Investors wanting secure returns should dump oil and gas stocks and back green infrastructure funds, says HSBC’s climate chief
Financial markets “do not tell the economic truth and they do not tell the ecological truth”, says Nick Robins, head of HSBC’s Climate Change Centre of Excellence.
Robins estimates that just half of investors are taking any notice of carbon risk, the legislative and reputational risk posed by climate change. The same low proportion utilises resources such as the Carbon Disclosure Project, where companies report on their climate change strategy, he says.
The major contradiction in the markets, says Robins, is that “oil and gas companies are treated as if oil and gas are assets when, in reality, they are carbon liabilities”.
One old argument is that oil and gas will always be a safer investment, as long as renewable energy relies on shaky government subsidies to survive. But Robins does not buy it. “All forms of energy are supported by government subsidies,” he says, adding: “OECD countries support the oil industry to the tune of $310bn.”
Robins supports the International Energy Agency’s inquiry into how oil and gas subsidies could be reallocated to support the building of a green energy infrastructure. He says: “Last year the head of the IEA was saying a low-carbon economy was unachievable. This year the IEA released an energy report saying that a 50% emissions cut is possible by 2050.”
As the co-editor of a new book, Sustainable Investing: The Art of Long-Term Performance, Robins criticises the short-termism of modern financial markets. Institutional investors need to take a longer view than “one, two or three years ahead”, he says, if they are to nurture any kind of economic stability.
Following this year’s economic crash, the next five years are an opportunity to balance the needs of investors and the planet, Robins says. Investors need secure assets and the world needs investment in adaptation and mitigation to deal with climate change.
Robins expects a boom in government infrastructure investment over the next few years to boost the economy, and hopes governments will steer funds towards “environmental infrastructure” – or green buildings, and green energy sources.
Robins mentions the possibility of funding green infrastructure through corporate or government bonds and environment infrastructure funds. He singles out energy efficiency as the single biggest sustainable investment opportunity of our time.
“People talk about expensive things like carbon capture and storage and solar, but energy efficiency presents a secure revenue system for investors,” he says.
Robins criticises the lack of emphasis on energy efficiency in the EU energy package earlier this year. But as countries around the world react to the economic turmoil and look to cut costs, and as the US looks towards energy independence, Robins believes investors will soon set up “energy efficiency funds” in the US, China and India, dedicated to investments in efficiency service companies.