“On the road from the City of Skepticism I had to pass through the Valley of Ambiguity,” said Adam Smith, founding father of modern economics. This sums up the current state of investing in the environmental, social and governance sphere. A survey last November by the Dutch Association of Investors for Sustainable Development, which covered 90 per cent of Dutch pension assets, shows that most investment managers see the UN-sponsored goals as an opportunity.
Despite this, two-thirds have no formal policy to pursue them and only a fifth have brought their activities into alignment. For the rest, a key obstacle is the lack of a robust template, with consistent definitions and reliable data, that permits statistical modelling. Additionally, establishing a line of sight between, say, climate change and investment outcomes remains a complex task and requires expertise that many Dutch pension plans have yet to acquire, despite their reputation as savvy investors.
The good news is that there are positive straws in the wind.
In America, the world’s largest economy and its second biggest polluter, climate change is becoming hard to ignore. Extreme weather has grown more frequent. In November wildfires scorched California; last week Chicago was colder than parts of Mars. Scientists are sounding the alarm more urgently and people have noticed—73% of Americans polled by Yale University late last year said that climate change is real. The left of the Democratic Party wants to put a “Green New Deal” at the heart of the election in 2020. As expectations shift, the private sector is showing signs of adapting. Last year around 20 coal mines shut. Fund managers are prodding firms to become greener. Warren Buffett, no sucker for fads, is staking $30bn on clean energy and Elon Musk plans to fill America’s highways with electric cars.
Yet amid the clamour is a single, jarring truth. Demand for oil is rising and the energy industry, in America and globally, is planning multi-trillion-dollar investments to satisfy it. No firm embodies this strategy better than ExxonMobil, the giant that rivals admire and green activists love to hate. As our briefing explains, it plans to pump 25% more oil and gas in 2025 than in 2017. If the rest of the industry pursues even modest growth, the consequence for the climate could be disastrous.