We at Rathbone Greenbank Investments believe climate change leads one of five key challenges that will dominate the ethical agenda over the next 12 months. The others are biodiversity; rise of data; circular economy and ‘greenwashing’.
Climate change
The recent COP24 summit held in Poland has pushed the fight against climate change into the limelight once again. It has become increasingly clear how much more needs to be done to combat rising temperatures, with talk now turning to how leaders should consider mitigating the severe impact volatile weather patterns will have on the poorest and most vulnerable communities across the world.
While the nations attending the summit may have nailed down a programme of work on how to implement the 2015 Paris Climate Accord we believe much more needs to be done if we are to limit the damage of rising global temperatures.
Talks on vital issues such as carbon markets were postponed until this year after Brazil’s recently-elected president Jair Bolsonaro pushed for weaker rules. The US, Russia, Saudi Arabia and Kuwait also caused anger by refusing to “welcome” a United Nations (UN) report calling for faster action on limiting temperature rises, preferring to “note” it instead. Clearly there is still a long way to go to unite countries against the real threat of global warming despite the recent warning from the IPCC (Intergovernmental Panel on Climate Change that even a 1.5 degree rise in temperatures will bring with it serious consequences.
When it comes to implementing the changes, we need more ambitious action to secure workers’ jobs and livelihoods. Social factors must also be taken into account when combatting climate change so that affected workforces, and those in poverty, are not disadvantaged by the changes which need to be implemented. By making a stronger case for the social and economic benefits of a low carbon transition we can also make green policies a popular choice for governments. This is known as ‘just transition’.
Biodiversity
Biodiversity around the world has been a prominent theme for several years, and the on-going destruction of precious natural habitats will remain a core issue for ethical investors as we enter 2019.
Our insatiable demand for the likes of palm oil, paper, beef and soy, among others, poses a real threat to global biodiversity. The dark underbelly of many of these products leads to deforestation on a mass scale to clear room for farming and cultivation, and causes irreparable damage to core natural habitats for vast swathes of wildlife, leaving some species on the brink of extinction.
These are among key issues that ethical investors will be increasingly aware of, with companies beginning to wake up and take action, as we saw with supermarket Iceland’s pledge to make all their products palm oil free.
Combatting the problems goes hand in hand with the discussion of climate change and “just transition”, as well as to the issue of leaders who refuse to cooperate. Brazilian President
Bolsonaro poses a real threat to biodiversity in South America after making calls to open up more of the Amazon rainforest to agricultural and industrial development. The Amazon is a vital natural resource that is home to countless animals and insects and plays a crucial role in
combatting rising CO2 in the atmosphere – losing more of this unique habitat would spell disaster for the globe.
Rise of data
As more and more personal data about each of us is collected, from what we read and watch online to what groceries we buy, the question of how companies use, store or even share that data has become a source of tension and concern.
Big data, algorithms and AI have the potential to revolutionise industries as diverse as healthcare, logistics and energy, delivering improved patient outcomes, reduced waste or lower carbon emissions. However, if not properly regulated, these same technologies can exacerbate inequalities, undermine human rights and be used as tools of oppression.
How companies collect, share and protect personal data is a key ethical consideration that has now come to the fore.
Key questions need to be asked about companies’ and use of our data. What is it being used for? What protections are in place? How is that information shared with third parties such as governments or national authorities? What biases may be present in algorithms and how might this impact the news we read, the job adverts we are presented with or our access to different products and services?
With the rise of artificial intelligence to power mobile apps and devices in our homes, it is evident that the tech industry mindset of ‘move fast and break things’ needs to give way to a more democratic, nuanced and open conversation on the risks and opportunities of our increasingly connected lives.
Google’s re-entry into China, for example, raises several questions about censorship, privacy and how the firm can build the search engine without infringing its own commitment to ‘advancing privacy and freedom of expression’ for users. Chinese internet companies are obligated to actively censor illegal and politically sensitive content and report it to authorities, and Google would be held to the same standard.
Google is just one example of how big data firms and algorithms feed into a number of ethical considerations for social and human rights, and reaching an agreement and understanding on what is right and what is wrong will be crucial moving forward.
Circular economy
Sir David Attenborough may have helped make 2018 the year of ‘anti-plastic’, but the move towards a circular economy is a far bigger and growing trend.
This development marks a key change in the way we act, moving away from a ‘linear’ economy in which we take, make and then dispose of items such as plastics and clothes, into one where we reuse, repackage and recycle to get as much use from products as possible.
The shock of witnessing the sheer volume of plastic waste in our oceans has prompted many people to act, and we expect to see more of this action in 2019. It will necessitate a raft of
changes from governments and business, and it needs strong political will to back it and a fundamental change in consumer behaviour to have a real impact. This will involve repricing, redesign of products, and legislation.
Attempts to alter behaviour are underway, with 250 organisations signed up to endorse a global commitment that aims to create an economy where plastics never become waste by 2025. However, if current trends continue, some predictions suggest that, by weight, there could be more plastic than fish in our oceans by 2050. Changing our model of consumption will be better for the environment, society and businesses themselves.
‘Greenwashing’
Over the past few years we have witnessed a raft of new fund launches and products all claiming to offer a more ethical, green or socially responsible way of investing, while companies have clamoured to boast of their own green or social credentials. Despite the apparent progress, there are fears that a number of the products out there have made pledges or promises that are all a bit too vague, and too often terms such as ‘sustainable’ or ‘ESG’ (environmental, social and governance) are used without much of a process to back them up. We call this phenomenon ‘greenwashing’.
There are projects underway to attempt to create a standard definition of what each of these terms mean, for example the European Commission’s Technical Expert Group on Sustainable Finance.
What does it mean if a fund is ESG-aware? Does it mean exclusionary screening? The main problem is that still no one knows if their own idea of ‘ethical’ reflects how others feel.
Consumers need to know what they’re getting when it comes to funds, and some organisations such as the International Monetary Fund are looking more closely at impact investment metrics, to provide an important level of standardisation that is much needed in this space. It is something that businesses and fund managers should expect to be increasingly scrutinised throughout the coming years.
