Carbon Friendly Investments Make Financial Sense
The argument about whether to veer away from fossil fuel based industries is not just an environmental one. It is also becoming a financial one and the balance is definitely weighing in favour of the more carbon friendly alternatives.
In its 2014 report ‘Climate Action and Profitability’ the Carbon Disclosure Project refer to how better carbon friendly industries are faring from a financial point of view. In particular they say that companies managing carbon emissions and planning for climate change are showing 18% higher returns on their investments than companies that aren’t. The former are 67 % higher than those that refuse to disclose their emissions at all.
Then there is the issue of stranded assets, i.e. assets that are never going to recover value, and the effect it’s having on Company values .
This is particularly true within the Coal Industry. According to the Institute for Energy Economic and Financial Analysis (IEEA), in their 2015 report, a 50% decline in coal prices has seen most listed coal companies lose 80 to 90% of their equity market value. This is supported by a falling demand for coal.
For example in 2014 China, one of the biggest markets saw a 2% decline in consumption and a reduction of 11% in imports. By comparison companies benefitting from the rise of the renewable market are growing in value.
In Chapter Three of my Book ‘Invest Feel Good and Make a Difference’ I refer to the fact that China has set itself a target that it will generate 15% of its energy from Solar Power by 2020. This will make it the biggest producer in the world. This is making large Solar producers very attractive investment propositions.
J.A. Solar are one of these companies. Based in China they are one of the world largest producers of solar products. According to its fiscal results ending 2014 they saw a 50% increase in net revenue from the previous year and an increase in gross margin from 10.6% to 15.6%, reflecting the sharp reductions in component prices.
So the tide is definitely turning. Responsible investing is not just vital for saving our planet but preferable for a better risk adjusted return.
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