Environmental issues have become far more mainstream over the last decade, as companies and governments consider the threats that are arising and likely to get worse as a result of climate change. Many organisations have now placed net-zero targets to bring emission in line with those agreed at the 2016 Paris Climate Accords.
Climate Change and Greenhouse Gases
Climate change is now widely recognised as one of the most significant challenges facing the global economy. Environmental impacts include increased flood risk, declining crop yields, species extinctions and extreme weather patterns. To mitigate the risks of climate change as much as possible, the nations of the world agreed in 2016 to limit global warming to 2 degrees, though preferably 1.5 degrees compared to pre-industrial levels.
To achieve this long-term temperature goal, countries aim to reach global peaking of greenhouse gas emissions as soon as possible to achieve a climate neutral world by mid-century. Companies which themselves have not achieved nor plan to achieve a net zero target are at risk of hindering this goal. Moreover, there is a financial risk to companies of not considering climate change, because it means they aren’t considering its impact on their supply chains, markets and operations.
It is possible to both negative and positive screen companies based on their net-zero targets or other climate commitments. It is likely that you will be able to engage with companies on this issue.
Read ShareAction’s useful briefing Navigating Net-Zero: A Guide for Asset Owners
Biodiversity
Biodiversity is vital for maintaining ecosystems on which all life depends. It is known that diverse ecosystems are better able to withstand environmental changes, such as climate change. Conserving biodiversity is therefore essential in ensuring the continued functioning of the ecosystems on which we all depend.
The biggest threat to biodiversity is from changes in land use leading to habitat destruction, fragmentation or simplification. The second biggest threat is the introduction of exotic species resulting in change at the ecosystem level, sometimes wiping out native species. Lastly, over-exploitation threatens many species.
It may be possible to screen companies according to their biodiversity policy (where relevant), screening in the best performers or screening out the worst performers. It may also be possible to engage with companies on this issue.
Pollution
The effects of many industrial pollutants on human health and the environment are well-established. But in recent years attention has been focused on the possible links between poor air quality and respiratory illnesses, with atmospheric emissions from road traffic and industrial sources thought to contribute to thousands of deaths every year. Concern is also growing over the effects of complex organic chemicals such as pesticides and industrial chemicals.
It is possible to apply negative screens in relation to this issue, for example screening out companies with recent cautions or convictions for pollution offences.
Water Pollution
Water is the most important natural resource and its pollution has both environmental and economic impacts. The consequences of water pollution depend both on the type and level of pollution and the use to which the receiving water is put. Sewage discharges have polluted bathing waters and threatened the health of bathers. Water supplies may be contaminated by pollution if the receiving water is used as a source of drinking water. Toxic discharges may kill fish and other aquatic wildlife, and may ultimately affect the marine environment. International attention is currently focused on the potential long-term effects on human health and wildlife of many complex chemicals that cannot be broken down naturally and persist in the environment.
It can be possible to screen out companies that have received recent cautions or convictions for a water pollution offence.
Sustainable Timber
A critical aspect of international trade in timber is the impact it has on the world’s forests, important natural assets that support a wide variety of social and environmental functions.
Tropical forests, in particular, are extraordinarily rich areas of biodiversity which have in recent decades been threatened by unsustainable commercial logging practices. Temperate and boreal forests, which provide the majority of the world’s industrial roundwood, also hold important ecological and social value.
Widespread public concern over the effect of current harvesting and silvicultural practices on these and other forests has led to calls for more sustainable forest management practices. As a result, labelling systems have been developed for timber and timber products derived from well-managed forests to give the consumer a guarantee of sustainability.
Illegal logging remains a significant threat to any efforts towards sustainable forestry. Responsible sourcing of credibly certified timber and timber products helps discourage illegal logging and promote greater transparency throughout the timber industry.
It can be possible to screen investments in relation to:
- companies’ standards for timber sourcing. It is possible to focus only on those companies using significant amounts of timber.
- companies that manufacture products from uncertified tropical hardwood
- companies that sell uncertified tropical hardwood or products made from this
- companies that harvest tropical hardwood from uncertified forests
It can be possible to screen in the best performing companies or screen out the worse performers. It can also be possible to engage with companies on this issue – for example if there have been allegations of the use of illegally logged timber.
Chemicals of Concern
The manufacture of chemicals and their subsequent use and sale in consumer products is an issue that is of growing concern for consumers, governments, regulators, health and environmental organisations, as well as for companies themselves. There is increasing scientific evidence that certain chemicals are hazardous to human health and the environment, and it is recognised that further action needs to be taken to phase out and substitute some of these substances as a priority.
These chemicals can include:
- ozone depleting chemicals
- pesticides
- PVC and phthalates
It is possible to apply negative screens on this issue, to avoid investing in companies which manufacture, supply or market ozone depleting chemicals, pesticide products or PVC or phthalates.
Mining and Quarrying
Charity investors may have a variety of reasons to be concerned about mining and the extraction of commodities. Some may be concerned about pollution and the effect individual operations have on the landscape and local communities. The production processes associated with open cast or strip mining may be of particular concern to these investors. Others argue that the nature of extractive industries is inherently damaging to the environment not just because of the production process but also because the end-products serve to increase greenhouse gas emissions, waste energy, and discourage recycling of resources.
It can be possible to screen out companies that derive turnover from mining or quarrying.