Has the tide turned for UK equity income in 2024?
In the dim and distant 2000s, UK equity income was the hot sector. Home to a raft of star manager...
While Millennials have been causing a revolution in sustainable investing, Generation Z – those born between 1995 and 2015, or ages 4 to 24 – have gone one step further, leading the fight for climate change.
I kid you not (pardon the pun).
In 2015 a group of plaintiffs lead, by 21 children (the youngest of which was only 7 years-old), took on the United States government for violating their constitutional rights by causing dangerous carbon dioxide concentrations*.
The case itself is unprecedented, not only because of the age of the plaintiffs, but also because, unlike other similar lawsuits which have been dismissed in the past, this one was upheld under the idea that access to a clean environment is a fundamental right.
After a number of appeals, it looks like those 21 kids will be adults themselves, if and when the case ever goes to trial, but they have a valid point: a clean and healthy environment is indeed a fundamental human right.
‘Once investors truly understand the climate risk to their portfolios, investment should start to support climate action, not just on the basis of ethics, but out of self preservation.’
– Christa Clapp, Research Director for Climate Finance, Center for International Climate Research
The Paris Agreement (2015) calls for governments to keep the global temperature rise as close as possible to 1.5°C which means we need to significantly limit the amount of carbon dioxide (CO2) and other greenhouse gases we put into the atmosphere. Decarbonisation, or a low-carbon economy, is an economy that is based around low carbon power sources that have a minimal output of CO2.
However, the United Nations’ recent report on climate change warned that the amount we’re still putting into the atmosphere means that we’re on track to exceed the 1.5°C target between 2030 and 2052***. Once we hit 2°C, the world will become a profoundly different place. There will be almost no coral reefs, devastating heatwaves, wildfires will become more frequent and could make some parts of the world uninhabitable***. The report concluded that limiting global warming to 1.5°C would require ‘rapid, far-reaching and unprecedented changes’ in all aspects of society**.
Cutting carbon dioxide is something that’s becoming increasingly prevalent, for example, the new Ultra Low Emission Zone in central London. And on a company by company basis, it can seem relatively straightforward. However, to reach the global target, companies need to look at their whole business, not just part of it: from production and processing, to transportation. These total company emissions are referred to as 3 scope emissions** and are, on average, four times higher than a company’s direct emissions**.
One company using studies like this to help lower its overall emissions is BT, a holding in GAM UK Equity Income^. BT is aiming to cut its entire supply-chain emissions by 29% by 2030**.
Nespresso, a Nestle brand and holding in Janus Henderson European Selected Opportunities^^, is tackling the problem another way, and has committed to planting 10 million trees among its suppliers’ farms and surrounding communities by 2020, in order to off-set its carbon emissions**.
Avoiding the worst effects of global warming will require us to source at least 85%** of global power from renewable energy, so the business case for renewables has never been stronger.
As we try to move towards a more decarbonise economy, companies will be forced to either make changes to the way they operate or be left behind. Long-term investors can therefore be the driving force for meaningful change.
*Source: Juliana, et al. v. United States of America, et al., 2015
**Source: Climate 2020: degrees of devastation, 2018
***Source: Special report: global warming of 1.5°C, IPCC 2018
^Source: Fund factsheet, 31 March 2019
^^Source: Fund factsheet, 30 April 2019