Investing in sustainable businesses is no longer only for altruistic purposes. It is now a way for banks to future proof for a world where fossil fuels are rendered obsolete.
By Tom Jankowski
Climate change is no longer an issue that only activists care about; it went from something your hippie uncle preached about during Thanksgiving to being at the forefront of political and economic discourse around the world. With each new study pointing to the doom that our disregard for the environment will bring about, an increasing number of world and industry leaders have pledged to do their part in reversing the damage our practices of the past century have caused.
The most significant stride to achieving this goal thus far is the Paris Agreement. Ratified in 2016 and signed by virtually every nation in the world, it appeared that finally, the world has acknowledged the severity of the situation. The European Union has since then set lofty, albeit necessary, goals to fully eliminate greenhouse gas emissions by 2050 as part of its Green Deal which will entail a complete overhaul of virtually all facets of the economy from transportation to agriculture.
Enter Trump who a few months after being elected announced his plan to withdraw from the Agreement as a means of reassuring America’s “sovereignty.” However, despite the government’s rejection of the Agreement, a comparably (if not more) powerful institution is beginning to get behind the goals put forth by the accord: Wall Street.
Just this month, JPMorgan was the latest institution to declare its commitment to the Agreement following similar such announcements from banking giants Citigroup and Barclays. This comes after intense pressure from environmentalists who for years have been calling for JPMorgan to leverage its power to support sustainable business practises.
Some have labelled these moves as purely political as it is now en vogue to support environmentally conscious businesses. While that may be partially true, it also appears to be indicative of where the market is heading in the future. Investing in the environment is no longer only for altruistic purposes. It is now a way for banks to future proof for a world where fossil fuels are not only bogged down by stringent legislation but also rendered obsolete due to technological advancements that are sustainable in terms of their longevity.
Sceptics may argue that a fossil-fuel-free economy is either light-years away and that the recent announcements from Wall Street are in fact to gain political points. The data, however, strongly suggests otherwise. As a result of the Coronavirus-induced global economic crash, the oil industry suffered like never before with prices turning negative in some markets and demand plummeting to historic lows. Experts from Carbon Tracker—a UK based think tank that researches the effects of climate change on financial markets—estimate that 2019 was “almost certainly” the peak year for carbon emissions and that it will only be downhill from here.
This projection primarily is based on the fact that for the first time renewable energy is cheaper to purchase than fossil fuels. Despite initial costs being higher, in the long-term you can expect to pay between 5 and 17 cents per kilowatt-hour versus 3 and 6 cents for fossil fuels and solar energy, respectively. This discrepancy will only rise as economies of scale increase, and continuous technological advancements will cause the price of renewable energy to depreciate further. There is, therefore, “no point trying to sustain the unsustainable high-cost fossil assets in any event”, argues Carbon Tracker.
Wall Street’s announcements, put into this context, no longer seem like media maneuvers but a clear indication that the markets are gearing up for new industries and leaders. A new revolution is coming, and we are beginning to see it take shape. □
- Image source
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