Business

If any group is making more progress on climate changes then it’s family offices

Politicians blow hot and cold, but family offices are steadily increasing their involvement in strategies to deal with climate change. 

Members of the Rockefeller family started to exclude fossil fuels from their portfolio five years ago, leading the campaign to strand assets.

Bill Gates went on to persuade 28 billionaires to back Breakthrough Energy with a massive venture fund backing new energy solutions. He is convinced he can help lead the world to a zero-carbon future by 2050. Amazon’s Jeff Bezos has pledged to chip in $10 billion.

Nat Simon’s Prelude Ventures and Jeff Skilling’s Capricorn Investments are among 45 family offices identified by Family Capital as climate influencers, often investing in projects at an early stage.

A growing number of family enterprises are heavily committed to solar, wind and battery power – a rare success in a challenging environment. 

The production of electric vehicles is set to rise exponentially. Plant-based meat has moved into mass production. 

But a 2015 UN-sponsored political agreement in Paris to limit temperature rises to 2 degrees is struggling.

There’s nothing wrong with its vision. But an analysis in November 2019 by leading climate scientists called The Truth Behind the Climate Pledges found that 75% of signatories were struggling to meet pledges to cut global carbon emissions in half by 2030. 

President Trump has pulled out of Paris altogether. Even if Joe Biden succeeds him and re-commits, the US will find it impossible to meet prior commitments. 

China and India will not meet their pledges due to their economic growth and continuing use of fossil fuel. Russia has not even bothered to submit a plan. 

Many of the politicians who signed the Paris deal have moved on, leaving others to battle entrenched resistance to change.

The overall impact of Paris on temperatures was always going to be minimal, even with full implementation. 

With the initiative running out of steam, the UN has come round to the idea that solutions to the crisis need to direct investment in technology, including investment in its social impact funds.

The proposed UN gathering of politicians in Glasgow is set to focus on this, drawing on UK success in wind and solar power. Carbon capture, green cement and nuclear fusion are among the more novel ideas on the table. 

The finance sector, badgered by the central banks, is deeply worried about climate risk. Going forward, we can expect more militant corporate governance, green accounting standards, regulation, carbon taxes, and a belated surge of investment by private equity.

Former Bank of England governor Mark Carney recently said executive pay at the banks should be linked to carbon goals. 

Shell has already agreed to this, under pressure from Climate Action 100+, an increasingly powerful lobby group for institutions. 

Hedge fund manager Chris Hohn has won support from the Spanish government to force listed airport group Aero into an annual vote on climate policy but warns that asset managers are not stepping up to the plate.

Lawyer David Barden is suing the Australian government over an alleged failure to disclose climate risks in its bond issues.

Developing direct action like this is proving to be more encouraging than prior attempts by financiers to generate fees out of the climate problem.

One bright of their ideas involved a system where countries impose carbon caps on companies, requiring them to pay for future emissions. The idea became popular following the Kyoto protocol of 1997, which preceded Paris.

The idea meant countries developed carbon caps which required polluters to pay for further emissions. Carbon offsetting, encouraging polluters to invest in green projects.

But emission trading systems were hard to police and struggled when governments offered too many permits to local industry.  Hopefully, people have finally learned what needs to be done.

JP Morgan bought EcoSecurities, founded by Pedro Moura Costa in 2009, in the belief that offsetting would boom. But political support waned.  Costa bought his business back ten years later for a more modest sum. 

Environmental, Social and Governance funds are intended to favour green stocks and lower their cost of capital.  They are often used by ETF investors.

Of late they have been performing nicely. But this is because they have a 30% allocation to technology stocks, using the argument their emissions are low, setting aside the power needed for servers. 

But some are arguing that large technology companies do not deserve the ESG tag because they are benefiting from sector domination, screen addiction, low staff pay and social manipulation. 

The extent to which ESG lowers global temperatures is also open to dispute, although it is clear enough they produce fees for asset managers. 

Asset manager BlackRock has also complained about a confusing “alphabet soup” of rival ESG standards by different promoters in search of ethical profits. 

BlackRock wants to see a single standard and supports an initiative by the IFRS Foundation, the body behind global accounting standards. 

Duncan Austin, a former partner at Generation Investment Management, has warned that investors who back green standards, or invest in green products, end up believing they have done their bit for the environment and stop bothering. But much more work needs to be done. 

Alan Schwartz co-head of Australian family office Trawalla, like Austin, fails to see how reform can be achieved without a root and branch reform of the accounting system where corporate profits take account of environmental costs and benefits. 

But foot-dragging by financiers means companies remain driven by the profit motive. Even now, companies do not pay for their contributions to environmental distress, animal distress and the potential climate calamity.

Nor are companies incentivised to back social impact projects. Family offices, however, are more willing to get stuck in. They like to support local community action and the environment. 

They are more willing to think out of the box than institutions where decisions get driven by groupthink, consultants and profit-related pay. 

And they are now starting to reap the rewards. 

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