Beyond ESG and Investing with Impact Issue#4.
In this update we cover what our super funds are doing about Climate Change and how and why they feel it’s their responsibility with a focus on REST.
In this update we cover what our super funds are doing about Climate Change and how and why they feel it’s their responsibility with a focus on REST. Also, an investigation into the carbon output from a classic car and how you can negate it.
REST Super agrees to align portfolio to climate goals
My relationship to REST Super has been as an employee of one of the investment managers they engage to manage part of the $57 billion of super. As an insider I knew that REST had expectations for us to manage within the confines of ESG.
When I heard that a client of REST was heading to the courts with the claim they were failing to protect retirement saving from the financial ravages of climate change I had the feeling of dread. One the courts are a nightmare to deal with, costly and full of filibusters and secondly REST did seem to be taking an active role in ensuring that their investment managers were taking into account the risk of climate change.
The reality of Climate Change is that more extreme weather conditions are no longer a prediction – they are real and happening and there is no bigger mega trend to consider. The impacts of climate change and global warming are immense.
Climate change risks have the potential to quickly and significantly affect the value of investments and, therefore, represent both material financial risks (and opportunities). Globally there is a push to consider climate risk from the heads of regulators as they acknowledge the flow on the effects to financial stability. Bank of England governor Mark Carney has recently warned investors that they face huge losses from climate change because reserves of oil, coal and gas could become “literally unburn able”.
These issues cannot be ignored by trustees and their directors as part of the investment governance of their funds, notwithstanding their personal, moral or ideological views on the reality of climate change. For those that don’t consider RI-ESG as a key theme for investing please consider this:
section 52 of the Superannuation Industry (Supervision) Act 1993.
A key requirement contained in the act is that trustees perform their duties and exercise their power in the best interests of beneficiaries. s52, doesn’t say anything to the effect of “best financial interest” and it is really saying that you need to be operating in beneficially best interest, as opposed to self-interest. The best interest will consider all potential risks.
Geoff Summerhaynes, a member of APRA has appropriately reminded directors who fail to properly consider and disclose foreseeable climate-related risk that they could be held personally liable for breaching their statutory duty of due care and diligence under the CorporationsAct. A key message from Summerhaynes is that
Climate risks are not a potential problem or non-financial risk but “foreseeable, material and actionable”.
Sadly perhaps, REST Super has settled prior to a determination as to whether they are doing enough to combat climate change. Why sadly? If the case had proceeded to trial it would have tested for the first time in Australia whether trustees have a legal duty to consider climate change as a material risk to long term investment performance. Secondly by settling prior to court the agreements are non-binding on other investment / super funds. You can bet though that any peers that are making statement of climate change and not following through are going to open themselves up for lawsuits.
The good news is that REST will now conduct scenario analysis to inform its investment strategy and strategic asset allocation, disclose its entire portfolio holdings and advocate for climate change BUT what can we do now that are super is going to strengthen their climate position. Lets consider the humble car.
Is it possible to defend owning a classic car in a de carbonising world? Should I just ride my bike?
Ever since I started writing upon sustainability issues it seems that people love to find some life item to challenge. Whilst I have completed some things that people suggest is over the top (taking home my food scraps for the worm farm after a day in the office) the issue for those that know we personally is that is that I own classic cars and only use a bicycle when going to work. So how can I claim a sustainable life alongside classic car ownership?
While I have owned a modern vehicle in the past, in truth I have never been without a classic car primarily because it’s in my DNA. My Father constantly restored and owned classic cars (Triumphs, Austin and a Citroen) and had the attitude if you own them they have to be driven. As soon as I could afford to own my own classic car it was a mint 1967 HR Premier. The HR was sold when I went to London on return to Australia replaced by a pair of 40 series Land cruisers. In short, they are the daily drivers and hold the aerodynamics of a brick and there is a very good reason they both have long range fuel tanks bolted up in the subframe. A pair of 4.2l petrol engines guzzle and a 350 Holly doesn’t help.
These are classics yet not valuable and in fact the rust and wear and tear of being “well used” for everything from trips in the bush, carrying furniture, carrying the mountain bikes for a day on the trails. I am very fortunate to still own them and simply cannot bring myself to sell them. Perhaps when they are restored, I will sell them which makes no sense at all, but I digress. The issues are how do I live a sustainable considerate life and own classic cars, or can I rationalise the emissions?
Classic Cars pollute both from inefficient technology and age and the oil leaks don’t do the earth any favours either. Sure, I keep the engine tuned, I added electronic ignition and extractors but the benefits are limited. So here’s how I’ve been rationalising it. I don’t use a car to get to work and ride a bicycle. I don’t use a vehicle for a quick trip and will walk rather than wait the three of minutes for the engine to warm up. I am recycling – in that I prevent a car going to scrap.
Honestly there is nothing I can do to justify the environmental impact my classic cars are having on the environment. Perhaps riding a bicycle is the only answer?
The number of people riding to work when the office workers are called back post covid is going to be a huge - avoiding public transport and making use of their new purchases. Sales of bicycles went through the roof as covid kicked in as those that were able to work from home enjoyed some time with the kids. This is great as cycling is among the lowest carbon-per-kilometre modes of transport.
• Cycling has a carbon footprint of about 21g of CO2 per kilometre. That’s less than walking or getting the bus and less than a tenth the emissions of driving
• Electric bikes have an even lower carbon footprint than conventional bikes because fewer calories are burned per kilometre, despite the emissions from battery manufacturing and electricity use
Ebikes allow more people to cycle further and carry more cargo, making it easier to ditch the car.
While electric vehicles will reduce urban air pollution and CO2 emissions dramatically compared to current cars, they cause considerably more pollution than cycling, won’t solve congestion or the problems associated with sedentary lifestyles.
In fact, they may add to them thanks to electric vehicles’ lower running costs leading to more people driving.
Unfortunately, some people simply cannot pass up classic cars. I one of them. I would like to pass my passion for classic cars to my son and cannot see myself ever parting ways with them. Whilst a dying art, the coach building skills I have developed bode well for my sons first foray into driving. If I am going to continue to own and regularly use my classic cars I feel it’s time I offset the carbon.
There are many ways to do this. One of these is to ‘neutralise’ the Carbon Emissions. Simply this involves calculating the average emissions from a vehicle and the planting enough trees that will capture that carbon.
In my instance the FJ45 will require enough trees to captures 6.5 tonnes CO2-e, the average emissions produced by a 4WD vehicle in one year.
I have engaged with an Australian offsetting organisation that is certified and has some wonderful projects. www.greenfleet.com.au.
Greenfleet is a leading not-for-profit organisation committed to protecting our climate by restoring our forests. We plant native biodiverse forests in Australia and New Zealand to capture carbon emissions on behalf of our supporters. Our forests absorb carbon from the atmosphere, improve soil and water quality, and provide vital habitat for native wildlife. https://www.linkedin.com/company/greenfleet/videos/
Small as it may seem, the impact of these carbon offsetting schemes cannot be overstated. I’m a touch proud of being able to do my bit and opening up the offer to readers to also complete an offsetting of their vehicles. Now to sort out the oil leak and tune in the 350 Holley.
Disclaimer notice
The information contained in this investment note is meant for informational purposes only and is subject to change without notice. The content is provided with the understanding that the authors and publishers are not herein engaged to render advice on legal, economic, or other professional issues and services.
Tarren has over 20 years experience working in equities markets and boutique Fund Managers.
Tarren began his career at Mercantile Mutual in Client Service's before moving to London and working in transition management for Merrill Lynch. Recent roles include working at PM Capital Ltd for over eight years as the Portfolio Analyst with responsibility for ESG analysis and investment analytics. Tarren worked at Investors Mutual where he was the Senior Analyst responsible for research data and communication. He joined Paradice Investment Management as the Head of Client Services He holds Bachelor of Science from the University of New England and a Diploma of Financial Planning. Tarren has completed the PRI Academy training in environmental, social and corporate governance (ESG) issues for the investment and finance community.
Memberships and Affiliations
RIAA (Responsible Investment Association Australia), AIA (Australian Investors Association), ASA (Australian Shareholders Association), Taronga Zoo Conservation Society, Ocean Watch Australia, Australian Marine Conservation Society, Munda Biddi Trail Foundation, CastleCoveClassicCarClub, ToyotaLandCrusierClub, Pre-1940 Triumph Car Club, Standard and Triumph Car Club, NRMA Classic Car Club and Australian Motorlife Museum.