Visualizing the Power of a Sustainable Investment Dollar
Sustainable investments are booming.
Between January and November 2020 alone, investments in sustainable ETF and mutual funds grew 96%. The UN Principles of Responsible Investment now has over 3,000 signatories representing over $100 trillion in assets. The U.S. Commodity Futures Trading Commission established a Climate Risk Unit to analyze climate risk across derivative markets, and as of March 2021, new sustainability disclosures have come into effect in Europe.
But how do we know if sustainable investments have made a difference?
To answer this question, the above infographic from MSCI examines the effect of a sustainable investment dollar by looking at real-world examples.
A Sustainable vs. Unsustainable Dollar
To start, investing legend Benjamin Graham has compared the stock market to a “voting machine.” Just as consumers vote with their purchasing decisions, investors vote with their investment dollars. Especially in the short term, as more dollars flow to sustainable companies, this builds their exposure and access to capital.
In the long term, meanwhile, the market can be compared to a weighing machine. The market recognizes companies with profitable business models that improve their intrinsic value over time. Ultimately, this allows sustainable companies to expand and continue operating.
Given the rising momentum in both green assets and climate targets, here is how investment dollars have influenced and driven change across three industries.
1. Clean Energy vs. Fossil Fuel
Over the last several years, the energy sector has been associated with many of the problems causing climate change. For this reason, many investors are seeking out greener energy alternatives. But how does moving investment dollars from an ESG laggard to an ESG leader support the environment and society?
First, here is a brief explainer of ESG laggards and leaders:
- ESG laggards: companies with the weakest environmental, social, and governance (ESG) performance in their sector.
- ESG leaders: companies with the strongest environmental, social, and governance (ESG) performance in their sector.
|Industry laggard: U.S. oil & gas company||Industry leader: U.S. utilities company|
|Scale of carbon-intensive business lines equal to 73% of its operation||47% lower CO2 emissions than the industry average|
|This is the equivalent of adding 26 million cars on the road annually||This is the equivalent of removing 9.9 million cars off the road annually|
|1 of 20 oil and gas companies are responsible for contributing to one third of GHG emissions since 1965||Uses 3X as many renewable sources than industry average|
|3X fewer jobs are created vs. energy efficient sector, resulting in lower productivity||This is roughly the same as saving over 9 million pounds of coal burned|
|MSCI ESG Rating: CCC||MSCI ESG Rating: AAA|
Source: MSCI ESG Research
Based on the above example, investors have the ability to finance powerful green initiatives that reduce emissions by almost half, relative to their peers.
2. Safe vs. Unsafe Working Conditions
Weak safety protocols are a key sustainability issue for the industrial sector. Here’s how two companies compare:
|Industry laggard: South African mining company||Industry leader: U.S. mining company|
|11 fatalities in 2019||Zero fatalities in 2019|
|Faced lawsuits from miners surrounding lung diseases contracted from dust exposure in gold mines|
Settlement cost: $350 million
|Board-level oversight monitors health and safety performance|
|Lags behind peers in high incident rates||Leads peers in low incident rates|
|Lags behind peers in setting incident reduction targets||Leads industry in lost time incident rate & total recordable injury rate|
|MSCI ESG Rating: CCC||MSCI ESG Rating: A|
Source: MSCI ESG Research
Despite the risks involved in the sector, investors can choose to support companies that take greater precautions to protect their workers.
3. Building Trust vs. Losing Trust
Over the last several years, the financial sector has faced increased scrutiny over fraudulent activities. Moving investment dollars from an ESG laggard to ESG leader may make a difference:
|Industry laggard: U.S. bank||Industry leader: Dutch bank|
|$3 billion settlement in creating fictitious accounts to meet aggressive sales targets||Sustainable finance portfolio valued at over $20 billion|
|Drop in top-tier bank ratings||13% annual increase in climate finance|
|Board effectiveness questioned||Includes over 60 green loans, mobilizing environmentally friendly projects|
|Resignation of board members||Over 55% of board is female|
|MSCI ESG Rating: CCC||MSCI ESG Rating: A|
Source: MSCI ESG Research
From board diversity to green loans, a sustainable investment dollar supports companies that are actively advancing society and the environment.
Sustainable Investment: The Time to Act
Recently, investor dollars and shareholder activism have been closely linked.
Between 2018 and 2020, large institutional investors filed 217 shareholder proposals on climate change alone, putting increased pressure on companies. Meanwhile, 270 proposals were filed on corporate political activity and 228 on fair labor and equal employment opportunity over the same timeframe. Across all ESG proposals, $2 trillion in assets were pushing for more equitable corporate action.
Through the power of a dollar, investors can send a clear signal to companies: the time for sustainable investing is now.
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Visualizing the Impact of Rising Sea Levels, by Country
Here’s a look at how people around the world could be impacted by coastal flooding by 2100, based on rising sea level projections.
Climate change is already causing sea levels to rise across the globe. In the 20th century alone, it’s estimated that the mean global sea level rose by 11-16 cm.
How much will sea levels change in the coming years, and how will it affect our population?
In the below series of visualizations by Florent Lavergne, we can see how rising sea levels could impact countries in terms of flood risk by the year 2100.
These graphics use data from a 2019 study by Scott Kulp and Benjamin Strauss. Their study used CoastalDEM—a 3D graphics tool used to measure a population’s potential exposure to extreme coastal water levels—and examined rising sea levels under different levels of greenhouse gas (GHG) emissions.
Flood Risk By Region
Which countries will be most severely affected by rising sea levels?
If things continue as they are, roughly 360 million people around the world could be at risk of annual flood events by 2100. Here’s what those figures look like across each region:
On the continent of Africa, one of the countries with the highest number of people at risk of coastal flooding is Egypt.
Over 95% of Egypt’s population lives along the Nile river, with some areas situated at extremely low elevations. The country’s lowest point is 133 m below sea level.
Asia’s population will be more heavily impacted by flooding than any other region included in the dataset.
According to the projections, 70% of the people that will be affected by rising sea levels are located in just eight Asian countries: China, Bangladesh, India, Vietnam, Indonesia, Thailand, the Philippines, and Japan.
One of the most high-risk populations in Europe is the Netherlands. The country has a population of about 17 million, and as of 2019, about half of its population lives in areas below sea level.
The country’s lowest point, the town Nieuwekerk aan den Ijssel, is 6.8 m below sea level.
In North America, the U.S., Canada, and Mexico are expected to see the highest numbers of impacted people, due to the size of their populations.
But as a percentage of population, other countries in Central America and the Caribbean are more greatly at risk, especially in high emission scenarios. One country worth highlighting is the Bahamas. Even based on moderate emission levels, the country is expected to see a significant surge in the number of people at risk of flood.
According to the World Bank, this is because land in the Bahamas is relatively flat, making the island especially vulnerable to sea level rises and flooding.
As South America’s largest country by population and with large coastal cities, Brazil‘s population is the most at risk for flood caused by rising sea levels.
Notably, thanks to a lot of mountainous terrain and municipalities situated on high elevation, no country in South America faces a flood risk impacting more than 1 million people.
By 2100, Polynesian countries like Tonga are projected to see massive increases in the number of people at risk of flooding, even at moderate GHG emissions.
According to Reuters, sea levels in Tonga have been rising by 6 mm each year, which is nearly double the average global rate. The reason for this is because the islands sit in warmer waters, where sea level changes are more noticeable than at the poles.
What’s Causing Sea Levels to Rise?
Since 1975, average temperatures around the world have risen 0.15 to 0.20°C each decade, according to research by NASA.
This global heating has caused polar ice caps to begin melting—in just over two decades, we’ve lost roughly 28 trillion tonnes of our world’s ice. Over that same timeframe, global sea levels have risen by an average of 36 mm. These rising sea levels pose a number of risks, including soil contamination, loss of habitat, and flooding.
As countries are affected by climate change in different ways, and at different levels, the question becomes how they will respond in turn.
What Are the Five Major Types of Renewable Energy?
Renewable energy is the foundation of the ongoing energy transition. What are the key types of renewable energy, and how do they work?
The Renewable Energy Age
Awareness around climate change is shaping the future of the global economy in several ways.
Governments are planning how to reduce emissions, investors are scrutinizing companies’ environmental performance, and consumers are becoming conscious of their carbon footprints. But no matter the stakeholder, energy generation and consumption from fossil fuels is one of the biggest contributors to emissions.
Therefore, renewable energy sources have never been more top-of-mind than they are today.
The Five Types of Renewable Energy
Renewable energy technologies harness the power of the sun, wind, and heat from the Earth’s core, and then transforms it into usable forms of energy like heat, electricity, and fuel.
|Energy Source||% of 2021 Global Electricity Generation||Avg. levelized cost of energy per MWh|
Editor’s note: We have excluded nuclear from the mix here, because although it is often defined as a sustainable energy source, it is not technically renewable (i.e. there are finite amounts of uranium).
Though often out of the limelight, hydro is the largest renewable electricity source, followed by wind and then solar.
Together, the five main sources combined for roughly 28% of global electricity generation in 2021, with wind and solar collectively breaking the 10% share barrier for the first time.
The levelized cost of energy (LCOE) measures the lifetime costs of a new utility-scale plant divided by total electricity generation. The LCOE of solar and wind is almost one-fifth that of coal ($167/MWh), meaning that new solar and wind plants are now much cheaper to build and operate than new coal plants over a longer time horizon.
With this in mind, here’s a closer look at the five types of renewable energy and how they work.
Wind turbines use large rotor blades, mounted at tall heights on both land and sea, to capture the kinetic energy created by wind.
When wind flows across the blade, the air pressure on one side of the blade decreases, pulling it down with a force described as the lift. The difference in air pressure across the two sides causes the blades to rotate, spinning the rotor.
The rotor is connected to a turbine generator, which spins to convert the wind’s kinetic energy into electricity.
2. Solar (Photovoltaic)
Solar technologies capture light or electromagnetic radiation from the sun and convert it into electricity.
Photovoltaic (PV) solar cells contain a semiconductor wafer, positive on one side and negative on the other, forming an electric field. When light hits the cell, the semiconductor absorbs the sunlight and transfers the energy in the form of electrons. These electrons are captured by the electric field in the form of an electric current.
A solar system’s ability to generate electricity depends on the semiconductor material, along with environmental conditions like heat, dirt, and shade.
Geothermal energy originates straight from the Earth’s core—heat from the core boils underground reservoirs of water, known as geothermal resources.
Geothermal plants typically use wells to pump hot water from geothermal resources and convert it into steam for a turbine generator. The extracted water and steam can then be reinjected, making it a renewable energy source.
Similar to wind turbines, hydropower plants channel the kinetic energy from flowing water into electricity by using a turbine generator.
Hydro plants are typically situated near bodies of water and use diversion structures like dams to change the flow of water. Power generation depends on the volume and change in elevation or head of the flowing water.
Greater water volumes and higher heads produce more energy and electricity, and vice versa.
Humans have likely used energy from biomass or bioenergy for heat ever since our ancestors learned how to build fires.
Biomass—organic material like wood, dry leaves, and agricultural waste—is typically burned but considered renewable because it can be regrown or replenished. Burning biomass in a boiler produces high-pressure steam, which rotates a turbine generator to produce electricity.
Biomass is also converted into liquid or gaseous fuels for transportation. However, emissions from biomass vary with the material combusted and are often higher than other clean sources.
When Will Renewable Energy Take Over?
Despite the recent growth of renewables, fossil fuels still dominate the global energy mix.
Most countries are in the early stages of the energy transition, and only a handful get significant portions of their electricity from clean sources. However, the ongoing decade might see even more growth than recent record-breaking years.
The IEA forecasts that, by 2026, global renewable electricity capacity is set to grow by 60% from 2020 levels to over 4,800 gigawatts—equal to the current power output of fossil fuels and nuclear combined. So, regardless of when renewables will take over, it’s clear that the global energy economy will continue changing.
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