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Why the Guardian Media Group is getting out of fossil fuels Why the Guardian Media Group is getting out of fossil fuels
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The corporate world is increasingly waking up to its responsibilities when it comes to investments in fossil fuels or other industries threatening the environment. The corporate world is increasingly waking up to its responsibilities when it comes to investments in fossil fuels or other industries threatening the environment. Guardian Media Group is no exception. The board, which I chair, recently signed up to the UN-backed Principles for Responsible Investment initiative.
Guardian Media Group is no exception. The board, which I chair, recently signed up to the UN-backed Principles for Responsible Investment initiative. This week, it has taken a bold decision to go further: to step up engagement with fund managers on critical topics, including climate change; to increase our exposure to environmental, social and governance (ESG) managers; and, in the medium term, to divest from fossil fuels. These initiatives will ensure that the company behind the Guardian, the Observer and theguardian.com will adopt investment policies that formally recognise the importance of ESG factors in improving overall sustainability. This week it has taken a bold decision to go further: to step up engagement with fund managers on critical topics, including climate change; to increase our exposure to environmental, social and governance (ESG) managers; and, in the medium term, to divest from fossil fuels. These initiatives will ensure that the company behind the Guardian, the Observer and theguardian.com will adopt investment policies that formally recognise the importance of ESG factors in improving overall sustainability.
All of these issues will no doubt surface at the UN climate change summit in Paris in December. But we cannot wait for exhortations from an inter-governmental meeting before making the right choices concerning our £800m investment portfolio. All of these issues will no doubt surface at the UN climate change summit in Paris in December. But we cannot wait for exhortations from an intergovernmental meeting before making the right choices concerning our £800m investment portfolio.
We are not doing this because it makes good headlines. We are doing it because it makes good business senseWe are not doing this because it makes good headlines. We are doing it because it makes good business sense
Editorially, the Guardian has led the way in highlighting the threat posed by global warming. Our award-winning journalism, reaching an international audience of millions, has helped set the agenda on the dangers of unrestrained fossil fuel extraction. Editorially, the Guardian has led the way in highlighting the threat posed by global warming. Our award-winning journalism, reaching an international audience of millions, has helped set the agenda on the dangers of unrestrained fossil fuel extraction.
Following an independent review, the board of Guardian Media Group has now begun reallocating our £800m of funds to more sustainable investments. As the world’s biggest single fund to divest from fossil fuels we will encourage other businesses to follow suit. Following an independent review, the board of Guardian Media Group has begun reallocating our funds to more sustainable investments. As the world’s biggest single fund to divest from fossil fuels we will encourage other businesses to follow suit.
We are not doing this because it makes good headlines. We are doing it because it makes good business sense. As part of our review, conducted in partnership with investment advisers Cambridge Associates, it became clear that GMG can prudently work towards allocating more funds to socially responsible investments without jeopardising our overall returns.We are not doing this because it makes good headlines. We are doing it because it makes good business sense. As part of our review, conducted in partnership with investment advisers Cambridge Associates, it became clear that GMG can prudently work towards allocating more funds to socially responsible investments without jeopardising our overall returns.
We found that a number of alternative investment categories have out-performed natural resources in the last few years, with recent falling valuations in basic commodities harming those funds that are heavily exposed to coal or oil, for example. The S&P Global Water Index, for instance, generated an annualised return of 13.4% over 10 years, outperforming traditional natural resources as well as the broad global equity index. In addition, the FTSE Environmental Technology 50 Index returned 6.9% annually over the same period, producing superior absolute and risk-adjusted returns to commodity futures.We found that a number of alternative investment categories have out-performed natural resources in the last few years, with recent falling valuations in basic commodities harming those funds that are heavily exposed to coal or oil, for example. The S&P Global Water Index, for instance, generated an annualised return of 13.4% over 10 years, outperforming traditional natural resources as well as the broad global equity index. In addition, the FTSE Environmental Technology 50 Index returned 6.9% annually over the same period, producing superior absolute and risk-adjusted returns to commodity futures.
The returns from fossil fuel companies could be further compromised, fully justifying divestment, as it becomes clear that many of their resource reserves are over-valued. The UN framework convention on climate change estimates that proven fossil fuel reserves exceed what can be safely emitted – in CO2 – by more than fourfold. This means that, sooner or later, fund managers should begin to discount the potential returns from such companies, and reconsider their exposure to them. The returns from fossil fuel companies could be further compromised, fully justifying divestment, as it becomes clear that many of their resource reserves are overvalued. The UN framework convention on climate change estimates that proven fossil fuel reserves exceed what can be safely emitted – in CO2 – by more than fourfold. This means that, sooner or later, fund managers should begin to discount the potential returns from such companies and reconsider their exposure to them.
At the same time, we anticipate rising demand for renewables – and the technologies that supply them – opening up an alternative sector in which to invest. Over time, this means that we can adopt socially responsible investment criteria without putting at risk the core purpose of GMG’s investment funds: to generate long-term returns that guarantee the financial future and editorial independence of the Guardian in perpetuity. At the same time, we anticipate rising demand for renewables – and the technologies that supply them – opening up an alternative sector in which to invest. Over time, this means we can adopt socially responsible investment criteria without putting at risk the core purpose of GMG’s investment funds: to generate long-term returns that guarantee the financial future and editorial independence of the Guardian in perpetuity.
It will take time and require flexibility to divest gradually from fossil fuel companiesIt will take time and require flexibility to divest gradually from fossil fuel companies
This will not happen overnight. A fundamental issue is that fund managers operate commingled funds and cannot (or will not) screen out fossil fuel securities within them. This will not happen overnight. A fundamental issue is that fund managers operate commingled funds and cannot (or will not) screen out fossil fuel securities within them.
Currently there is a scarcity of high-quality managers that offer non-fossil fuel options. Of the 17,400 public equity managers, fixed income managers and diversifiers in the institutional quality manager “universe”, only a few dozen are fossil free in their asset allocation. This means that it will take time and require flexibility to divest gradually from fossil fuel companies.Currently there is a scarcity of high-quality managers that offer non-fossil fuel options. Of the 17,400 public equity managers, fixed income managers and diversifiers in the institutional quality manager “universe”, only a few dozen are fossil free in their asset allocation. This means that it will take time and require flexibility to divest gradually from fossil fuel companies.
Already, one of GMG’s largest active holdings is with a manager that puts environmental, social and governance issues at the core of its principles. It has been a stellar performer, which gives us confidence that this is the right course of action for the rest of the portfolio. We aim to increase such holdings significantly over the next two years. Already one of GMG’s largest active holdings is with a manager that puts environmental, social and governance issues at the core of its principles. It has been a stellar performer, which gives us confidence that this is the right course of action for the rest of the portfolio. We aim to increase such holdings significantly over the next two years.
We will, in addition, engage more aggressively with companies and fund managers, to encourage them to divest from fossil fuels. Such engagement will raise the debate not only about climate change but about other important, broader areas of sustainability. We cannot divest unilaterally from all segments that might contribute, one way or another, to climate change. Some hydrocarbons, particularly natural gas, will remain vital for energy needs in the medium term. But a transition to cleaner energy will allow us to make a firm stand on the worst offenders: coal-based fossil fuels. We will, in addition, engage more aggressively with companies and fund managers to encourage them to divest from fossil fuels. Such engagement will raise the debate not only about climate change but about other important, broader areas of sustainability. We cannot divest unilaterally from all segments that might contribute, one way or another, to climate change. Some hydrocarbons, particularly natural gas, will remain vital for energy needs in the medium term. But a transition to cleaner energy will allow us to make a firm stand on the worst offenders: coal-based fossil fuels.
Becoming more sustainable in managing our investments will be a gradual process. It means that GMG must be smart, flexible and intelligent in looking for solutions. This is a major step in a strategy of managed divestment. It must be executed carefully to preserve our investment returns. But it remains the right thing to do. We are proud to have initiated it at a time when climate change has become an issue not just for investors, news organisations or UN negotiators, but for all of us. Becoming more sustainable in managing our investments will be a gradual process. It means that GMG must be smart, flexible and intelligent in looking for solutions. This is a major step in a strategy of managed divestment. It must be executed carefully to preserve our investment returns. But it remains the right thing to do. We are proud to have initiated it at a time when climate change has become an issue not just for investors, news organisations or UN negotiators, but for all of us.