Sustainable Investing: Debunking 5 Common Myths
It began as a niche desire. Originally, sustainable investing was confined to a subset of investors who wanted their investments to match their values. In recent years, the strategy has grown dramatically: sustainable assets totaled $12 trillion in 2018.
This represents a 38% increase over 2016, with many investors now considering environmental, social, and governance (ESG) factors alongside traditional financial analysis.
Despite the strategy’s growth, lingering misconceptions remain. In today’s infographic from New York Life Investments, we address the five key myths of sustainable investing and shine a light on the realities.
|Sustainable strategies underperform conventional strategies||Sustainable strategies historically match or outperform conventional strategies|
In 2015, academics analyzed more than 2,000 studies—and found that in roughly 90% of the studies, companies with strong ESG profiles had equal or better financial performance than their non-ESG counterparts.
A recent ranking of the 100 most sustainable corporations found similar results. Between February 2005 and August 2018, the Global 100 Index made a net investment return of 127.35%, compared to 118.27% for the MSCI All Country World Index (ACWI).
The Global 100 companies show that doing what is good for the world can also be good for financial performance.
—Toby Heaps, CEO of Corporate Knights
|Sustainable investing only involves screening out “sin” stocks||Positive approaches that integrate sustainability factors are gaining traction|
In modern investing, exclusionary or “screens-based” approaches do play a large role—and tend to avoid stocks or bonds of companies in the following “sin” categories:
However, investment managers are increasingly taking an inclusive approach to sustainability, integrating ESG factors throughout the investment process. ESG integration strategies now total $17.5 trillion in global assets, a 69% increase over the past two years.
|Sustainable investing is a passing fad||Sustainable investing has been around for decades and continues to grow
Over the past decade, sustainable strategies have shown both strong AUM growth and positive asset flows. ESG funds attracted record net flows of nearly $5.5 billion in 2018 despite unfavorable market conditions, and continue to demonstrate strong growth in 2019.
Not only that, the number of sustainable offerings has increased as well. In 2018, Morningstar recognized 351 sustainable funds—a 50% increase over the prior year.
|Interest in sustainable investing is mostly confined to millennials and women||There is widespread interest in sustainable strategies, with institutional investors leading the way|
Millennials are more likely to factor in sustainability concerns than previous generations. However, institutional investors have adopted sustainable investments more than any other group—accounting for nearly 75% of the managed assets that follow an ESG approach.
In addition, over half of surveyed consumers are “values-driven”, having taken one or more of the following actions with sustainability in mind:
- Boycotted a brand
- Sold shares of a company
- Changed the types of products they used
Women and men are almost equally likely to be motivated by sustainable values, and half of “values-driven” consumers are open to ESG investing.
5. Asset Classes
|Sustainable investing only works for equities||Sustainable strategies are offered across asset classes|
This myth has a basis in history, but other asset classes are increasingly incorporating ESG analysis. For instance, 36% of today’s sustainable investments are in fixed income.
While the number of sustainable equity investments remained unchanged from 2017-2018, fixed-income and alternative assets showed remarkable growth over the same period.
Tapping into the Potential of Sustainable Investing
It’s clear that sustainable investing is not just a buzzword. Instead, this strategy is integral to many portfolios.
By staying informed, advisors and individual investors can take advantage of this growing strategy—and improve both their impact and return potential.
The New Energy Era: The Lithium-Ion Supply Chain
Is the U.S. positioned to win the battery arms race, or will China remain in control of the world’s transition to renewable energy?
The world is rapidly shifting to renewable energy technologies.
Battery minerals are set to become the new oil, with lithium-ion battery supply chains becoming the new pipelines.
China is currently leading this lithium-ion battery revolution—leaving the U.S. dependent on its economic rival. However, the harsh lessons of the 1970-80s oil crises have increased pressure on the U.S. to develop its own domestic energy supply chain and gain access to key battery metals.
Introducing the New Energy Era
Today’s infographic from Standard Lithium explores the current energy landscape and America’s position in the new energy era.
An Energy Dependence Problem
Energy dependence is the degree of a nation’s reliance on imported energy, resulting from an insufficient domestic supply. Oil crises in the 1970-80s revealed America’s reliance on foreign produced oil, especially from the Middle East.
The U.S. economy ground to a halt when gas prices soared during the 1973 oil crisis—altering consumer behavior and energy policy for generations. In the aftermath of the crisis, the government imposed national speed limits to conserve oil, and also demanded cheaper, smaller, and more fuel-efficient cars.
U.S. administrations set an objective to wean America off foreign oil through “energy independence”—the ability to meet the country’s fuel needs using domestic resources.
Spurred by technological breakthroughs such as hydraulic fracking, the U.S. now has the capacity to respond to high oil prices by ramping up domestic production.
By the end of 2019, total U.S. oil production could rise to 17.4 million barrels a day. At that level, American net imports of petroleum could fall in December 2019 to 320,000 barrels a day, the lowest since 1949.
In fact, the successful development of America’s shale fields is a key reason why the Organization of the Petroleum Exporting Countries (OPEC) has lost the majority of its influence over the supply and price of oil.
A Renewable Future: Turning the Ship
The increasing scarcity of economic oil and gas fields, combined with the negative environmental impacts of oil and the declining costs of renewable power, are creating a new energy supply and demand dynamic.
Oil demand could drop by 16.5 million barrels per day. Oil producers could face significant losses, with $380 billion of above-ground investments becoming worthless if the oil industry and oil-rich nations are not prepared for a surge in green energy by 2030.
Energy companies are hedging their risk with increased investment in renewables. The world’s top 24 publicly-listed oil companies spent on average 1.3% of their total budgets on low carbon technology in 2018, amounting to $260 billion. That is double the 0.68% the same group had invested on average through the period of 2010 and 2017.
The New Geopolitics of Energy: Battery Minerals
Low carbon technologies for the new energy era are also creating a demand for specific materials and new supply chains that can procure them.
Renewable and low carbon technology will be mineral intensive, requiring many metals such as lithium, cobalt, graphite and nickel. These are key raw materials, and demand will only grow.
|Material||2018||2028||2018-2028 % Growth|
|Graphite anode in Batteries||170,000 tonnes||2.05M tonnes||1,106%|
|Lithium in batteries||150,000 tonnes||1.89M tonnes||1,160%|
|Nickel in batteries||82,000 tonnes||1.09M tonnes||1,229%|
|Cobalt in batteries||58,000 tonnes||320,000 tonnes||452%|
The cost of these materials is the largest factor in battery technology, and will determine whether battery supply chains succeed or fail.
China currently dominates the lithium-ion battery supply chain, and could continue to do so. This leaves the U.S. dependent on China as we venture into this new era.
Could history repeat itself?
The Battery Metals Race
There are five stages in a lithium-ion battery supply chain—and the U.S. holds a smaller percentage of the global supply chain than China at nearly every stage.
China’s dominance of the global battery supply chain creates a competitive advantage that the U.S. has no choice but to rely on.
However, this can still be prevented if the United States moves fast. From natural resources, human capital and the technology, the U.S. can build its own domestic supply.
Building the U.S. Battery Supply Chain
The U.S. relies heavily on imports of several keys materials necessary for a lithium-ion battery supply chain.
|U.S. Net Import Dependence|
But the U.S. is making strides to secure its place in the new energy era. The American Minerals Security Act seeks to identify the resources necessary to secure America’s mineral independence.
The government has also released a list of 35 minerals it deems critical to the national interest.
Declaring U.S. Battery Independence
A supply chain starts with raw materials, and the U.S. has the resources necessary to build its own battery supply chain. This would help the country avoid supply disruptions like those seen during the oil crises in the 1970s.
Battery metals are becoming the new oil and supply chains the new pipelines. It is still early in this new energy era, and the victors are yet to be determined in the battery arms race.
Which Companies Are Responsible For the Most Carbon Emissions?
Since 1965, over ⅓ of the world’s cumulative carbon emissions can be traced back to just 20 fossil fuel companies. Who are the biggest contributors?
20 Companies Responsible For the Most Carbon Emissions?
Since 1965, it’s estimated over 1.35 million metric tons (MtCO₂e) of greenhouse gases have been released into the atmosphere—and over a third can be traced back to just 20 companies.
This week’s chart draws on a dataset from the Climate Accountability Institute, and highlights the companies which have been responsible for the most carbon emissions in the past half-century.
The Sum of their Carbon Emissions
Between 1965-2017, the top 20 companies have contributed 480,169 MtCO₂e in total carbon emissions, or 35% of cumulative global emissions. This whopping amount is mostly from the combustion of their products—each company on this chart deals in fossil fuels.
The largest contributor? Saudi Aramco, the national petroleum and natural gas company of Saudi Arabia. Saudi Aramco actually comes in first on another list as well—it’s the most profitable company, making over $304 million daily.
However, this financial gain came at a significant cost: the state-owned giant’s operations have resulted in 59,262 MtCO₂e in carbon emissions since 1965. To put that into perspective, this total is more than six times China’s emissions in 2017 alone (9,838 MtCO₂e).
Explore the full list of companies by location, who owns them, and their total 1965–2017 emissions count below:
|Company||Country||Ownership||All Emissions, MtCO₂e|
|Total Emissions||480,169 MtCO₂e|
|Saudi Aramco||🇸🇦 Saudi Arabia||State-owned||59,262|
|Exxon Mobil||🇺🇸 U.S.||Investor-owned||41,904|
|National Iranian Oil Co.||🇮🇷 Iran||State-owned||35,658|
|Royal Dutch Shell||🇳🇱 Netherlands||Investor-owned||31,948|
|Coal India||🇮🇳 India||State-owned||23,124|
|Petroleus de Venezuela||🇻🇪 Venezuela||State-owned||15,745|
|Peabody Energy||🇺🇸 U.S.||Investor-owned||15,385|
|Abu Dhabi National Oil Co.||🇦🇪 UAE||State-owned||13,840|
|Kuwait Petroleum Corp.||🇰🇼 Kuwait||State-owned||13,479|
|Iraq National Oil Co.||🇮🇶 Iraq||State-owned||12,596|
|Total SA||🇫🇷 France||Investor-owned||12,352|
|BHP Billiton||🇦🇺 Australia||Investor-owned||9,802|
A Greener Business Model?
According to the researchers, all the companies that show up in today’s chart bear some responsibility for knowingly accelerating the climate crisis even after proven scientific evidence.
In fact, U.S.-based Exxon Mobil is currently on trial for misleading investors: the company downplayed the effect of climate change on its profitability, while internal calculations proved to be much larger. It also sowed public doubt on the immense impacts of rising greenhouse gas levels on the planet.
Growing sustainability and environmental concerns threaten the viability of old business models for these corporations, causing many to pivot away from the fossil fuel focus. Take BP for example—originally named British Petroleum, the company embraced “Beyond Petroleum” as its new rallying cry. More recently, it launched a carbon footprint calculator and is committed to keeping its carbon emissions flat into 2025.
The first step to reducing your emissions is to know where you stand. Find out your #carbonfootprint with our new calculator & share your pledge today!— BP (@BP_plc) October 22, 2019
However, the Climate Accountability Institute argues that more can still be done, with the researchers calling for these companies to reduce their fossil fuel production in the near future.
Continued pressure on these “Big Oil” companies to peak their carbon emissions, and urgently increase their renewable energy investment, may help curb the climate crisis before it’s too late.
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