Responsible Investing In A Time Of Record Temperatures

Around this time last year, the UK experienced its highest temperature of 40.3C recorded at Coningsby in Lincolnshire. At the time, the Met Office declared a red warning for extreme heat for large parts of the country and there were headlines such as, ‘Meltdown Monday’ and, ‘Blowtorch Britain’. Trains were cancelled and the public were told to stay at home.

In July so far in the UK, our weather has been broadly in line with the seasonal average, however, globally, July is set to be the hottest month in the last 120,000 years!

In northwest China, in Sanbao township, the temperature reached 52.2C on 16th July.
Japan has issued heat-stoke alerts affecting tens of millions of people as near record temperatures hit several parts of the country.
Europe is expected to record it hottest-ever temperature this week in Sicily, Italy, where a high of 48C is predicted.
There are currently wildfires in Spain, Greece and Croatia and 4,000 people have been evacuated in the Canary Islands.
There have been over 380 wildfires in British Columbia due to prolonged drought conditions.
In the US, a heatwave in southern and western states is expected to peak with more than 80 million people affected by excessive heat warnings or heat advisories.

Phoenix in Arizona is normally very hot in July but this week it is on track to record an 18 day stretch of temperatures above 110F (43.3C). Apparently, pavements can reach temperatures of 160F (71.1C)!

Imagine, if we had those temperatures in London.

The tube would be unbearable.
Walking around and being outdoors would be dangerous.
Working on building sites would be incredibly difficult.
Any manual work would be unbearable, for example, rubbish collection.
Most houses and flats in the UK don’t have air conditioning so trying to sleep would be almost impossible.

Human Biases

We know that this extreme weather is caused by global warming which is linked to the burning of fossil fuels. We also know that the solutions are largely available to us which will require governments, businesses and individuals to work together.

So why are we so slow to address the challenge of global warming? One of the reasons may be to do with a human bias known as ‘hyperbolic discounting’. This means that we are inclined to choose immediate rewards over and above rewards that come later. It means that we tend to prioritise short-term horizons over long-term horizons.

Much of the discussion around global warming and climate change is about achieving a target in the future, for example, the government’s plan to ban the sale of new petrol and diesel cars by 2030 or to become net zero by 2050. It is very difficult for humans to think this far in the future when we prioritise the here and now, for example, the cost of living crisis and the war in Ukraine.

What Can Investors Do?

Wealth is generally invested for the long term and, increasingly investors are looking to align their wealth with their values and are looking for investment funds that reflect their views on climate change.

Some investors take the view that the world’s energy system is dependent on fossil fuels to such an extent that oil and gas companies will need to play a key role in the transition to a low carbon world.

As such, investors may look to invest in investment funds where the fund manager will engage with companies on the topic of climate change to encourage moving towards more sustainable practices.

Others argue that it is extremely difficult to engage with oil and gas companies that focus on short-term profits over and above long-term climate reduction plans. For example, in June this year, the Church of England decided to disinvest its endowment and pension funds from oil and gas companies after ten years of trying to engage with the sector.

Given these views, some investors will look for an investment fund which will apply a negative screen meaning that it will avoid the heaviest emitters of greenhouse gases. Typically, investment funds that apply a negative screen will not invest in companies that derive, say, more than 10% of their revenue from oil and gas exploration and production.

Aligning Your Values

Over recent years , there have been a proliferation of investment funds using descriptions such as ‘ESG’, ‘Responsible’ and ‘Sustainable’ that it can be difficult to know exactly what these terms mean.

For those investors looking to align their values with their wealth, it is important to understand where your money is being invested and what responsible investment strategy the fund manager has in place. We often find that when we review existing investment strategies for new clients they are surprised by some of the companies their money is invested in.

Contact Us

If you would like to discuss how you can align your values and your wealth, please do contact us for a no obligation discussion.