A modern allegory tale for advocates of portfolio decarbonisation

Climate disruption

Boy: Grandpa!

Grandpa: Yes, my boy.

Boy: What is the global environmental crisis?

Grandpa: Have you been listening to the news again?

Boy: Yes grandpa. Please tell me what it is.

Grandpa: Well because of all the oil, and coal and gas we burned, the world has got much warmer. We passed through two degrees of warming back in 2050 and now, with 3 degrees in sight, the weather has become wild and unpredictable. That’s causing all sorts of disasters. Some big countries are having real problems coping and that’s not nice for many poor people.

Boy: When you were younger, did you know this would happen?

Grandpa: Yes, I suspected it might. And that’s why I did everything I could to stop it happening.

Boy: That’s great grandpa, what did you do?

Grandpa: One thing I did was I make sure I didn’t use my clients’ money to buy shares in oil companies.

Boy: That’s great grandpa! That showed those oil companies. I bet the amount of oil they produced fell right down.

Grandpa: Not really, my boy. It went up by 1% to 2% a year.

Boy: But why was that grandpa?

Grandpa: Well, you see my boy, the amount of oil produced depended on the demand and that just kept on growing

Boy: But didn’t you make it more expensive for the companies to produce oil by not buying their shares?

Grandpa: I don’t really have any evidence I can quote you on that. I’d like to think it made some difference to a handful of companies by increasing their cost of capital. But most oil was produced by nationally owned oil companies and there was nothing I could do about that. And technology was roaring ahead making it cheaper to produce oil from difficult fields. It was exactly the same with the cigarette companies. From the day I sold all my clients’ shares in them, sales increased by 2% a year.

Boy: Gosh grandpa. So you achieved nothing at all?

Grandpa: I wouldn’t say that. I did my bit to make the oil companies look self-serving and irresponsible, a bit like the cigarette companies and gun manufacturers. And their share prices were probably a bit lower than they would have been if I had done nothing (but again I have no real evidence on this.) So maybe half a dozen oil company chief executives got paid 10% less each year because of the action I and my like-minded colleagues took. We were some of the biggest investors of our day and we all worked together on this great cause, which was really unprecedented.

Boy: At least that’s something. Did these oil company chiefs starve?

Grandpa: Not really. Instead of being paid $20m a year they were paid $18m. They probably ate ok.

Boy: But grandpa, couldn’t your company have done something real? After all you have often told me how many hundreds of billions of dollars you managed, how you had assets bigger than the economic product of many countries and what huge profits you made.

Grandpa: Oh, we never stopped trying, my boy. We were always signing letters urging someone else to do something. We went to one international event after another to talk about why we thought this was important. The action was non-stop for many years.

Boy: But why didn’t you spend some of your company’s money to support real regulations that would reduce oil consumption – for example by speeding up the switch to electric vehicles or by making sure oil companies didn’t control governments by lobbying and political donations?

Grandpa: My boy, we were in business to increase value for our shareholders. And we managed huge pension funds for car manufacturers and oil companies. Our hands were tied. We couldn’t do anything to harm their business or upset their top executives. These people sat on the boards of other companies whose pension assets we managed and they were also trustees of other big pension funds. Plus, we were already spending all our social money on a wonderful river-front art gallery that was sadly submerged in an unprecedented storm-surge last year. We used to take our most important clients to receptions there because it really enriched their lives.

Boy: So what you are saying, grandpa, is that you really didn’t do very much….

Grandpa: My boy, that is just not true! We developed state of the art algorithms so that nearly half our share portfolios out-performed the market each year. That was a great achievement for our clients and therefore for society. It proved that integrating climate change and other environmental, social and governance factors, as they were called then, was good for investment returns. We showed that it was possible to do well by doing good. Now hurry up down to our new basement enviro-shelter, my boy, and try to go to sleep.

Boy: Grandpa, can I invite some of my friends and their families to sleep over in our enviro-shelter?

Grandpa: I am so sorry but you can’t, my boy. There is just not enough room.

Thanks to Howard Covington, one of our Senior Advisers, for this contribution.

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