Etopia
News asked Carsten Henningsen, founder and chairman of Portfolio 21, to answer
two questions relevant to the divestment of fossil-fuel holdings and their re-investment
in more sustainable companies. Here are
the questions and what he had to say to Etopia News:
1. Why should institutions divest from fossil fuels?
Any
company, regardless of the sector in which it operates, faces normal business
risks, including management effectiveness, competitive threats, or economic
cycles. Many companies may pose some risk to the environment and society based
on their business activities. Fossil fuel companies, however, face and pose
unique risks that we believe are not manageable to the extent required to make
them attractive investments. Through our research, we have found unacceptable
risks in the fossil fuel exploration and production industry. Some of the risks
include: climate change and uncertain energy policy; competition from new
technologies; health, safety, and environmental risks; political instability;
and access to reserves. On this latter point, the types of projects
fossil fuel companies are involved with today indicate the increased risks they
have to take in order to keep oil and gas flowing. Deep water drilling in
Arctic waters, shale oil production, and fracking close to populated areas are
just a few examples.
Investing
in fossil fuel today seems like investing in the whaling industry in the
mid-1800s—old technology, still dominant,
but clearly not the future. Our ability to power the global economy beyond the
current age of fossil fuels will be the most important and difficult
transformation ever made by our industrial society.
Furthermore,
we believe that the fossil fuel sector is unnecessary to prudent portfolio
structure and that it is possible to produce risk-adjusted
returns that are competitive with appropriate broad-market benchmarks through a
portfolio that does not invest in fossil fuel companies. Some investors may own
fossil fuel stocks because they are afraid that they will underperform the herd
if fossil fuel stocks rise sharply in value. Fossil fuel stocks make up the
bulk of the energy sector, which accounts for about 10% of the global equity
market. Whatever you are doing as an investor, you can do it without exposure
to any given 10% of the equity market, unless
you are an index fund trying to exactly replicate the market benchmark. There
are many companies in other sectors ─ big, well-established, stable,
high-quality, global companies ─ engaged in forward-thinking business practices
that are helping to move our economy toward using less resources and a lower
carbon future. There are many companies to choose from in lieu of fossil
fuel stocks.
Portfolio
21 recently released a new paper titled, “Managing Investment Portfolios without Fossil
Fuel Stocks.” The paper details the unique
investment risks of the coal, oil, and gas sector, as well as how Portfolio 21
manages portfolio diversification without fossil fuel exploration and
production stocks. We invite readers to share the paper with others interested
in fossil fuel divestment issues.
2.
Why should they do so using the Portfolio 21
Global Equity Mutual Fund?
The
Portfolio 21 Global Equity Fund is one of very few mutual funds that do not
invest in coal, oil, and gas exploration or production. Our passion is finding
exceptional companies that provide competitive returns, mitigate the
environmental impact of their business activity, find opportunities within
emerging environmental limits, and operate in a manner respectful of society.
We search globally for these companies, using proprietary environmental
research and comprehensive business analysis. Portfolio 21’s selection criteria
integrate our financial and environmental research process to seek high quality
growth companies that we believe to be some of the most exciting in the world
in terms of growth potential and risk/return profile.
Portfolio
21 is a leader in environmental investing. We are committed to maintaining the
high bar for the quality of the companies in which we invest. Our concerns
about the ecological crisis began nearly three decades ago, and we continue to
critically examine our assumptions and approach every day. We hope to further
environmental and social justice through the investment process. Today,
companies have enormous power to create social and environmental ─ as well as
financial ─ outcomes. Corporate power rivals government power in many respects,
it controls it in other respects, and the
two powers often work together. An investor with large sums of money under
management is like a voter with a million votes to cast. Many investors fail to realize these facts,
others ignore their responsibility, and of
course some abuse it. We seek to do the best with it that is possible.
The
Portfolio 21 Global Equity Fund has outperformed its benchmark, the MSCI World
Equity Index, since the Fund’s inception in 1999 to date. Of course, any
investor considering an investment in a mutual fund should read the prospectus
carefully before investing. The prospectus and other details can be found at www.portfolio21.com.
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