Another year dawns bringing with it the opportunity of another resolution and I am a sucker for this particular tradition. For 2017, mine will be to give more and take less. I like this one for its simplicity. It works on a multitude of different levels – dieting, philanthropy, the marriage, the kids…
But it also works in the context of my finances and, in that regard, perhaps the most pressing application will be to give more thought to long-term sustainability and take less of a short-term view.
Tempting as it is to spend two weeks driving a sun lounger this summer, I can’t help thinking about the bigger costs coming down the pipeline: university fees for my offspring, and my own retirement to name just two. Suddenly, giving more to my mortgage lender and savings account seem like the more sensible option.
This resolution works for how I invest those savings too. It’s easy to see how there might be a few short-term opportunities to take a bit of profit over the next 12 months, not least through President Elect Trump’s apparent desire to roll back climate commitments, which favours the fossil fuel industry. Should that come to fruition, there is bound to be a bounce in share prices among big energy companies creating a kind of ‘Trump Premium’.
However, when I think about the longer-term, the arguments in favour of jumping on a short-term bandwagon are considerably less compelling. The long-term global trend on addressing climate change is already picking up pace. The COP21 agreement reached in Paris in 2015 shows just how much sentiment has changed towards addressing climate change in recent years. Even China, historically one of the worst polluters and one of the most resistant to address climate change, is now not only urging Trump not to renege on existing climate commitments, but is also one of the biggest growth markets for green bonds. The momentum is clearly moving against Trump.
Even within the US, 75% of all economic activity comes from liberal, climate-change-believing states, including California. Those states may not follow Trump’s lead by passing his policies into state law so it’s still very unclear how much his Federal policies would benefit big energy companies.
The Trump Premium may also be fairly short-lived. He is unlikely to be able to rebuild the Rust Belt in an age of anti-union sentiment and sweeping automation that will see the rapid development of driverless cars and drones, for example. The sectors that will do well will be those focussing on technology, aerospace and finance, which are less people-intensive. That takes us away from states like Michigan and Wisconsin, and puts us back on the road to California. Can Trump sustain his presidency if he fails to deliver in the Rust Belt? Only time will tell, but it may not take that long to find out. Voter patience is not an enduring commodity.
Globally, we are running out of time to adapt to a warmer planet and transition to a low-carbon economy. And the later we leave it, the larger the shock will be in terms of financial market valuations when the forces of change finally unite in the same direction to take meaningful action.
To my mind, that spells investment risk. Big investment risk. Is it worth giving my savings to companies today that would use my capital to knowingly move in the wrong direction? Could I time an exit well enough to bank much profit? And does it really serve my purpose to encourage those companies anyway? After all, what I really want is to retire into a world where I can afford to maintain my standard of living and where my children and their children can enjoy similar (if not better) economic, social and environmental conditions.
And, in fact, the actual financial sum I have at retirement is only as useful as those broader environmental, economic and social conditions anyway. Can I still afford to heat the house or travel around if the cost of fuel has gone through the roof because we failed as a global population to invest in developing non-fossil fuel technologies?
Alas, the beach will have to wait.
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A quick cuppa with Faith Ward, Chief Responsible Investment and Risk Officer, Environment Agency Pension Fund