The Responsible Investing Podcast, Ep.2: The climate agenda – with Eva Cairns
The start of July marks the launch of London Climate Action Week. This aims to bring together world-leading experts and policymakers to drive the national and international climate policy response. Most importantly, it will focus on the need for a green recovery from Covid-19. Leading ASI’s climate agenda is Eva Cairns, Senior ESG Investment Analyst. So, ahead of the virtual meeting, we wanted to talk to Eva on host of topics, from about her wide-ranging views on responsible investment and her passion in helping address climate change, to why she’s so keen that we all "grow the pie".
Amanda Young: Hello. My name is Amanda Young. Welcome to the Aberdeen Standard Investments, responsible investing podcast. Now, today, we are going to discuss the issue of climate change and this is to coincide with London Climate Action Week 2020. As London Climate Action Week was only launched last year, many of you may not have heard about it, but the idea is to have a week in London focused on climate action.
Now, this year, due to COVID-19 the event will be held in two installments. The first is a digital version taking place between the 1st and 3rd of July, and this aims to bring together world-leading experts and policymakers to drive the national and international climate policy response. Most importantly focusing on a green recovery from COVID-19. Now, most of these events will be virtual.
The second half of the London Climate Action Week will involve more organizations, communities, and citizens from across London. The current plan is for these events to take place in November. Today, I have the pleasure of hosting Eva Cairns, who is a senior ESG investment analyst at Aberdeen Standard Investments. Her focus is on leading all of our climate work.
Eva originally hails from Germany but has lived in Edinburgh for 15 years. She came to Scotland to complete the last year of her European economics degree where she met her Scottish Rugby playing husband. Eva is a mum to two lovely girls aged seven and three, and recently she adopted a fur baby, her cat Minka. Welcome, Eva.
Eva Cairns: Hey Amanda, great to be here.
Amanda: During this podcast, I am keen to explore with Eva her personal views of responsible investment in particular her personal passion to help address the climate change challenges we currently face. It is fantastic to have you here with us today, Eva. Let's begin with hearing from you about why you feel it is important for investors to look at both responsible investment issues, but in particular climate change when they are making their investment decisions.
Eva: I think those two sides of climate change and wider responsible investing issues are nowadays not just something that is an add-on to be considered or something that you have to give up financial performance for, but it really is a financial risk. That needs to be part of the investment decision. For example, climate change is something so wide-reaching. I think it really impacts every region, sector, and company in some way.
We have to think about that impact, that could be an impact from the low-carbon energy transition or the increasing risk of physical climate change. These things if we don't think about in our investment decisions could leave us with increased stranded asset risk or investment in companies with reputational risk, companies that are just not prepared for the changes that are coming for climate change.
Amanda: Perhaps you can explain to us what a stranded asset risk is, Eva?
Eva: Yes, of course. There we're talking about assets that companies value today but actually there will be no demand for that asset in the future. A huge amount of coal or oil for example whereas the demand for that will be increasing faster than the company we expect, and actually these assets do not have the value that the companies think they will have in the future. They will have to be written down.
I think the second area which highlights is that obviously as investors, we have a responsibility to make the energy transition happen. There's trillions of dollars that need to be invested in more carbon energy for example, and that amount of money is not just going to come from governments. We have a role to play in recognizing opportunities to allocate our capital so that it helps make the transition happen.
Ultimately, we're not just responsible for delivering attractive financial return but also make sure that actually the world that people will live in and, in which they should enjoy that financial return for example through the pension but that's not a world that will then be destroyed by the impact of climate change. As investors but also as a mother thinking about the next generation, I think it's really important that that is a key consideration in our investment decisions.
Amanda: This is a really interesting concept aligning the investments that we are making with actually the world that we wish to live in, in the future. For investors, what do you think the biggest climate topic of the moment actually is?
Eva: At the moment honestly, the focus on climate change I think has been derailed a little bit this year with the COVID pandemic. Cash maybe that should have been invested in climate solutions or commitments were postponed or may be limited this year. We'll see some delays in climate change action that frond.
The good news is that at the same time, we still see that a lot of regions, not all regions but many regions are talking about, "How do we bounce back from the COVID-19?" That this recovery should be a green recovery that we see emissions hopefully not growing to the same extent as they did previously. The key topic this year I think remains what Paris alignment looks like, what targets we need to set to achieve the goals of the Paris Agreement.
I think despite the pandemic, which has caused a reduction in greenhouse gas emissions in many areas because of the halt to demand and economic activities, we're talking about how will we bounce back. Let's make sure that maybe 2018 and that's a big hope of mine will be remembered as the year of peak emissions, but we need to make sure that things change in a lot of sectors that we change the way we source energy. I think that is still a key topic that we're looking at this year.
Amanda: Now, you obviously spend quite a lot of time talking to companies as part of your job, and caring what companies have to say in response to reducing their own carbon emissions but obviously, also the emissions of the products that they make and the services that they deliver. We're hearing a lot of companies talking about Net-zero commitments at the moment. Now, perhaps you can explain what these are, and how we as investors might want to assess these?
Eva: Yes, absolutely. This is a growing trend, we're seeing a wave of commitments talking about Net-zero 2050. Science suggests that to reach the goal of limiting warming to 1.5 degrees at a simplified target would be to focus on bringing emissions down to zero by 2050, but we're talking about net-zero emissions. That means that in some sectors such as aviation or maybe the manufacturing of construction materials such as cement is really difficult to bring emissions down completely to zero.
In some cases, the technologies are not even available yet, in some cases they're very expensive. We're expecting that in some sectors that are very difficult to electrify – say, with renewables. We will have these remaining residual emissions. Net-zero then means that we need to remove these emissions from the atmosphere, and there's generally two ways to do that. Negative emission technologies. It really needs advances in innovation to make solutions such as carbon capture and storage more viable at the moment.
They're not there at scale, they're very expensive but this is one thing that could remove carbon from the atmosphere. The other area is natural carbon things such as reforestation. Again, there we need to think how much of that is possible? We couldn't just offset a lot of emissions. We only have one planet and we have a limited amount of land on that planet. Natural carbon seems, again, is limited.
The key question is how that net-zero will be achieved when we assess that. Actually, what's the scope of these commitments? We have seen a huge amount of grueling commitments around net-zero. Just recently, there was an announcement on the business ambition for 1.5 degrees. That's over 240 companies that signed up to setting these targets. The UN also launched a campaign just in June this month, Greece to zero to get more net-zero commitments ahead of next year's big climate change conference COP 26.
The key thing with these commitments is actually understood how meaningful are they because it could be quite easy to say, "Oh, yes, that's 30 years out net-zero 2050, and we'll just wait and see what technologies will be available then." We need to make sure that there are some real actions, short-term plans, reflecting these targets in capital expenditure numbers, and that the problem because there's some real emissions first and the offsetting and the removing any residual emissions because that's really a last resort rather than the main strategy here.
Amanda: Some of these things you're talking about sound relatively long-term. To get to net-zero commitments, you would need to be thinking about putting in place plans, putting in place strategies and setting yourself targets over time. I just want to take a focus on this year, 2020. It was due to be a really big year for climate change largely due to the expectation that COP, which was meant to take place in Glasgow in November, was aiming to deliver some real strong commitments from the countries around the world.
This is obviously the next significant meeting after the Paris Agreement. Now, clearly things have changed. You've touched upon some of that, you've touched upon the fact that actually greenhouse gas emissions are currently lower because of a slowdown in economic activity but obviously they could potentially pick up again and we need to be thinking about a green recovery. Specifically for this year, we're half way through but what do you think 2020 has installed for us for the rest of the year?
Eva: I think and I'm hoping that the second half of 2020 will really pick up in starting climate change conversations again. In the first half of the year, a lot of the events that were planned and initiatives were postponed and delayed. As you said, COP 26 has been delayed by a whole year. Nevertheless, I think it's very encouraging to see that we are still talking about tightening commitments that the reality is that countries and companies with their commitments at the moment we're just not Paris aligned at all.
We look at for example countries and the national determined commitments they've set. This year was all about tightening these and actually despite the postponement of COP 26, countries are still expected to tighten their commitments and to have a look at what more is required to achieve the goals of the Paris Agreement. I'm really hoping 2020 can be remembered as that turning point for emissions growth.
As I said, despite Paris Agreement in 2015, we have seen a growth in emissions all the way up until 2019. Now, this year, we're expecting emissions to be down by around 8% but what happens after that they will increase but by how much? Will they go above 2019 again or not? There's a lot of uncertainty there that the second half of the year will hopefully-- I'm hoping be a turning point where we are seeing a bounce-back but is more mindful of, how can we bounce-back with lower carbon energy sources for example. The other thing I'd say is that, we really need the biggest emitting nations such as China in the US to help deliver a strong climate action. We have the--
Amanda: Do you think that's likely given the fact we have Trump in power and he's trying to roll back the powers that the EPA has had historically in managing environmental issues? Do you think that's likely?
Eva: Well, my hope I was just going to say is on the US elections in November because they will be key to determining the future of climate policy in the US. I think with Trump in power that is probably not likely as we know Trump wants to step out of the Paris Agreement, and I think this will be hugely detrimental to climate action because this is a global issue.
The three biggest emitting regions are US, China, and the European Union they really need to take the seriously and take a lead. We're seeing a lot of that in the European Union. They have announced a recovery fund from COVID which 25% of that is going towards climate solutions which is very encouraging. We're not seeing that same support in the US for example. I think the elections will be key because somebody else would take this very differently.
Amanda: Now, we may have listeners who would be interested in knowing what is inspiring you at the moment or motivating you in the climate change space. Outside of the investment landscape for instance, is there something that you were reading that you might like to recommend to our listeners?
Eva: Yes, I really like reading and I tend to read quite a lot of things in parallel quite often on different topics, trying to move things along. I would say one of the things that I recently finished that was quite a good book very simple to read and practical around climate change was called, There Is No Planet B, by Mike Berners-Lee. That is a really good book of facts and analysis around… really focused on an individual and what individuals can take as actions.
It talks about travel, energy, and food and it talks about things like, why people are not really made to think about climate change which is such an invisible long-term uncertain risk and where much more normally humans focused on shorter term visible risks to address, which is why sometimes it can be such a challenge to get real actions.
That's one book, There Is No Planet B, which I found a really good to read and quite inspiring. The thing I'm reading at the moment which is wider than climate change talks about responsible investing. It's a book called Grow The Pie. This was written by Alex Edmans. This book was also Financial Times business book of the month when it was published in March. This book is all about businesses focusing on growing social value rather than profits. By focusing and growing social value and the size of the pie for everyone, they will ultimately maximize profits more than if they had focused directly on profit maximization and cost-cutting.
It's a really interesting book because it's called the evidence behind it, and it just talks about this whole concept of people focus on growing the pie. It's difficult because you're not just able to do a calculation of a net present value of an investment, you have to accept that there's uncertainties and intangibles and go with your judgment, but that's a fascinating book. I'm halfway through that at the moment but it's highly recommended.
Amanda: Well, I think that raises a really interesting point. We've sat here for the last 15 minutes talking about risk and climate change risk. I think there's probably another whole topic for a podcast on the opportunities that climate change can bring for investors. We did talk about allocation of capital and thinking about green recovery, but I like that concept of growing the pie, Eva.
Thank you very much for sharing that with us. Now, you have long been a passionate advocate for climate action right through from your studies to your current day job. Perhaps I could ask you from a personal side, what commitments have you made in your life that support these climate change beliefs?
Eva: Yes, sure. I think the biggest personal changes that I made a few years ago was changed the food that we eat and just be a lot more mindful of the impact that the food that you eat has on the planet. Including things like sourcing locally, we're thinking about food miles. We've also reduced our intake of meat and dairy, for example. This is something that the recent NIPCC report on climate science highlighted is something that could be quite impactful for an individual to do.
We heard about that and started reducing eating dairy and focusing a lot more on locally sourced foods, sustainable food production. This is a really a topic of quite passionate about that topic to think about, teaching my children from a young age, "What impact does your food have on your health and on the environment?"
I think the other area is thinking about travel. We have a hybrid car now. That helps and for the local trips certainly here and we do lots of cycling. One of the things that's difficult however for me I think is as you mentioned, I'm from Germany, my family's from Germany. I like to visit them and obviously, that is quite difficult to do either by plane or by ferry. I think that's my challenge to try and reduce the emissions from a travel, because I love traveling and seeing new places, exploring new cultures, but that is a bit of a conflict.
Amanda: Thank you. I think it's a conflict for many of us. Thank you for sharing that very honestly with us. Now, finally, we're coming to the end of our podcast but I'm quite keen to look to the future. I want to get your views on both responsible investment as a whole. We spent most today talking about climate change but this is the responsible investment podcast. I'm keen to get your view on what you think it will look like in five years time, as well as how you think the climate agenda will have evolved?
Eva: I'm always thinking in terms of responsible investment that in five years' time, that should be the norm, that shouldn't even be a separate term. That actually, why would we invest irresponsibly or anyone would want to invest irresponsibly? At this stage, we want to really focusing on ensuring that people understand that you're not giving up for example, financial performance for that, but this is and it goes back to the grow the pie discussion, which is all about responsible businesses focus on doing the right thing and by that maximize profits and the value for society. More and more people understanding and recognizing that and responsible investment becoming the norm.
I think that would be fantastic in five years' time. From the climate agenda perspective, the next decade is absolutely key to determining the future of our planet. This was highlighted by the climate report by the IPCC but compared to just global warming of one and a half and two degrees and highs of the other consequences would be and we're over one-degree warming already.
We have a decade by 2030 emissions should be halved. Five years down the line, there is only halfway to that critical 2030-point. We must see emissions reducing after this year or from this year onwards. I am an optimistic person and I'm seeing a lot of opportunities. As you said, the cost of renewables is going down, the commitments by businesses and cities are growing.
This ascending standing opposed to signals. I'm really hoping that in five years' time, we're seeing that these commitments that we're going to be seeing a wave up this year have been put into practice and we'll really see an ongoing decline in emissions. That would be ideal in five years' time.
Amanda: Indeed it would. Fingers crossed that we see some real action from governments and from the companies who're investing in to address some of these issues. Eva, thank you so much for giving us some of your valuable time to chat today. It's been such a pleasure and great to get some insights into climate change, current trends, and how you yourself are contributing to a lower-carbon world.
Eva: Thanks, Amanda. It's been a pleasure. It's great to talk to you.
Amanda: Now, listeners, that ends up the podcast for today. Thank you so much for tuning in. Please do listen to our previous podcasts where we spoke to our CEO, Keith Skeoch, on his views on responsible investment. We are hoping for a great line up of people across the business and outside of the business to discuss how responsible investment fits in with their roles and hear their insights, views, and opinions. I'd ask you to watch out for our next episode on the Aberdeen Standard Investments website and wherever you get your podcasts and tune in. Thank you.
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