2024-04-30
Ethical investment can address climate change, promote sustainability, reduce financial risk and align financial interests with one's values
By Eddie Marynowicz, Co-convenor, Climate Crisis Working Group, Greens (WA)
Climate change is here, and it is now. It promises a frightening and unforgiving future unless we act urgently in the coming few years.
The fossil fuel industry and its ultra wealthy backers have long since decided they will ignore the science and extract every last molecule and earn every last cent from fossil fuels. They have been waging war on the planet and on humanity since the 1980s when companies such as Shell and Exxon’s own scientists advised them that excessive burning of fossil fuels would result in dangerous climate change, advice they deliberately ignored. Through denial, greenwashing, lies and misinformation, state capture and many other corrupt tactics, they have brought us all to the alarming situation we are in now.
At a recent conference in Houston, Texas, fossil fuel executives from around the world, including our very own Meg O’Neill, CEO of Woodside, doubled down on their plans to continue extracting fossil fuels for the next 40 to 50 years.
In the face of such a formidable enemy, what can we do that will make a difference? One highly effective way is through Ethical Investment.
Ethical Investment, also known as socially responsible investing (SRI) or sustainable investing, refers to the practice of making investment decisions based not only on financial returns but also on the ethical, social, and environmental impact of those investments. Investors who engage in ethical investment seek to support companies and industries that align with their values and promote positive societal or environmental outcomes.
In relation to the fossil fuel industry and the climate crisis, ethical investment becomes particularly important for several reasons:
1. Addressing Climate Change: Fossil fuels, such as coal, oil, and natural gas, are the primary contributors to greenhouse gas emissions, which are driving climate change. By divesting from fossil fuel companies or investing in alternative energy sources like solar, wind, or hydrogen, ethical investors can help accelerate the transition to a low-carbon economy, thereby mitigating the impacts of climate change.
2. Promoting Sustainability: Fossil fuel extraction and consumption are associated with various environmental and social issues, including air and water pollution, habitat destruction, and community displacement. Ethical investment encourages the allocation of capital towards companies that prioritise sustainability practices, such as reducing carbon emissions, promoting renewable energy, and fostering social responsibility within their operations.
3. Reducing Financial Risks: The fossil fuel industry faces increasing regulatory scrutiny and market volatility due to concerns about climate change and the transition to renewable energy. Investing in fossil fuel companies may expose investors to financial risks associated with stranded assets (resources that become economically unviable due to regulations or market shifts), and lawsuits related to environmental damage. Ethical investment strategies aim to minimize these risks by avoiding investments in industries with uncertain futures and seeking opportunities in sustainable sectors.
4. Aligning with Stakeholder Values: Many investors, including individuals, institutions, and even governments, are increasingly prioritising environmental and social responsibility in their investment decisions. Ethical investment allows stakeholders to align their financial interests with their values, contributing to a more sustainable and equitable global economy.
Most super funds and pension funds in Australia, and similar funds worldwide, invest members’ retirement savings in fossil fuel companies. Additionally, all four of the big banks and many others in Australia provide finance, often very significant, to the fossil fuel industry.
So how do you invest ethically? The answer is simple ‒ change your bank and change your super/pension fund ‒ but, depending on personal circumstances, the implementation may be more difficult. Fortunately, there are many sources of information to assist.
Additionally, there is a growing number of banks and superannuation funds that meet ethical investment criteria and provide useful information to guide the transition process. Market Forces, an environmental advocacy organisation that focuses on financial institutions (and is not a financial adviser), has done the hard work and research. They provide a comprehensive list of banks, Compare Banks, and super funds, Super Funds Comparison, that detail the exposure of these banks and funds to fossil fuel support and investment. Although changing banks might not seem easy, a quick internet search will provide much useful information. It may prove relatively painless, as this ABC article suggests - Switching Banks.
The decision and process are more complex with superannuation and/or pension funds. A primary consideration, and of particular concern in current times, is if changing funds will lead to less return. This is of course very dependent on personal circumstances but, in general, there is much evidence that suggests returns can equal and often improve on previous investments. Some links are provided below.
For someone with perhaps only a small superannuation fund, changing funds can be a relatively simple process, but of course should be done with due consideration and diligence. For more complicated financial arrangements, the advice of an ethical investment financial planner is strongly recommended.
On a personal level, my wife and I changed banks 10 years ago, and over the following few years, with the advice of an excellent financial adviser, moved all our investments to ethical investments. We have been very happy with the outcomes.
Having changed, an important last step is to tell the bank or institution why you have changed.
Overall, Ethical Investment (in the context of the fossil fuel industry and the climate crisis) plays a crucial role in driving positive change by redirecting capital towards sustainable and environmentally responsible initiatives, helping to address the urgent challenges posed by climate change.
The Climate Crisis Working Group are planning an Ethical Investment event on the 28th May, with presentations from Brett Morgan from Market Forces, and James Baird of JustInvest Financial Planning. More details to follow in Announce in due course.
Links re Return on Investment:
From the New Yorker - The Powerful New Financial Argument for Fossil-Fuel Divestment
From Forbes Magazine - The Case For Fossil Fuel Divestment
From Mindful Money - Does Ethical Investment Earn Good Financial Returns?
From Responsible Returns - How do responsible and ethical investments perform?
Disclaimer
Please be aware that this article provides general information only and is specifically for educational purposes. It is not intended for general distribution or use by personal investors. You should conduct your own research and consider your own personal circumstances before considering investment decisions, and seek independent financial advice as required.
Header photo: Students at Tufts University "marched forth on March 4th, 2013. Credit: James Ennis CC
[Opinions expressed are those of the author and not official policy of Greens WA]