Getting out of sunset industries


Does your KiwiSaver align with your values? 

In 1980 seven of the 10 largest US companies were involved in fossil fuels. Today there’s only one, Exxon Mobil, which ranks at number 10. Technology companies like Apple, Alphabet (the parent company of Google) and Amazon now dominate. Fossil fuel businesses are widely seen as operating a sunset industry; one that is in terminal decline. And this view has gained momentum as the world increasingly recognises the environmental costs the industry imposes.
At one extreme there is a strong emotional response to the industry. Who can forget the Deepwater Horizon disaster in 2010, when we watched in horror as enormous quantities of oil gushed into the ocean doing untold environmental damage? 

At the other extreme, investors are dispassionately calculating the financial challenges. Following the Paris climate accord, countries are introducing carbon taxes forcing the fossil fuel industry to share climate change costs. One striking impact of this change has been the realisation that fossil fuel companies’ huge oil, gas and coal reserves may be illusory. The costs of extracting reserves may prove too great in the decades ahead, thanks to carbon taxes and increasingly cheaper alternative energy sources.

Whether we like fossil fuels or not, and whether we see oil as a declining industry in the future, most KiwiSavers unknowingly invest in global oil companies like Exxon Mobil, Chevron Corp and Royal Dutch Shell. Outside of KiwiSaver some of our major banks also lend to fossil fuel companies. Conscious consumers (and careful investors) need to be aware that such choices are being made on their behalf and that there are steps they can take to align financial choices with their values. 

One great starting step is looking at what your KiwiSaver provider invests in (or does not invest in). The website mindfulmoney.co.nz shines a light on exposures in KiwiSaver and helps investors avoid 
companies that concern them by causing environmental or social harm. It lists not only fossil fuel companies but also those profiting from poor animal welfare and human rights practices, gambling, tobacco and armaments.

Many organisations also publish reports about the lending and investor practices of our major financial institutions. Indeed, in July the International Campaign to Abolish Nuclear Weapons revealed the parent companies of three of New Zealand’s biggest banks had lent US$2.89b ($4.37b) to the nuclear weapons industry, despite local policies which ban investment in the sector through KiwiSaver.

Forest & Bird last year showed how we can act on this information. It decided to change its bank from ANZ to Kiwibank, based on environmental concerns. The not-for-profit organisation, which works to protect New Zealand’s native plants, animals, and habitats, decided it no longer wanted to support a bank making loans and generating profits by enabling environmental damage. Its stand challenged people to question who they want providing their financial services. Forest & Bird noted that, “By demanding responsible investment practices, we can change the way this country, and the world, does business.” 

The banking sector offshore takes these concerns very seriously. They recognise customers will act if they don’t.

BNP Paribas in France has ceased lending on shale and oil sand projects because “… shareholders want to invest in companies that have a sustainable business model”. Europe’s largest bank, HSBC, pledged to stop funding new coal power plants, oil sands and arctic drilling. The World Bank also announced it would stop lending to coal-fired power stations and would phase out funding of oil and gas extraction.

Our banks should take note. 

John Berry is co-founder and CEO of Pathfinder Asset Management, manager of the CareSaver KiwiSaver Scheme. 

Disclosures: CareSaver does not invest in fossil fuel companies. Forest & Bird is one of 17 charities that have partnered with CareSaver.

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