2015 Preview - The Year Sustainability Goes Mainstream
2014 ended on a note which made very clear that 2015, and 2016 for that matter, will be turning points for sustainability going mainstream within investing.
We have recently of course seen the price of oil completely collapse on the back of reduced global demand and a game of poker between the US Shale sector, Saudi Arabia and other resource rich countries. As we have argued, sustainable investing is about three things:
- Innovation and Technology, and
- Social & Community Effects
The price of oil going down by half is a direct result of new technology combined with global awareness on climate change and trends towards urbanization and less driving, all of which will have significant effects on local and regional economies going forward.
Given the supply glut and commitment by Saudi Arabia to keep pumping, expect the price to stay low through at least the first half of 2015 if not beyond. Welcome to the New, New Normal.
This means less revenue for big oil companies, tremendous pressure on countries such as Canada, Russia, Venezuela, Iran and other big producers, especially those that rely on a high price to justify expensive production. Also another side benefit is less likelihood of Arctic Oil exploration in the near future, such as was discussed in this amazing recent New York Times piece.
Coming in March perhaps is the first big event of 2015 that will affect markets as concerns sustainability, that being Pope Francis and a 50-60 page edict on what his followers should do about climate change.
The Catholic Church getting fully behind action on climate change will be without question a major step forward.
The UN and its myriad of efforts will also continue with a series of events building up throughout the year towards a conclusion in December in Paris.
Commitments are expected on everything from solving poverty, ensuring food security, health and well-being, fixing inequality and much more as part of the expected to be approved in 2015 Sustainable Development Goals. The idea here is that financial growth can only be achieved going forward if we simultaneously solve environmental and social challenges at the same time.
Even greater in impact, perhaps are the bilateral agreements being reached between the world's biggest economies. The recent November 2014 US-China bilateral agreement on climate change presaged what both countries will bring later this year to Paris in the form of goals that they are already working towards including very specific targets on carbon emissions. This agreement is already placing the coal sector under increasing financial pressure, and utilities are also feeling the heat.
While a similar agreement with India is further into the future, talks have started between the two nations, and as we saw with US-Cuba thawing, these things happen in quiet and only come out once there is something concrete and well tested to say. India meanwhile has a booming solar sector with every expectation of further moves diversifying their energy mix and the possibility of changing pollution through the same mechanisms that have worked in the US such as MPG standards on new cars. As we have seen in China, local pollution has become a driver of change. Expect the same in India, where air pollution is also a growing social concern.
Restrictions on power plant pollution globally, better exhaust standards on auto manufacturing, more energy efficient strategies in general all can add value to shareholders and create better living conditions at the same time.
While 2015 will continue to build momentum towards more sustainable business practices, 2016 will see the next election cycle in the US play out, and we will see the first vestiges of this in 2015. The end result will be a new balance of power in the White House and Congress which will have a direct say in determining winners and losers as well along the sustainability agenda.
What sort of society we want will ultimately be up to consumers of products including investment choices. This makes connecting purchasing and investing directly to the decisions these activities enable the most essential element of all that remains to be solved, so expect 2015 to also be the year of education in this regard. Connecting your decisions to their subsequent outcomes is essential for consumers to get the end result they want and for investors to also fully understand who has their house most in order. Expect the winners going forward to be the ones who get this most right.