EC: You talk about this being an opportunity to reset, rethink and rebuild. At Generation you’ve been investing in these trends on people’s health and planetary health for the past 16 years, often without the data available that some investors think is necessary to even get started. What are the trends you are seeing today that couldn’t be imagined just even a few years ago?
AG: We were founded 16 years ago, and during the 15 years we’ve been managing assets, we have sought to get our clients the best return, but to do it in a way that really promotes the idea that sustainability has to be at the core of a successful investing process. We have relied for the entirety of our existence on very deep research into sustainability data, and we have found over the years that these sustainability reports that are separate from, but paper-clipped to annual reports, are too often almost useless. But if you develop your investing team in a way that emphasizes the kind of expertise that allows you to discover the ESG factors in each sector, then you don’t have to rely on reports.
Just in the past six months, we’ve seen both the Business Roundtable and the British Academy make fundamental changes in their definition of the purpose of a corporation — abandoning shareholder primacy and insisting on a multi-stakeholder approach. There is now voluminous research showing that in nearly every sector of the economy, businesses that fully integrate ESG factors are more profitable than their peers who do not, and investors who fully integrate ESG factors are more successful than their peers who do not. This is a sea change and one consequence, which has a bit of irony attached to it, is that investors who do not integrate ESG factors are now in serious danger of violating their fiduciary duty to their clients. ESG factors are essential to the success of any business and multi-stakeholder analysis is one of the keys to discovering where the sustainability factors are having an impact.
EC: Let’s talk about the energy transition. From your perspective, has Covid-19 made that easier or more difficult?
AG: While Covid-19 unleashed a huge shock to energy markets, the sustainable energy transition should continue accelerating. Policy support in recovery plans should facilitate a managed decline for high-carbon energy and a scaling up of zero-carbon energy systems. Only the European Union, France, the U.K. and Canada are presently taking decisive action to ensure the emergency response supports longer-term sustainable transitions.
As the world emerges from the pandemic, the shift to renewables is going to have a major impact on employment. Ten million dollars spent on renewable energy creates nearly three times as many jobs as would $10 million spent on fossil fuels.
Electricity generation is a sector where the transition is well advanced. In 2019, almost three-quarters of all the new electricity generation built in the world was solar and wind. On mobility, we’re probably less than two years away from electric vehicles being very competitive on cost with internal combustion engines. Forty-five governments around the world now have put in place laws signaling that within 10 years, or so, internal combustion engines are going to be banned.
And retrofitting buildings with better insulation, windows, LEDs, better architecture — these are opportunities that will pay for themselves over a three- to five-year period in terms of lower utility bills. There is a new focus on this retrofit issue because the jobs associated with this, by definition, are ones that cannot be outsourced because they are all in local communities. Between 20% and 25% of all the global warming pollution both in the U.S. and globally comes from inefficiently constructed buildings, driven by incentives contractors have to be competitive. You can fix this with regulation or financial instruments, but however we do it, we must in order to create the millions of jobs that are waiting in every community to be created.
EC: Do you think this moment really shows that people can change their behavior? What are you seeing about behavioral changes that could be consequential for the climate crisis going forward?
AG: There is a kind of a general awakening that the pandemic has triggered because it builds on changes that society was already going through. The awareness of these trends has grown tremendously and the rising generation is demanding a better world. You’re seeing workforces in some companies walk out and demand that their companies do better. It is leading peoples around the world to demand that their governments and businesses and investors make some really important choices to build back in a way that is better.
We have to phase out the absurd and enormous subsidies for fossil fuel that are still in place for governments around the world, and there are now signs that those subsidies are beginning to be cut. We also are seeing a recognition by government that they have to resist the political jawboning and pressure tactics of fossil-fuel companies. It dovetails with the fact that we’re crossing the tipping point on climate. This is the biggest investing opportunity and the biggest business opportunity in the history of the global economy. There’s a need for a great reset that goes beyond the short-term emergency and really and truly leads to a more resilient future.
This article was provided by Bloomberg News.