2021 - What have we learnt as ESG Investors
A couple of months ago, on a rainy Saturday evening, I stumbled across a movie which I had last watched over 15 years ago. “The Day After Tomorrow”, a film which dramatizes a rapid transition back to the ice age as a result of melting polar ice and changing currents, was key in bringing the issue of climate change to the forefront of humanity. Personally, the story and blockbuster visuals helped me to appreciate the impact that climate change can have on our planet.
Rewatching 15 years on brought feelings of disappointment, but also pride. I was disappointed that it has taken humankind almost 15 years to reach a stage of global acknowledgement, but proud that, even if slowly, we as a species have finally come together to face this issue head on and combine our best minds and capital into solving this imminent doom. Being part of an investment organisation with ESG at its core, I have been fortunate to see technological solutions appear from different parts of the world to tackle the problem we all face – survival.
So, with this update I wanted to share my learnings from 2021. Things that have made me proud as both a climate enthusiast and as an investment analyst. I hope, whether you are an investment professional, or indeed in any profession, that you too can be proud of the achievements of this past year. 1. 2021 – The year methane reduction became mainstream “There can be economy only where there is efficiency” – Benjamin Disraeli This quote quite struck me as I personally agree with the powers of efficiency. Efficiency is a key to progress and to win – it's not about working more but about working efficiently. Our fight against climate change is in a similar position. With the clock ticking on our Paris agenda, it’s very important that we find efficient solutions to reduce our carbon footprint. Methane reduction – which has been brought to the forefront because of COP26 is one such efficient and quick win that we can aim for. According to the IPCC Report Methane emissions are the second largest contributor to global warming to date after carbon dioxide (CO2), accounting for about one third of the warming impact of all well-mixed greenhouse gas (GHG) emissions. Along with black carbon and tropospheric ozone, methane is a short-lived climate pollutant (SLCP), a class that has much greater warming impacts per ton than CO2, but a much shorter atmospheric residence time.
Methane is of concern because it has an outsized impact on the climate. The gas makes up a tiny fraction of our atmosphere — CO2 levels are more than 200 times higher. But in the first 20 years after release, methane is around 80 times more powerful than CO2 at trapping heat in Earth’s atmosphere. The good part is it also breaks down much more quickly than CO2, with an average lifetime of around a decade, compared with centuries for CO2. This means that curbing methane emissions could provide short-term relief while governments and businesses negotiate the more difficult transition from fossil fuels to clean energy. And with the above in mind, we should be hopeful and appreciative of the recently launched Methane Pledge. The United States, the European Union, and partners formally launched the Global Methane Pledge, an initiative to reduce global methane emissions to keep the goal of limiting warming to 1.5 degrees Celsius within reach. A total of over 100 countries representing 70% of the global economy and nearly half of anthropogenic methane emissions have now signed onto the pledge.
As investment managers, we have already seen and invested in technologies that convert landfill waste into electricity and avoid the methane emissions. Not only is it rewarding to see our investment helping turn waste into green electricity and saving methane emissions, it also gives us hope of reaching a circular economy where our waste doesn’t pollute but provides back.
2. 2021 – The year of evolution for ESG investment
This one is a bit personal to us and our firm. Velox Capital Partners always believed that the biggest impact asset managers can make is to help each firm become better and not just make the best firms bigger. We believe to achieve climate goals, every company, every financial firm, every bank, insurer, and investor will need to change. And therefore, it’s very important for us to direct our capital to companies making a difference in their industries and not just industries that are making a difference. The whole is greater than the sum of parts, is a value we have based our ESG policy on and 2021 showed that others agree with us too.
Our ESG analysis process helps us to identify companies that are changing the way they interact with the environment and society. These companies are the ESG champions in their industries and are changing the way business in conducted in their industries, leading the way for others to follow.
Jan-Feb 2021 proved the efficacy of our view. When thematic companies from renewables, hydrogen, water solutions were sold off in 2021, the problem came to the forefront. Capital needs to be diversified from the big industries to companies in each industry making that difference. And when the Velox Greens, ESG champions of each industry outperformed the thematic companies in 2021 on aggregate, we were proud as the market agreed with us. So, onto 2022 – A year that I strongly feel will be an acceleration to our common goals. Coming out of the pandemic, we are all raring to go. Definitely at Velox, but also surely around the world, raring to come together to make sure that impending ice-age reality stays in the movies.