Ethical Investment 101

G Magazine

Why the smart money is green

Louise O'Halloran hugging a tree

The author, Louise O'Halloran: corporate treehugger

Credit: Nick Watt

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Anyone who has ever wondered about the connection between climate change and financial investment need only to have cast an eye over the Gulf of Mexico after the 2005 hurricane season. Some of the world's largest oil rigs took 18 months to recover.

The fact that carbon now has a price, plus increases in severe weather events, has changed the fundamentals for so many business sectors, including agriculture, energy, mining, construction and insurance, to name just a few.

A report released in 2006 by financial institution Citigroup shows that at a cost of $20 per tonne for CO2 (now a very conservative estimate), one of Australia's biggest steel manufacturers, OneSteel, will lose a full 18 per cent of its profits.

In the United States, a similar carbon analysis of two companies in the electricity sector shows that one company's profits will fall by just one per cent with the introduction of a cost on carbon, while its direct competitor will lose 19 per cent of its profits.

The reason? The less affected company has been building a strong renewables portfolio and has made great strides in energy efficiency and biofuels.

On the other hand, the heavily affected company is almost completely reliant on coal, has a tiny renewables portfolio and lags on efficiency.

Which company would you rather have your superannuation invested in?

These examples provide us with a small glimpse of what's to come.

Recent reports by AMP Capital Investors and investment bank Goldman Sachs tell us that anywhere between 77 and 85 per cent of the value of a company is tied up in environmental, social, and ethical issues, which are largely invisible to the naked eye - and to the profit and loss sheet as well.

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