Energy Investing—the Opportunity for Cooperatives is Now

Whenever I try and talk about mitigating climate change by reducing or slowing Canada’s production of oil from the Alberta tar sands, many of my business savvy friends look at me with a mixture of horror and scorn. Apparently I am extremely naive. Canada absolutely must extract bitumen, they tell me, because that fuels employment, keeps our economy humming, creates prosperity and, by the way, pays for my retirement. And as far as actually refining the stuff domestically in order to create Canadian jobs, retain the value of our natural resources, and possibly reduce the environmental risk of transport—impossible! We cannot be competitive that way. Unless we ramp up development, unless we build those pipelines and supply chains to China, and unless we give away our sovereignty by signing FIPA agreements—well, we might as well face up to a lower standard of living. And the real elephant in the room, the understanding of the connection between potentially catastrophic climate change and the burning of fossil fuels—well, it doesn’t even get a mention.

Still, like so many of the silent majority, I am acutely worried about the kind of world we are leaving to our children’s children. There must be a way, I keep thinking, to steer us towards renewable low carbon footprint energy before it’s too late. And sure enough, while attending the 2014 International Summit of Cooperatives in Quebec City, I found the way. Based on diverting the flow of capital from high- to low-carbon projects, all it requires is the understanding and determination to make it happen.

In a Summit roundtable discussion entitled “Standing Out in the Transition to a Sustainable Economy: Sustainable Finance—How Cooperatives Can Lead the Way,” Columbia University professor and Earth Institute Director Jeffery Sachs not only hammered home the perils of climate change, but also clearly outlined the short sighted, self serving and counterproductive obstacles that are preventing or slowing real progress. In order to control the increase of global temperature to 2 degrees C, (the upper limit that is considered to be a threshold to severe consequences), vast amounts of capital must be attracted to the renewable energy and low carbon sectors. According to the International Energy Agency (IEA) in a report “Energy Technology Perspectives 2012”, “… investments in low-carbon energy technologies will need to reach $500 billion annually by 2020 and then double again to $1 trillion by 2030.”

Columbia University professor and Earth Institute Director Jeffery Sachs

Columbia University professor and Earth Institute Director Jeffery Sachs

Dr. Sachs drew attention to Canada’s dismal record on climate change as outlined in a recently released scathing report by the Canadian Government’s own Commissioner of the Environment and Sustainable Development, and then posed a question. “How is it,” he asked, “that the fossil fuel industry, aided by governments is attracting billions of dollars to discover new petroleum deposits, when the evidence is clear that none of these reserves can ever be used safely?  Think what could be accomplished if those dollars were diverted to renewable energy.”

The Huffington Post agrees with this view. An article published on September 25, 2014 shows clearly how Wall Street (and by extension, the standard for-profit business model) is failing our planet. “Short-term market efficiency and long-term irrationality is caused by political and regulatory failure,” says the Post. “Put another way: Investors are putting short-term rewards ahead of the long-term health of the planet.”

Certainly the for-profit business community has had little appetite for sustainable investment. Private sector money is attracted to fossil fuel industries because they have had a track record of providing substantive returns while renewables have historically delivered a rocky performance for early investors. But a tectonic shift is on the horizon as governments and private industry begin to understand the devastating economic and social impacts of climate change. Canada’s Globe & Mail newspaper has reported that, after the recent UN Climate Summit in New York City, large multinational companies such as Apple Inc., IKEA AB, McDonald’s Corp. and Wal-Mart have made public commitments to reduce GHG emissions. The U.S. government has pledged huge reductions in energy produced from coal by 2020 and imposed much stricter emission standards on the auto sector starting in 2016. All this has contributed significantly to the recent substantial reductions in the price of both utility grade coal and oil. 

Even staid institutional investors are showing the first signs of nervousness. Large pension fund investors in the U.S. have begun to question fossil fuel company valuations of their resources.  They are demanding the analysis and value disclosure of what they call “stranded assets”—those oil and natural gas reserves that would remain underground should Jeffery Sachs get his way, and a world-wide carbon price effectively puts a cap on oil production. 

Yet capital markets, driven by the need for short-term return, have been slow to react to this emerging trend, and this creates the opportunity (and, it could be argued, the critical imperative) for cooperatives to fill the gap. Cooperatives are not tied to short-term thinking and so are poised to become the big winners as these changes unfold. In fact, they are in a position to use their financial muscle to accelerate the inevitable shift away from fossil energy, which just might make the difference in saving the planet.

A showcase for these opportunities is the Montreal Carbon Pledge, launched on September 25, 2014 by the UN supported Principles for Responsible Investment (PRI) at its annual conference in Montreal. “By signing onto the Montreal Carbon Pledge, investors commit to measure and publicly disclose the carbon footprint of their investment portfolios on an annual basis,” says PRI in a press release. “The Montreal Carbon Pledge aims to attract US $3 trillion of portfolio commitment in time for the United Nations Climate Change Conference in December 2015.”

At this writing, investors representing over $1 trillion in assets under management have signed the Montreal Pledge, an impressive number for its first month of operation.

Toby Heaps, CEO of Toronto's Corporate Knights

Toby Heaps, CEO of Toronto's Corporate Knights

“It can be done,” says roundtable panel member Toby A.A. Heaps, CEO of Toronto’s Corporate Knights, the media, investment advisory and research firm that tracks this kind of data. “And cooperatives can lead the way. Prudent credit unions and other cooperatives will be asking their members if they value sustainability, and then invest accordingly.”

Heaps goes on to note the solid reasons why the cooperative business model is the best one to accept this challenge and opportunity. “Left unaddressed, climate change will lead to the mother of all market failures,” he says. “It’s cooperatives who believe in the ethical values of honesty, openness, social responsibility and caring for others."

It’s certainly true that momentum is building. Here are a few examples:

  • The Montreal Carbon Pledge is on track for its $3 trillion by Dec. 2015.
  • Fund manager Amundi has announced low carbon equity solutions for $100 billion coalition of investors to decarbonize by December 2015. Swedish pension fund AP4 has committed to decarbonize its $25 billion equity portfolio within next 2-3 years.
  • MSCI and Solactive CK have launched families of Low Carbon Indices to cut investors’ carbon footprint in half.
  • Total investments in renewable power and fuels excluding large hydro-electric projects was US$214 billion in 2013, and is on track to recover in 2014 to more than$250 billion.
  • A record amount of 39 gigawatts of solar energy capacity was constructed in 2013.
  • Renewable energy (excluding hydro) accounted for 41.3% of all new power additions in 2013. Overall, renewable energy (excluding hydro) accounted for 8.5% of total generation worldwide.
  • 900 electricity co-ops are bringing renewable power to the market in U.S. (NRECA), and there are 2,400 green energy cooperatives in Europe

And there are other reasons for cooperative enterprises to embrace these initiatives:

  • Reducing member risk: Climate change could contribute as much as 10% to portfolio risk over the next 20 years, allowing investors to benefit from increased allocation (up to 40%) in carbon-optimised passive equity portfolios, green bonds, clean energy infrastructure, and energy efficient real estate (Mercer Climate Change Scenarios).
  • Growth: Co-ops outperform publicly listed companies on market share gains, but underperform on portfolio momentum, growth from operating in growing segments, (McKinsey: How Co-operatives Grow). So leading the financial transition to a low-carbon economy is an opportunity for co-ops to lead the way in one of the fastest growing segments of the decade.

Worldwide, cooperative-controlled financial institutions have over $10 trillion in assets under management—a not insignificant sum in relation to what’s required to meet the 2 degree global temperature limit. And the opportunity is now. To quote industrialist Henry Ford, “The highest use of capital is not to simply make more money. It is to make money do more for the betterment of life.”

John

John Laing is a professional forester, writer and grandfather living in British Columbia’s Fraser Valley. Recently retired after a 45-year career in sales, marketing and manufacturing, he brings a wealth of business acumen and experience to Click Media Works, where he is responsible for writing and publishing the economic development e-magazine for the District of Mission. Some of his previous projects include design and copy for technical manuals, reports, sales literature and catalogs. Always an environmentalist, his love of sailing has allowed him to explore much of the pristine wilderness that is the British Columbia coast, and his concern for its protection, as well as climate change in general, has grown accordingly. A passionate advocate of green building and sustainable resource management, he has been attracted to the cooperative business model as an engine to promote these causes. Quebec City’s International Summit of Cooperatives has accredited him as a journalist to cover their events, and he has attended both of the summits held to date in 2012 and 2014.

Posted on October 21, 2014 and filed under Feature Small.