Who’s Tardis to pose that to Aristotle?

What does seem to be evident, however, is that change won’t happen overnight – likely not this decade or even the next.  According to an article in Scientific American the major global energy transitions (from wood to coal to oil) have each taken between 50 to 60 years. Developed economies are “locked-in” to certain technologies and infrastructure that are tried and tested. These economies are also (still) the largest portion of the global economy.  In a mad-dash catch-up exercise to narrow the wealth gap between the Developed and Emerging worlds, Western dominance over the global economy is beginning to ebb away.  In terms of GDP, China is now the world’s second-largest economy, Brazil is 7th and India is 10th; but their growth has largely been fuelled by fossil fuels, coal in particular.  Unless an unexpected technological advancement occurs that changes the economics of non-fossil fuel energy generation (not to mention storage), worms may have feasted upon my remains (or at least be eyeing up this old bag-of-bones in anticipation) before renewable energy reaches a meaningful share.  So, what do we do about it?

The “Responsible Investing” movement – such as the United Nations Principles for Responsible Investing, to which the University of Edinburgh is only the second higher education institute to be a signatory – has gathered pace over recent years.  But who wouldn’t invest responsibly? Or put another way, how should we define responsible? And then how do we implement that definition?

For some, such as Bill McKibben and http://350.org/, “responsible” is about divesting from fossil fuels, on environmental as well as financial grounds.  McKibben’s article in Rolling Stone of a couple of years ago, and that of “Unburnable Carbon” from the Carbon Tracker Initiative, remain thought-provoking reading.

But is divestment today, or even within the next five years, “responsible” if the transition to world where renewable energy finally provides the majority of energy generation is indeed 50-60 years away?  Is the opportunity cost of not having a voice that company management may listen to or not participating in the earnings fossil fuel companies will generate for the foreseeable future an acceptable risk for our pension funds (state, personal and/or corporate), universities’ endowment funds or charity and foundation funds?  The unintended as well as intended consequences of actions must be weighed up before action is taken – if such consequences are desirable, go for it!

Finally, I pose a question wrapped in hope.  With the immense annual revenues they generate from you and I consuming their product (in one form or another), could fossil-fuel companies actually become an engine of change?  Is a culture shift from “Big Oil” that knows only about drilling to “Big Energy” that knows how to develop viable, non-finite alternatives possible?

A pipedream perhaps – but without dreams, and the fortitude to try to turn dreams into reality, we will live in a much poorer place.


Stephen Porter is a tree-hugger come investor.  He worked in the institutional investment management industry for nearly 20 at some of the leading global firms, engaging with the senior leaders of asset owners such as sovereign wealth funds, public pension funds and charitable foundations to create custom solutions to meet their specific requirements.  To atone for such “sins”, in 2012 Stephen embarked upon a rather different path – enrolling in Edinburgh’s MSc in Carbon Management.  Stephen has also begun part-time PhD studies at the University of Edinburgh’s School of GeoScience, exploring the links between climate change mitigation and losses across the food supply chain.  Helping to fund his further student excesses, Stephen joined with two Edinburgh PGT peers to found a (currently) small sustainability consultancy. Oh, and he’s also a husband and a father to three boys under eight – so please excuse the grey hair!







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