It is surely the new paradigm – that economic recovery from the damage caused by the response to Covid-19 can only be achieved by a fundamental shift towards a zero-emissions future. This is stated as fact – that reducing greenhouse gas emissions to ‘net zero’ by 2035 will be the powerhouse of economic growth – when, of course, it’s just a contention; much like the complementary one that investing in companies that are wonderfully compliant in meeting their economic, social and governance (ESG) commitments will bring excess investment returns.
Perhaps these contentions are stated as fact because they have become the dogma of today’s secular religion – the 21st century’s equivalent of transubstantiation, when opposing cultures will fight wars depending on opposing beliefs that the internal combustion engine hides the piston head of all evil, or that the air expelled from the exhausts of modern combustion-powered cars is purer than the air taken in (almost certainly true in Delhi or in London on a dank November afternoon).
Sure, I caricature, but not a lot. Every day – literally – my inbox includes more breathless news that someone is making a commitment to net zero, that the excess returns from ESG investing have been proven (again) or that the flow of capital into sustainable funds is gargantuan; it really is – in the UK between April and July, more money was invested in ESG equity funds than in the previous five years combined.
Grabbing attention this week with the boom of its virtue signal was the BT Pension Fund, the UK’s biggest. Its managers aim to go for net zero emissions by 2035 from the entities that comprise the £55bn fund they run for BT’s 300,000 or so lucky defined-benefit members. True, it does not help that the managers don’t actually know the current pro-rata greenhouse gas emissions from its portfolio (I mean, how could they?), but why get hung up on a little detail like that?
It is what the scheme’s members want, say the managers. They know because in an online survey 74 per cent of those responding said they expected managers to take ESG factors into account when making investments and 65 per cent wanted the fund’s investments “to make a positive impact on the environment and society”.
No matter that less than 3 per cent of the scheme’s members took the survey. Besides, one might ask, how else should folk respond to questions implicitly about their own virtue? They will hardly say they’re happy for the fund to invest in the nastiest companies possible so long as they make a buck. Herein lies an important factor in the headlong dash towards greening-up the economy. It sounds good. Who could possibly oppose it? So it must be right.
Yet there is plenty of evidence that the pursuit of net zero is brimming with unintended consequences, which is what you might expect from a movement driven by a weird mixture of idealism and greed. Let’s take just two, which I have borrowed from papers issued by the climate change sceptics at the Global Warming Policy Foundation.
In The Hidden Costs of Net Zero, Mike Travers, an engineer, estimates that the cost of rewiring the UK’s households so they can accommodate the extra electrical appliances needed to run de-carbonised homes will probably exceed £200bn, or £7,000 per home. Adding in infrastructural costs to the electricity grid more than doubles the total to over £450bn, or about £17,000 per household. More galling for consumers will be the unexpected items, such as perhaps £2,500 per house to install fast-charging pillars for their electric-powered cars; not forgetting the cost of upgrading the distribution board of their consumer unit to handle the extra load.
Worse will be the scam that are smart meters. These are sold as giving fine-tuned control over electricity use for consumers, but really bring benefit to installers and power suppliers. Not just that, but the current generation of smart meters are actually pretty dumb; so backward that they will need to be replaced if distributors really do want control over local grids. In other words, consumers will fork out another £13bn, or £450 per household, on top of what they have spent on meters.
Meanwhile, in The Battery Car Delusion, Gautam Kalghatgi, a visiting professor of engineering at Oxford University, points to the likely perverse effects of the UK government’s wish to ban the sale of new combustion-engine cars by 2035. Perverse because the potential to lower the CO2 emissions of conventional engines with existing research facilities is considerable.
Simultaneously, the costs and the pollution of electric-powered vehicles is underestimated. Mr Travers’ paper deals with some of the costs. Professor Kalghatgi points out that the pollution linked to electric cars does not happen on leafy suburban streets but out of sight in the developing world where the environmental costs of mining copper, nickel, lithium and the rest that go into batteries are hard to minimise.
All of which means investors should preserve their scepticism. But they should also recall their purpose in investing – to make money, not to go to war with the climate change movement, however ridiculous they may see some of its follies. Sure, as consumers they should see much of the pursuit of net zero for what it is – another charge on their net income. But as investors they should see it as an opportunity to join the momentum and, at the very least, to park some of their capital in a fashionable part of the market.