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The 'E' in ESG requires far more individual action

From the desk of John Arnesen,

Consulting Lead, Pierpoint Financial

Do you ever feel that 'ESG' as a term runs the risk of diluting its underlying goals and becoming used as a label to tick boxes? Do you find yourself becoming jaded at looking at yet another picture of cupped hands holding a budding leaf accompanying an article on ESG or a field of wheat swaying in the breeze? In fact, are you a little tired of hearing the acronym ESG? Not because you are an awful, uncaring person, but because the subject matter itself is overwhelming in terms of its coverage, confusing at best, and is dangerously close to invoking fatigue in the reader. It is also subject to scepticism. For every article expounding on the benefits of ESG investing and how ESG funds outperform their nasty, polluting peers, there is a counter-argument demonstrating the opposite. Both will use data. I consider myself concerned about the effects of human activity on the climate, but when I reflect hard on what I am doing to change my behaviour, I concluded that I fall woefully short.


Netflix recently aired a documentary, 'Seaspiracy', which painted a horrific picture of what we are doing to our seas and that overfishing is reducing the ability for the oceans to take out immense quantities of carbon emissions. If half of the statistics used in the documentary are true, it should be enough to trigger the immediate elimination of fish from the viewers' diet. Three days later, in celebration of restaurants reopening for alfresco dining here in the UK, I'm tucking into beer-battered haddock and chips at a favourite pub. Am I a monster, a hypocrite, or is something else going on? I believe it's partly scepticism of the data used, but mostly, and embarrassingly, I'm resisting change because it requires sacrifice.

The UK-based Sustainability Commission on Scaling Behaviour Change published a recent report stating that the world's wealthiest 1% produce double the carbon emissions of the poorest 50%, a statistic from the United Nations. Further, 5% of the world's wealthiest, dubbed the 'polluter elite' contributed 37% of emission growth between 1990 and 2015. The polluter elite drives SUVs and indulges in air travel regularly. They have larger houses that they can afford to heat, so they tend not to worry about efficient insulation. Even electric SUVs are a drain on resources due to the energy used in their creation. The lead author of the report, Prof Peter Newell, says that frequent fliers that believe they offset their emissions from projects such as tree planting should think again. Such projects are contentious and not proven over time.


Look at the chart below, derived from a survey of 21,000 people in 30 developed countries. The survey also reveals that our perceptions about how we contribute to CO reduction are mainly wrong.

In the countries surveyed, many people are confident they know what to do in tackling climate change.


I wonder why people in South American countries are so confident in knowing how to reduce their carbon footprint. Equally as interesting is that citizens of Saudi Arabia and Russia, two enormous oil-producing nations, are less confident. Is there a link between the two?


The survey ranks each measure from 1 to 50 in terms of which activity would save the most carbon emissions and then asked the group questions to rank the top three in each category. In some cases, the surveyed group was closer to reality in areas such as Recycling as much as possible, 59% with an actual rank of 7th buying energy only from renewable sources (e.g. wind power, hydro-electric), 49% and ranked 4th. Perhaps these are intuitively obvious actions individuals can make, which happens to be true. Where we fall short in our understanding is in the top three categories that would save the most carbon emissions and reduce damage to the climate. Avoiding one long-distance flight, 21% but ranked 3rd, Not having a car, 21% ranked 2nd. Topping the survey as the most carbon emission saved by a multiple factor at 58.6 tonnes is Having one fewer child. Only 11% believed this to be the case.


So, my recycling efforts are important but modest at best. My car driving, flying, and energy sources are doing the most damage. Thankfully my procreation days are well behind me but is anyone prepared to give up their car, not fly for any reason and limit the size of their families? How is it that collectively, we get it so wrong?


Perhaps it's as simple as this; the elements that would make the most beneficial impact are the hardest to sacrifice.


The University of Leeds conducted a study using European Union and World bank data to determine how different income groups, covering 86 countries, spend their money. It concludes that the 'rich' are primarily to blame for the global climate crisis. If you think you are not included in that group, you are. Twenty per cent of the UK population is in the top 5% of global energy consumers, Germany is 40%, and Luxembourg is everyone. While China may be the world's worst polluter in absolute terms, Chinese citizens represent only 2% of the top 5% of global users. India has just 0.02%.


Transport represents the widest disparity in that the top 10% consume 187 times more fuel than the poorest 10%. This imbalance in energy distribution is a hotly debated topic and draws consternation from developing countries that pollute far less than developed countries. They have a point. How can rich nations that produce the most carbon emissions lord it over poorer nations to cut their polluting habits?


When I began this blog, I thought I would address individuals, ESG investing, and governments' actions tackling climate change. It is clear they are hugely complex subjects, so to bring it closer to home, in my next blog I will explore the relationship between ESG and securities finance.


The Leeds study has a quote from Professor Kevin Anderson of the Tyndall Centre in Manchester, which sums up my own feelings well.

"This study tells relatively wealthy people like us what we don't want to hear. The climate issue is framed by us high emitters- the politicians, business people, journalists, academics. When we say there is no appetite for higher taxes on flying, we mean WE don't want to fly less. The same is true about our cars and the size of our homes. We have convinced ourselves that our lives are normal, yet the numbers tell a different story."

Amen to that.


I wonder if the demand for ESG principled investing, which has exploded in recent years, is born out of deflection away from uncomfortable, self-analysis? I'm sure there are better people than I that are doing their bit on both fronts.


In the meantime, perhaps I don't drive the seven miles to my favourite gastropub. The King Rufus pub has a beer garden, is a three-minute walk from home, and does a mean veggie burger. After all, 'Eating a plant-based diet' was ranked 6th even if only 14% of us believe so.

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Excellent article, a timely dose of common sense and facts.

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