How we invest, can be just as important as our consumption at fighting Climate Change
In order for the world to reach net-zero greenhouse emissions by 2050 individuals need to reduce their carbon footprint by an average of 40%. Since more prosperous nations have the highest individual carbon footprints, it should be expected that people living in higher-income countries will have to make the biggest reductions.
For individuals, this means making significant changes in consumption and away from carbon-intensive activities. The proliferation of carbon calculators now freely available on the web, has helped us better understand our carbon footprints Whilst these calculators can only approximate our personal carbon footprint, they do highlight the difficulty of reducing it because reducing our carbon footprint is intertwined with the services provided by industry, which we use in our everyday lives.
For example, heating our homes is a significant part of our personal carbon footprint, but we are in the hands of the utility companies providing our homes with renewable energy. Using GreenGrowth’s unique environmental footprint calculator, in order to meet the global annual average of 5 tons of Co2e per person you have to be vegan, not use public transport, have an electric car or don’t own a car, don’t take any flights and do not eat out at restaurants. That is a tough ask for most people.1 Furthermore, by 2050 the average per capita carbon footprint needs to be reduced to 2 tons to avoid the 2 degrees temperature rise outlined in the Paris Agreement.
Whilst changing our consumption patterns is obviously key to mitigating climate change, we can also use our savings to reduce our carbon footprint and encourage industry to pursue climate-friendly strategies. At GreenGrowth we breakdown investments into distinct themes because we believe this is a more useful way to understand the link between investing and climate change as well as providing investor choice. By breaking down the investment universe into themes it is possible to invest in a way that helps to offset an individual’s particular environmental footprint.
For example, if you regularly drive a lot of miles in a fossil fuel powered car, you can invest a higher proportion of your savings into clean energy and sustainable transport companies. If you eat out a lot, you could direct your savings towards sustainable agriculture companies. Not only does this help reduce your carbon and environmental footprints, but you are also actively encouraging climate-friendly companies that offset your individual pattern of consumption.
In the case of publicly traded companies, your investment helps to raise the company’s share price which means the company’s cost of capital is reduced which makes it cheaper for them to raise new capital to invest in the business. If more investment flows to climate-friendly industries than, say, fossil fuel industries, the former will benefit from cheaper capital than the latter. In fact, every £1 invested in a climate-friendly company may have a greater impact than reducing consumption by £1. Reducing consumption has a one-off effect whereas investment often results in additional gains in output. For the saver this is a win-win, lowering carbon footprint and actively supporting businesses fighting climate change.
A popular way of offsetting carbon footprints is to buy carbon credits issued by offset schemes which typically plant trees, or undertake some other carbon-sequestering or avoiding project, equal to the amount of your carbon footprint. This is to be encouraged but investing in companies that are fighting climate change is another action we can take to actively reduce carbon emissions rather than just offsetting them.
Most people understand the link between consumption and climate change. However, getting people to also recognise the importance of savings and having the opportunity to do something about it is a vital part of the transition to achieving an environmentally sustainable economy. At GreenGrowth we have called this Lifestyle investing. Enabling people to measure the environmental footprint of their consumption and matching it with a mix of environmental investments is an essential combination in the fight against climate change.
- This data is based on average consumption per person based in the UK compiled by the Office for National Statistics.