SUSTAINABLE BUSINESS REVIEW
GREEN FINANCE • INNOVATION • ECONOMICS
At A Crossroads The good, the green fad, and the ugly
ECONOMICS Can Stimulating the Blue Economy Save Our Sinking Global Economy?
TECHNOLOGY & INNOVATION Urban Agriculture: Generations
Planting
the
Seed
for
Future
GREEN FINANCE Green Finance is Sending the Meat Sector to the Slaughterhouse
INVESTMENT Equity Research Report on SolarEdge Technologies (SEDG)
IN PARTNERSHIP WITH
About us The Sustainable Business Review is the UK's first student-led quarterly magazine producing thought-provoking opinion pieces around green finance, environmental economics and innovation. We aim to bridge the gap between corporates and students when discussing sustainability, and want to inspire the next generation of environmentally-driven leaders. We are a team of economists, engineers and business students, and we hope that you find our content insightful and it equips you with the knowledge to help gain a new perspective on our world.
Lead Editors
Professional Guests
Committee
Malaika Cornelio Economics Lead Keval Shah Economics Lead Rebecca Harrison Innovation Lead Grace De Bohun Finance Lead Jamie Alexander Finance Lead
David Tyler Chairman of The White Company David Hidderley Head of Investment at Roebuck AM Gary Martin Investment Manager at Hawksmoor IM
Abdur Choudhury President Nathan Howell Vice President Laura Loboda Marketing Director Shabbir Farooqi Treasurer Asim Ali Sponsorship Director
Gekko Investments Analyst Aaryaman Gandotra
Economics Authors
Innovation Authors
Finance Authors
Lakshumie Saththiyan Emily Calnan Andrea Fernandes Janina Gleed Mihir Shah Dominique Gomez Marina Symington Sania Zaffer
Aditya Chauhan Alex Westwood Maxine Miller Tejas Hirani
Ed Cox Sofia Akuamoah Prashina Harjani Jokubas Paicius Zahra Rahman Bozhidar Dinkov Sebastian Thomas Asha Pandit
About Green Finance Discover the world of ESG, corporates and financial markets all in one place. We aim to discuss topics such as green bonds, equities, global relations, company initiatives and investing.
Special thanks to Samir Khan
About Innovation
About Economics
Unearth the link between the low Explore the interplay between carbon economy and innovations in economic theory and the technology. We aim to discuss topics environment. We aim to discuss such as renewable energy, deep topics such as inequality, sustainable tech, agriculture, growth, developing economies, and Contact usinfrastructure to have your firmand featured on our magazine. fashion. government policies. ABOUT | 1
Contents Economics
Sustainable Business Review Issue 1
23 27 30 32
Can Stimulating the Blue Economy Save Our Sinking Global Economy? Microplastic's Microaggression: The Economics of Ocean Suffocation The Teal New Deal - 4 Steps to A Sustainable Blue Economy More than Just a Transition The Environmental Cost of Income Inequality Tackling the 2 Cs: COVID-19 and the Climate Crisis – Insights from Behavioural Economics Why Circles are 'In' this Season The Green New Meal Can We Learn to Embrace the Doughnut? Retail, Covid-19 and Sustainability - Interview with David Tyler
Innovation
35 38 41 43
Urban Agriculture: Planting the Seed for Future Generations Shaping a Sustainable Future with Blockchain Floating Turbines: Taking Wind Power to Uncharted Waters Changing Track with Hydrogen-powered Trains
Finance
45 48 50 52 54 57 59 61 63
Green Finance is Sending the Meat Sector to the Slaughterhouse To Dread or Not to Dread? Introducing Amazon’s $2billion Climate Pledge Fund The Name’s Bond: Green Bond The Future of Oil The Self Isolation it the Real Estate Market - A Good Thing? Fast Fashion: The Industry’s Dirty Secret When it Rains it Pours : Financial Instruments Against a Volatile Climate Foot on the Gas: The EU Drives Forward on its Emissions Trading Scheme Real Estate Investing and ESG - Interview with David Hidderley
66 73
ESG Equity Research Report on SolarEdge Technologies Inc (SEDG) How Covid-19 has Affected a Shift to ESG Investing
Investment
4 9 12 15 18 21
On the cover The government has played a large role helping the broader population weather the storm of Covid-19. The EU has recently announced a 750bn euro pandemic recovery fund, with climate action being a core part of their economic rehabilitation plans; the UK utilising a ‘build back better’ slogan to get their recovery journey underway. Is this a moment of opportunity? Of course it is, but much of the power still lies within the consumer and the corporations selling their products and services. We discover that perhaps the spotlight on the environment is a fad, or not at the forefront of a company’s agenda in their future journey; greenwashing is still a problem facing consumers in multiple industries. Now the opportunity to make a change is down to the people, who have the information to make a choice.
President's note On behalf of the committee at Nottingham Green Economy Society, I want to say a huge thank you to the entire SBR team for putting together an extensive range of inspiring content with an environmental twist. For where to start, I would recommend our first cover article which explains how investment into the oceans could be the key to growth for the global economy, page 5. Another explains the innovation of urban farmers sourcing food more sustainably, page 35. Finally, how intensive farming must adapt to go green, or face dwindling profits, page 45. www.facebook.com/nottsgesoc
Q&A with David Tyler
Q&A with David Hidderley
Chairman of The White Company
Head of Investment at Roebuck AM
Page 32
Page 63
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CONTENTS | 2
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ECONOMICS
The Deep Blue Economy
Can Stimulating the Blue Economy Save our Sinking Global Economy? by Mihir Shah
ALSO IN THIS SECTION
09
Life in plastic: Putting Murderous Microplastics Under the Spotlight
12
Ocean Salvation with the Teal New Deal Photo by Franceso Ungaro
FEATURED
ECONOMICS
The vast, multi-faceted Blue Economy may just be the gateway to the long-term, sustainable growth we've been striving for
THE MULTI-TRILLION DOLLAR OPPORTUNITY Some may argue that the Blue Economy does not have the scale to reignite the global economy, however the worldwide blue economy is valued at around $1.5 trillion per year (Blue economy | The Commonwealth, 2020), while the EU Science Hub (2019) reported that in 2017, the EU Blue Economy recorded a gross profit of €74.3 billion.
COVID-19 AND THE BLUE ECONOMY The Blue Economy has been one of the hardest hit industries by COVID19, as many of its main sectors, including fishing, shipping, coastal tourism and development, and oil and gas extraction, have come to a complete standstill. The World Bank defines the Blue Economy as the “sustainable use of ocean resources for economic growth, improved livelihoods and jobs, and ocean ecosystem health” (The World Bank, 2017). Though COVID-19 has slowed the growth of the blue economy, this
comes as a blessing in disguise, given that this growth is typically unsustainable in nature. The Blue Economy will now have the chance to replenish its natural resources, which have been severely depleted before the pandemic, leading to the question:
Is this the key to reigniting the global economy?
$1.5tr
per annum valuation of Blue Economy
€74.3 bn
gross profit of EU Blue Economy in 2017
According to the World Bank, at least 3-5% of global GDP is derived from the oceans, while it also absorbs about 30% of global CO2 emissions (World Bank, 2018). Furthermore, the blue economy impacts a myriad of lives, as depicted by Figure 2 – from beachgoers in the Caribbean to farmers in mainland England. For this reason, it represents the perfect opportunity to jumpstart truly global, sustainable growth.
PAST FAILURES SKETCH A BLUEPRINT FOR SUCCESS The idea of the Blue Economy has been around for close to two decades, however, the ‘business-as-usual’ model was being unsustainably used (Blue economy | The Commonwealth, 2020); nations and companies whose relationPhotograph by Aubrey Garner
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ECONOMICS
Nations and companies whose relationship with the blue economy should have been mutually beneficial instead began exploiting the natural resources within oceans ship with the blue economy should have been mutually beneficial, instead began exploiting the natural resources within oceans. The greatest and most calamitous example of this is the BP Oil Spill in 2010. The expansively polluting 130 million gallons of oil dumped in the Gulf of Mexico has caused lasting effects to the wildlife, with many animals still suffering the repercussions to date (Meiners, 2020). Furthermore, industrial fishing operations have spiralled into unsustainable over-fishing. From the permanent alteration of ecosystems to the actively growing the list of endangered species, alarmingly, its adverse effects are varied and seemingly inexorable. On the other hand, however, some countries such as the Seychelles, have successfully implemented an operating blue economy policy, through strong maritime security, trading agreements, and stringent ocean conservation (Seychelles Championing the Blue Economy, 2019). These success stories can provide a blueprint for international change.
Figure 2: The bounties of our oceans aren't limited to transport and food (The European Sting, 2019)
Figure 3: Solvay's hydrogen peroxide solutions aims to preserve the aquaculture industry Sustainable, Blue Growth Investment into marine restoration and protection by governments, companies, and NGO’s can successfully create jobs, protect the ocean’s ecosystem, and increase blue tourism demand, if done in
...success stories can provide a blueprint for inter-national change.
FROM THE COVER: THE DEEP BLUE ECONOMY | 6
ECONOMICS the post-COVID period. Such policies have been tried and tested during the Great Depression, where ‘nature-based job creation programmes, such as the Civilian Conservation Corps in the US’ were successfully implemented, providing a basis for action in the future (McCauley, Teleki and Thienemann, 2020). Furthermore, investment into coherent legislation and the digitalisation of our oceans can lead to smarter shipping, sustainable fishing, and protection of vulnerable ecosystems and animals (McCauley et al., 2020). These three benefits have a global impact, as scientists estimate ‘845 million people are nutritionally vulnerable to any decline in seafood’ (McCauley et al., 2020). Furthermore, current data shows small-scale fisheries and aquaculture are much more sustainable (Seas at Risk, 2020), therefore meaning that if the right legislation and practices are put into place, the Blue Economy can create jobs, protect the ecosystems, and feed many. Finally, sustainable financial support of the Blue Economy is essential. This includes green loans, sustainability-linked loans, and blue bonds, which can tie all firms to sustainable, blue growth. Action has already begun on this front, with the WWF producing the Sustainable Blue Economy Finance Principles in 2018, in association with the European Commission, the International Sustainability Unit, and the European Investment Bank. The document lists 14 principles that all majority or minority investors should apply to their portfolios, including ‘precautionary’, science-led’, and ‘transparent’ principles amongst others (Declaration of the Sustainable Blue Economy Finance Principles, 2018)
Figure 4: The Seychelles' Blue Economy Approach Is Fully Functional And The Ideal Blueprint (Seychelles News Agency)
Cogent Potential and Cautious Progress It is clear that the Blue Economy holds the key to the salvation of the world economy through stringent legislation, collaboration, and cautious, yet innovative solutions. COVID-19 has brought the suspension of some previous sustainable legislation, however that should not fall by the wayside once we start to move on from the pandemic. Furthermore, change will not come without opposition or challenges, however one thing is clear: the future of this planet is dependent on sustainable growth, and the crucial solutions to this vital quest lie in the unexplored depths of the Blue Economy.
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ECONOMICS REFERENCES Blue economy | The Commonwealth (2020). Available at: https://thecommonwealth.org/blue-economy (Accessed: 28 June 2020). Climate Home News (2020) Blue Economy Conference. Available at: https://www.climatechangenews.com/2020/03/06/caribbean-can-makewaves-blue-ocean-economy/ (Accessed: 28 June 2020). DECLARATION OF THE SUSTAINABLE BLUE ECONOMY FINANCE PRINCIPLES (2018). WWF. Available at: https://www.wwf.org.uk/updates/sustainable-blue-economy-financeprinciples (Accessed: 5 July 2020). EU Science Hub - European Commission. 2019. How Big Is The EU's Blue Economy? The EU Report On Potential Of Coasts And Oceans To Provide For Sustainable Economic Growth Published - EU Science Hub European Commission. [online] Available at: <https://ec.europa.eu/jrc/en/news/how-big-eus-blue-economy-eureport-potential-coasts-and-oceans-provide-sustainable-economicgrowth> [Accessed 15 July 2020]. McCauley, D., Teleki, K. and Thienemann, G. (2020) How to build a stronger ocean economy after COVID-19, World Economic Forum. Available at: https://www.weforum.org/agenda/2020/05/how-to-build-abluer-ocean-economy-after-cobid-19/ (Accessed: 30 June 2020). Meiners, J. (2020) Ten years later, BP oil spill continues to harm wildlife —especially dolphins, National Geographic. Available at: https://www.nationalgeographic.com/animals/2020/04/how-is-wildlifedoing-now--ten-years-after-the-deepwater-horizon/ (Accessed: 29 June 2020). Seas at Risk - COVID-19 crisis: the role of the ocean in safeguarding a healthier future (2020). Available at: https://seas-at-risk.org/29-oceangovernance/1044-covid-19-crisis-the-role-of-the-ocean-in-safeguardinga-healthier-future.html (Accessed: 4 July 2020). Seychelles - Championing the Blue Economy (2019). Available at: https://www.uk-cpa.org/news-and-views/seychelles-championing-theblue-economy (Accessed: 29 June 2020). Solvay (no date) Peroxides Aquaculture Solutions. Available at: https://www.solvay.com/en/chemicalcategories/peroxygens/peroxides-aquaculture-solutions (Accessed: 6 July 2020). The COVID-19 Pandemic and the Blue Economy: New Challenges and Prospects for Recovery and Resilience (2020). United Nations Conference on Trade and Development. Available at: https://unctad.org/en/PublicationsLibrary/ditctedinf2020d2_en.pdf (Accessed: 30 June 2020). The European Sting (2019). Available at: https://europeansting.com/2019/06/07/blue-bonds-what-they-are-andhow-they-can-help-the-oceans/ (Accessed: 5 July 2020). The Role of Ocean Finance in Transitioning to a Blue Economy in Asia and the Pacific (2020). Available at: https://development.asia/explainer/role-ocean-finance-transitioningblue-economy-asia-and-pacific (Accessed: 4 July 2020). Walsh, M., Robertson, D. and Mehta, A. (no date) The Role of Ocean Finance in Transitioning to a Blue Economy in Asia and the Pacific, Development Asia. Available at: https://development.asia/explainer/role-ocean-finance-transitioningblue-economy-asia-and-pacific (Accessed: 1 July 2020). PROBLUE: Supporting Integrated And Sustainable Economic Development In Healthy Oceans. [online] Available at: <https://www.worldbank.org/en/topic/environment/brief/the-worldbanks-blue-economy-program-and-problue-frequently-askedquestions> [Accessed 21 July 2020].
World Bank. 2018. The World Bank’s Blue Economy Program And The World Bank (2017) What is the Blue Economy?. Available at: https://www.worldbank.org/en/news/infographic/2017/06/06/blueeconomy (Accessed: 28 June 2020).
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ECONOMICS
Microplastic’s Microaggression:
Icons made by <a href="https://www.flaticon.com/authors/eucalyp" title="Eucalyp">Eucalyp</a> from <a href="https://www.flaticon.com/" title="Flaticon"> www.flaticon.com</a>
P
The Economics of Ocean Suffocation by Andrea Fernandes
lastic pollution is slowly yet meticulously suffocating our oceans the terrifying plastic swathes in the ‘Great Pacific Garbage Patch’ are a testament to this. By 2050 there might be more plastic than fish in our oceans based on weight (The Economist, 2018), and ‘microplastics’ aggravate this environmental catastrophe. It is no longer only about rubbish-strewn beaches, clogged rivers, or turtles getting entangled - choking on neon plastic. Instead, because of microplastic infiltration (plastic debris less than 5mm), organisms on every trophic level are affected.
Blue Economy Woes Plastic inevitably affects economic sectors reliant on the ocean whilst wreaking havoc on marine life. A prime example is the coastal tourism industry where picturesque beaches and turquoise seas are the expected norm. A loss in aesthetic value, however, carries a steep economic cost. In the South Korean Goeje Island, one marine litter incident led to lost revenue between US$27.7 - 35.1 million in 2011 compared to 2010 and a 63% reduction in visitors (Jang et al, 2014). The fishing industry also faces potential devastation in a myriad of ways. Not only is there expensive repair expenditure (prompted by plastic debris extensively damaging fishing Figure 1: The ‘Age of Plastics’ and its effects on the ocean equipment/vessels), but also cleaning non-target species. Tragedy of the Commons costs due to microplastics sticking to endangering Derelict fishing traps, for instance, pose Despite marine litter being a propellers and nets. Then there are revenue losses due to fewer, poorer an estimated loss of US$300,000 on Blue universal problem, nations that on marine-related marketable catches in depend quality fish because of ingested plastic. industries become economic Virginia (Bilkovic et al, ‘Ghost fishing’ (fish unintentionally 2011). victims. Coastal communities caught by discarded gear) is another culprit for reducing fish stock and FROM THE COVER: THE DEEP BLUE ECONOMY | 9
ECONOMICS
Undeniably, plastic pollution arises because of market failure. Undeniably, plastic pollution arises because of market failure. The full economic cost of producing and disposing of plastic along with the negative intangible welfare costs on human health and the ecosystem are unaccounted for. This social cost is approximately US$2.2 trillion per year
(UNEP, 2014; Ricke et al, 2018; Beaumont et al, 2019; Zheng and Suh, 2019, cited in Forrest et al, 2019, p.2). As Figure 2 illustrates, with producers facing a marginal cost and consumers facing a perceived zero cost, widespread plastic demand without market moderation leads to a Tragedy of the Commons. The negative externalities of marine pollution are unrepresented in the price, resulting in the huge production and consumption of plastic, with this detrimental allocative inefficiency occurring at a low “symbolic” price (UNEP and GRID-Arendal, 2016, p11). Additionally, clean seas are public goods which are vulnerable to free riding, so polluters benefit without bearing the full cost (Newman et al, 2015) unintentionally incentivising marine degradation.
Figure 2. Market Failure
bear the burden of awareness campaigns and clean-up costs to keep tourism afloat or to prevent flooding and disease caused by plastic build-ups. Thus, equity concerns arise from how polluters escape the costs of marine plastic pollution.
Policy Instruments One-off indulgences in plastic products that have century-long lifespans have left a legacy of pollution to clean up. Apart from better waste management systems (especially in developing nations), an ideal sustainable solution is a more ‘circular plastic economy.’ One that minimises waste yet utilises the maximum value of the plastic product before regenerating it into a new good. Thus, diverging from the current linear ‘make, use, and dispose’ economy model (Barra and Leonard, 2008). Other policies include bans like the EU-wide ban on intentionally added microplastics to cosmetic products by 2020 or the 2018 EU ban on single-use plastic products. Although potentially difficult to enforce, bans may be efficient for a good when there are small marginal benefits, but high marginal social costs linked to its production/usage or improper disposal. Plastic taxes are another possibility as they increase private costs for producers and encourage ‘green design innovation.’ Denmark, for instance, saw a 60% reduction in plastic bag usage one year after a tax introduction (Earth Policy Institute, 2014). Theoretically, this is a ‘Pigovian Tax’ which seeks to achieve a more socially optimum consumption by ‘internalising the externality’ and making the polluter pay. However, given how there is a default bias towards single-use plastics like bottles, consumers may be indifferent to any increase in price (inelastic demand), making the tax ineffective and unequally regressive on lower incomes. Furthermore, once the shock of the charge wears off, plastic bag usage may increase as consumers get used to the fee – a ‘Rebound Effect’ (Convery, McDonnell and Ferreira, 2007).
FROM THE COVER: THE DEEP BLUE ECONOMY | 10
ECONOMICS Additionally, since consumers are paying for the bag (a market exchange) there is a crowding-out of guilt and reduced motivation to be eco-friendly (Chandra, 2018). More simply, behavioural economics or ‘nudges’ could be used to influence eco-conscious social norms. Japan increased the plastic bag refusal rate by 40% simply by asking customers if they wanted a bag, illustrating the impacts of “changing the default” (Ohtomo and Ohnuma, 2014).
Sea of Change The emergence of this marine epiphany, however, is prompting blue sustainability. International cooperation (like the 2019 Basel Convention), crosssector regulations, green packaging and consumer awareness about wasteful consumerism are rapidly increasing, making a unified multipronged approach for marine plastic pollution possible.
Figure 3: The 6 R’s
References Barra, R. and Leonard, S. (2018) Plastics and the circular economy [online]. Available at: https://www.stapgef.org/sites/default/files/documents/PLASTI CS%20formatted%20for%20posting.pdf (Accessed: 24 June 2020) Bilkovic, DM. et al. (2014) ‘Derelict Fishing Gear in Chesapeake Bay, Virginia: Spatial patterns and Implications for Marine Fauna’, Marine Pollution Bulletin, 80(1-2), p114-123 [online]. Available at: https://doi.org/10.1016/j.marpolbul.2014.01.034 (Accessed: 5 July 2020) Chandra, G. (2018) Charge for Use or Nudge to Reuse? Suggestions for Policy Interventions to Discourage Plastic Consumption [online]. Available at: https://www.europarl.europa.eu/news/en/headlines/society/20 181116STO19217/microplastics-sources-effects-and-solutions (Accessed: 29 June 2020) Convery, F., McDonnell, S. and Ferreira, S. (2007) ‘The Most Popular Tax in Europe? Lessons from the Irish Plastic Bags Levy’, Environmental and Resource Economics 38, p1-11 [online]. Available at: https://doi.org/10.1007/s10640-006-9059-2 (Accessed: 30 June 2020) Earth Policy Institute (2014) The Downfall of the Plastic Bag: A Global Picture [online]. Available at: http://www.earthpolicy.org/plan_b_updates/2014/update123 (Accessed: 3 January 2020) EASAC (2020) Packaging plastics in the circular economy [online]. Available at:https://easac.eu/fileadmin/PDF_s/reports_statements/Plastic s/EASAC_Plastics_complete_Web_PDF.pdf (Accessed: 9 July 2020)
Forrest, A. et al. (2019) ‘Eliminating Plastic Pollution: How a Voluntary Contribution from Industry Will Drive the Circular Plastics Economy’, Frontiers in Marine Science [online]. Available at: https://doi.org/10.3389/fmars.2019.00627 (Accessed: 5 July 2020) Jang, YC. et al. (2014) ‘Estimation of Lost Tourism Revenue in Geoje Island from the 2011 Marine Debris Pollution Event in South Korea’,Marine Pollution Bulletin, 81(1), p49-54 [online]. Available at: https://doi.org/10.1016/j.marpolbul.2014.02.021 (Accessed: 7 July 2020) Newman, S. et al. (2015) ‘The Economics of Marine Litter’ in Bergmann M., Gutow L., Klages M. (ed.) Marine Anthropogenic Litter, p356-394 [online]. Available at: https://doi.org/10.1007/978-3-319-16510-3_14 (Accessed: 4 July 2020) Ohtomo, S. and Ohnuma, S. (2014) ‘Psychological Interventional Approach for Reduce Resource Consumption: Reducing Plastic Bag Usage at Supermarkets’, Resources, Conservation and Recycling 84, p57-65 [online]. Available at: https://doi.org/10.1016/j.resconrec.2013.12.014 (Accessed: 28 June 2020) Ohtomo, S. and Ohnuma, S. (2014) ‘Psychological Interventional Approach for Reduce Resource Consumption: Reducing Plastic Bag Usage at Supermarkets’, Resources, Conservation and Recycling 84, p57-65 [online]. Available at: https://doi.org/10.1016/j.resconrec.2013.12.014 (Accessed: 28 June 2020) The Economist (2018) The known unknowns of plastic pollution [online]. Available at: https://www.economist.com/international/2018/03/03/the-known-unknowns-ofplastic-pollution (Accessed: 26 June 2020) UNEP (2018) The missing science: Could our addiction to plastic be poisoning us? [online]. Available at: https://www.unenvironment.org/news-andstories/story/missing-science-could-our-addiction-plastic-be-poisoningus#:~:text=As%20many%20as%2051%20trillion,seas%2C%20seriously%20threatenin g%20marine%20wildlife. (Accessed: 26 June 2020) UNEP and GRID Arendal (2016) Marine Litter Vital Graphics [online]. Available at: https://gridarendal-websitelive.s3.amazonaws.com/production/documents/:s_document/11/original/MarineLitt erVG.pdf?1488455779 (Accessed: 29 June 2020)
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'The Teal New Deal'
4 Steps to A Sustainable Blue Economy by Emily Calnan
STEP 4
STEP 2
STEP 3
O
ur ecosystems are critical to the Earth’s balance and as a civilisation, we are upsetting that balance to the point of extinction. Our refusal to accept that our “normal” way of life is destructive, even to ourselves, does not have to be inevitable. If we want to make the big and necessary changes, we can. By using new technology and Mother Nature’s own tools, we have the ability to create a positive, long-term effect on the future. In pursuit of a more sustainable post-pandemic and Brexit world, a new proposal, The Teal New Deal urges governments to implement guidelines based around the ocean and coastal habitats, in conjunction with the industries that depend on those ecosystems (Dundas et al., 2020).
STEP 1
Figure 1: “The Teal New Deal” in a glance (Dundas et al, 2020) This proposal by the Society for Conservation Biology focuses on four sectors: energy, food security, habit restoration, and transportation - each essential to counteracting the ecological damage of the last century and a half (Dundas et al., 2020).
employing over 900 workers (Webgiorgio, 2007). The low-carbon and renewable energy economy in the UK has seen a job increase of nearly 12% between 2015 and 2018 and an increase in investment of 48% over the same period (ONS, 2020). Using the UK coastlines will help to grow this industry and help the country to prosper.
STEP 1: Renewable Energy
The UK can benefit from off-shore wind power due to its abundant coastline and higher than average wind speeds (Energy UK, 2020). The North Hoyle Offshore Wind Farm (North Wales), for example, has been in operation since 2003. It supplies power to approximately 40,000 homes per year and was designed to prevent over 160,000 tons of carbon dioxide being released into the atmosphere, while
Figure 2: The North Hoyle Offshore Wind Farm (RWE, 2017)
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ECONOMICS
STEP 2: Marine Food Production The second step is establishing new rules relating to marine food production. In 2014, the UK fishing industry’s gross profit margin increased by 20% and was the highest in the EU, at €367 million (Carpenter, 2016). EU regulation, which made this possible, will not apply to the UK beyond the end of 2020 so Britain will need to adopt legislation to maintain these standards and promote sustainable fishing (WWF, n.d.). This will require new laws combating unfair fishing quotas and overfishing and establishing environmental protection for animals and habitats (MSC, n.d.). 23 companies control more than twothirds of all UK fishing quotas however smaller businesses would be more beneficial in the long-term, as they provide more jobs, use more humane and sustainable fishing methods, and contribute more to the local economy (Green Peace, n.d.).
STEP 3: Habitat Restoration
The third step is the restoration and protection of oceanic habitats and coastlines. Marine ecosystems offer efficient carbon capture and storage and help to control erosion and protect against the harmful effects of storms (CCC, n.d.). Coastal wetlands can be used as carbon sinks and mitigate the destruction caused by rising sea levels, storms, floods and erosion. Even though their maintenance is
Figure 3: The ability of wetlands to carbon capture compared to other ecosystems (CCC, n.d.)
low cost and relatively straightforward, coastal wetlands are some of the most endangered habitats (CCC, n.d.). The kelp forests surrounding Britain contribute significantly to carbon capture and can maintain up to “4,300 metric tons” of carbon per square kilometre per year; this is more per unit area than terrestrial forests (Wernberg and FilbeeDexter, 2018). Kelp forests can also provide a buffer against storm surges thus reducing coastal erosion (Mork, 1996; Lovas and Torum, 2001). Instead of neglecting these perfectly crafted organic tools we should be taking full advantage of them.
STEP 4: Greener Transportation
The fourth step is improving the sustainability of the maritime transportation industry. While this sector makes up only a small portion of the country's economy, 95% of the UK's trade goes through its ports (CEBR, 2019). 100,000 jobs are directly depe-
their speed and capacity (Dundas et al., 2020). The industry has reduced CO2 emissions by 33% since 2007 and following exit from the EU, the British government will need to ensure that EU standards concerning fuel and emissions' regulations will be maintained (Cariou et al., 2019). For the UK, this is an unprecedented time with the need to mitigate both the impacts of the Coronavirus and Brexit through economic stimulus packages. This is an opportunity to combine economic and social policies that incorporate sustainable ideas and innovation, to create a green economy, benefiting many generations to come. While our land forests may be few, we can't let our kelp forests go the same way. Although not positioned to make optimal use of solar energy, we have abundant wind and tidal energy. The islands that comprise the UK are ideally suited to take advantage of the opportunity to ‘rule the waves’ from a sustainable point of view.
ndent on the maritime industry; hence it is crucial that the transportation industry takes steps to become more sustainable
(Maritime UK, 2019). It has been suggested that seaborne emissions can be reduced by more than 75% using technology that is currently available: using liquid, natural gas, biofuels and wind power or modifying the designs of ships' hulls and reducing
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ECONOMICS REFERENCES Cariou, P., Parola, F., & Notteboom, T. (2019). Towards low carbon global supply chains: A multi‐trade analysis of CO2 emission reductions in container shipping. International Journal of Production Economics, 208, 17–28. Carpenter, G. (2016). The EU Common Fisheries Policy Has Helped, Not Harmed, UK Fisheries. [online] openDemocracy. Available at: <https://www.opendemocracy.net/en/caneurope-make-it/eu-common-fisheries-policyhas-helped-not-harmed-uk-fisheries-0/> [Accessed 17 July 2020]. CCC, n.d. Wetlands - Conservation In A Changing Climate. [online] Available at: <https://climatechange.lta.org/wetlands/> [Accessed 1 July 2020]. CEBR. (2019). Maritime Sector, Which Facilitates 95% Of UK Trade, Is Among The MostExposed To Brexit | Centre For Economics And Business Research. [online] Cebr.com.Available at: <https://cebr.com/reports/maritime-sectorwhich-facilitates-95-of-uk-trade-is-amongthe-most-exposed-tobrexit/#:~:text=Although%20relatively%20sm all%2C%20only%20accounting,exports%20of %20goods%20and%20services..> [Accessed 1 July 2020]. Dundas, S., Levine, A., Lewison, R., Doerr, A., White, C., Galloway, A., Garza, C., Hazen, E., Padilla‐Gamiño, J., Samhouri, J., Spalding, A., Stier, A. and White, J. (2020). Integrating oceans into climate policy: Any green new deal needs a splash of blue. Conservation Letters,. Energy UK (2019). Renewable Generation | Energy UK. [online] Energy-uk.org.uk. Available at: <https://www.energyuk.org.uk/energy-industry/renewablegeneration.html#:~:text=Renewable%20tech nologies%20use%20natural%20energy%20to %20make%20electricity.&text=Renewables% 20produce%20more%20than%2020,strategy% 20to%20reduce%20carbon%20emissions.> [Accessed 3 July 2020]. Green Peace, n.d. Sustainable Fishing. [online] Greenpeace.org.uk. Available at: <https://www.greenpeace.org.uk/challenges/ sustainable-fishing/> [Accessed 29 June 2020]. Lovans, S.M. and A. Torum (2001). Effect of the kelp Laminaria huperborea upon sand dune erosion and water particle velocities. Coast. Eng. 44:37 – 63.
Mork, M. (1996) Wave attenuation due to bottom vegetation. Pp. 371 – 382 in J. Grue, B. Gjevik and J.E Weber, eds. Waves and nonlinear processes in hydrodynamics. Kluwer Academic Publishing, Oslo. Maritime UK. (2019). The Economic Contribution Of The UK Ports Industry. [ebook] CEBR, p.25. Available at: <https://globalmaritimehub.com/wpcontent/uploads/2019/09/Cebr_Maritime_UK_P orts.pdf> [Accessed 3 July 2020]. MSC, n.d. What Is Sustainable Fishing | Marine Stewardship Council. [online] Msc.org. Available at: <https://www.msc.org/uk/whatwe-are-doing/our-approach/what-issustainable-fishing> [Accessed 28 June 2020]. ONS (2020). Low Carbon And Renewable Energy Economy, UK - Office For National Statistics. [online] Ons.gov.uk. Available at: <https://www.ons.gov.uk/economy/environme ntalaccounts/bulletins/finalestimates/2018> [Accessed 3 July 2020]. RWE (2017). The North Hoyle Offshore Wind Farm. [image] Available at: <https://www.citethisforme.com/cite/onlineimage-or-video> [Accessed 17 July 2020]. Webgiorgio (2007). Youtube: Vestas build offshore wind farm “North Hoyle”. April 12, 2007. https://www.youtube.com/watch? v=1_uezuWLpPU. Wernberg, T. and Filbee-Dexter, K. (2018). Part Of Our Ocean Is Dying. [online] Available at: <https://www.washingtonpost.com/news/thew orldpost/wp/2018/10/23/ocean/> [Accessed 28 June 2020]. WWF, n.d. Making Fisheries Sustainable In UK, European And International Waters. [online] WWF. Available at: <https://www.wwf.org.uk/what-wedo/projects/making-fisheries-sustainable-ukeuropean-and-international-waters> [Accessed 2 July 2020].
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ECONOMICS
More than Just a Transition M by Lakshumie Saththiyan
Everyone’s Hungry Emissions from agriculture, forestry and land use account for around 25% of global greenhouse gas emissions, which is very similar to the level of emissions from fossil fuels (Blattner, 2020).
Workers in this sector are most vulnerable to climate change because environmental changes caused by global warming can directly affect food production, as well as their income. Of course, this rippling effect extends to the global food supply. Despite this grave threat posed to all our livelihoods, there are a lack of policies to control rising emissions. The COVID-19 pandemic has increased pressure on food production and the number of people that could fall into acute food insecurity could increase by 130 million as a result (Swiderska, 2020). Therefore, it is imperative that the rights of farmers are addressed along with new farming methods that ensure production follows a sustainable path.
Figure 1: Global greenhouse gas emissions by sector
aking changes are often difficult, but necessary. The Just Transition is a framework that encourages sustainable production to usher in a greener economy and achieve climate justice - it encompasses not only environmental issues but those of social and political relevance too. Climate justice looks at global warming holistically, and it is understanding that the muchneeded change can only occur by finding solutions outside a market-based approach that solely benefits corporations. Therefore, the Just Transition encourages workers to be more involved in the development process of agroecological innovations and further down the food system. Aligning with the UN’s 12th Sustainable Development Goal (responsible consumption and production), the Just Transition is a trade union movement and it facilitates the transition from an extractive economy to a regenerative one (Climate Justice Alliance, n.d.).
Photo credits: Iron & Earth (CC BY-SA) Putting it to Work A practice that has been around for the last century and recognised by larger institutions, is agroecology. The Food and Agriculture Organisation of the United Nations (FAO) define agroecology as “an integrated approach that simultaneously applies ecological and social concepts and principles to the design and management of food and agricultural systems” (FAO, 2018, p. 1). Soil and water conservation (SWC) is an agroecological method that became a huge priority for farmers and NGOs operating in Burkina Faso, West Africa. Not only did drought severely deplete the country’s vegetation and thus, food ECONOMICS | 15
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production, it also led to a decline in the population as out-migration (to find fertile land) increased. A variety of SWC methods were beginning to be used across farms in Burkina Faso in the early 1980s (Oakland Institute, 2015). These methods are just few ways that can be adopted into policies that follow a Just Transition. In the space of eleven years from 1985, the improvement in environmental conditions led to the population growing by 25%. Burkina Faso saw rising water tables that improved water availability and met demand despite the increasing population. This allowed farmers to achieve higher crop yields.
The Good Kind of Change Agroecology is beneficial in that it can be used to both adapt or mitigate climate change. Lower pesticide and fertiliser use diminishes soil degradation and erosion, whilst also reducing combustion of fossil fuels which is a key element of the fertiliser production process. In addition to this, afforestation and implementing agroforestry systems increases carbon sinks and avoids a loss in biodiversity (Anderson, 2019). In the long-run, this improves the growing times of produce and also the health of farmers since they work in a cleaner environment. What once was a traditional agricultural lifestyle has become agribusiness, and workers are having to supply
Figure 2: SWC Methods More developed regions tend to have a different approach to the framework, however. The European Commission under the European Green Deal, for one, are using the Just Transition mechanism as a means of bringing in investment and financial support of at least €1 trillion. This will be spent on climate action and will enable member states to develop sustainable projects. Their pledge of “solidarity and fairness” will bring about the emergence of clean energy for citizens, train workers with transferrable skills and support new businesses and SME’s in energy efficiency. Although the region is primarily in the tertiary sector, the deal aims to accomplish organic farming in a quarter of farmland and provide fairer returns to farmers (European Commision, 2020).
even more but with less returns. The reduced risk of crop failure through the implementation of agroecology, however, will increase production and crop yields, providing income security for workers throughout the agricultural production chain. The majority of policies currently in place tend to favour the powerful rather than the poor, the marginalised and those who work directly in agriculture. It is apparent that further measures must be implemented to ensure that vulnerable communities are protected and can become more resilient. The International Labour Office (ILO) have created guidelines to support those who are negatively affected by the sudden sweeping changes being nationally implemented and which are aimed at advancing towards sustainable development. It outlines that Just Transition policies should ensure participation at every level, so that all stakeholders have an input in the process (ILO, 2018, p. 3). ECONOMICS | 16
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All in all, the Just Transition framework can slowly lead to climate justice but it is a long-term project that must be considered by local farmers as well as national governments, and which mandates a strong collaboration between the two stakeholder groups. The framework is more than just a transition into applying more sustainable practices in agriculture; it is a structured pathway that encourages large organisations and governments to increase their green activity and smoothen their journey to this much-needed green, new reality. Figure 3: Unions protesting for a Just Transition. (Marc Kjerland / Flickr)
REFERENCES Anderson, T., 2019. Principles for Just Transition in Agriculture. [Online] Available at: https://actionaid.org/sites/default/files/publications/Principles%20for%20a%20just%20transition%20in%20agriculture_0.pdf Blattner, C. E., 2020. Just Transition for agriculture? A critical step in tackling climate change. Journal of Agriculture, Food Systems, and Community Development, 9(3), pp. 53-58. Climate Justice Alliance, n.d. Just Transition. [Online] Available at: https://climatejusticealliance.org/just-transition/ [Accessed 23 06 2020]. European Commision, 2020. Financing the Green Transition. [Online] Available at: https://ec.europa.eu/regional_policy/en/newsroom/news/2020/01/14-01-2020-financing-the-green-transition-the-european-green-dealinvestment-plan-and-just-transition-mechanism [Accessed 05 07 20]. FAO, 2018. The 10 Elements of Agroecology. [Online] Available at: http://www.fao.org/3/i9037en/i9037en.pdf [Accessed 24 06 2020]. ILO, 2018. Just Transition Towards Envionmentally Sustainable Economies and Societies For All. [Online] Available at: https://www.ilo.org/wcmsp5/groups/public/---ed_dialogue/---actrav/documents/publication/wcms_647648.pdf [Accessed 01 07 2020]. IPCC, 2014. Mitigation of Climate Change. s.l., Cambridge University Press. Oakland Institute, 2015. Soil and Water Conservation Techniques in Burkina Faso, s.l.: Oakland Institute & AFSA. Swiderska, K., 2020. Resilient food systems and COVID-19: lessons for a Just Transition. [Online] Available at: https://www.iied.org/resilient-foodsystems-covid-19-lessons-for-just-transition
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THE ENVIRONMENTAL COST OF INCOME INEQUALITY by Sania Zaffer
T
he systemic issue of income inequality has thrived in our society endlessly in the growing pursuit of profit. Stemming off factors like gender, race, class and wealth, this phenomenon has settled deeply in the crevices of our society, despite the countless pledges organisations have made towards dissolving it. Statistics display that the disparities in wealth and income are not only limited to developing countries and are prevalent globally, exemplified in how the richest 1% of citizens worldwide have double the amount of wealth as 6.9 billion people in the other 99% (Lawson et al, 2020). Even though it is targeted as a UN sustainable development goal, income inequality is not often considered to be a sustainability issue. While only a decade away from 2030 - the goal year that the United Nations has set for achieving its 17 development goals - not many steps have been undertaken towards reaching the target: an “inclusive, transformative economy”, and institutions are not held accountable for their lack of assertiveness. So the burning question remains; was this global partnership only formed to satiate public discomposure regarding the slumping state of world climate?
Though heavily discussed, how does income inequality rank on the severity scale? 50% of global emissions are caused by the richest 10% of the world population (Figure 2). However, when comparing countries individually, more equal countries like Japan and Germany are found to pollute less on average with all socioeconomic classes contributing towards higher sustainability. In parallel, poorer regions of countries are often more prone to droughts, floods and higher levels of pollution, alluding that those who contribute the least to unsustainability are first to be
subjected to the dangers of it. Disadvantaged and discriminated groups find themselves living in high-danger areas like “lowelevation coastal zones” due to financial priorities (Neumann et al, 2015). While they can be more exposed to such climate hazards, when a calamity hits, they are less likely to recover from the negative impacts of it, further accentuating the level of inequality they face (Islam and Winkel, 2017). This creates a self-perpetuating, vicious cycle where inequality-caused damage further grows the inequality itself (Figure 1).
Figure 1: The Cycle Of Inequality And Environmental Damage (Islam And Winkel, 2017)
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Figure 2: Global Income Deciles And Associated Lifestyle Consumption Emissions (Oxfam International, 2015).
Figure 3: Correlation Between Inequality And Waste Generation (Dorling, 2014)
But why do countries with higher inequality face higher levels of unsustainability? In such countries, societies hold high consumerist ideals, therein placing consumption and status on a pedestal. This consumption is often unsustainable in nature. For
example, a UK survey sampling 2000 women reveals that on average, the majority of clothes bought are only worn seven times before being discarded (Mail Online, 2015). These ideals not only lead to citizens working 400 hours more each year to cater
to these demands, but it also correlates less-equal countries with the production of high amounts of waste as shown in Figure 3. These are not the only costs of consumerism, however. Higher levels of CO2 emissions are experienced due to overconsumption. In the US, emissions per person are twice as high compared to the Japanese and three times as much as the French. These results arise from individual lifestyles in well-off countries that lead to greater energy waste, such as heating homes more and taking more flights (Dorling, 2017). It may seem apparent that these consumption-centric habits are profitable for companies - so why should businesses care? Waves of inequality have widened the gap between the rich and the poor, which may consequently evaporate the middle class. This can lead to the dissolvement of many businesses that are targeted towards them. Hence, businesses should put their best foot forward to aid the formation of a healthy economic ecosystem where sustainability and profitability are balanced. As established, unsustainable methods need to be ubiquitously dismantled from all socioeconomic classes. This would include
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ECONOMICS incentivising rich people into lowering their carbon footprint through sacrificing aspects of their lifestyle and employing sustainable corporate practices. For the lower socioeconomic classes, this effort could be lowering the prices of greener goods. Another method that would directly target the consumerist ideals that these inequitable countries hold is remoulding social norms. A Harvard Business Review article on green consumers mentions the desire of humans to fit in and conform to surrounding behaviours. Through social nudging, their motivations can be leveraged towards forming sustainable, longterm habits and growing a green community. Merely encouraging one habit can induce a domino effect and convince a greater proportion of consumers to engage in more such initiatives (White et al, 2019). Overall, inequality is correlated with damaging levels of emissions and waste which are a result of consumerist societal values. These hazards ironically form a cycle of self-perpetuating inequality. This vicious cycle needs to be broken at one stage: either by decreasing the impacts of these ‘lifestyle choices’ or by decreasing the inequality at its root. It should be noted that diminishing inequality is a process that requires institutional and political changes which could take innumerable years, despite the SDGs’ target deadline rapidly approaching.
Due to the Covid-19 pandemic, the attention on the SDGs may lag further as countries focus on reviving their economies from deep recessions. However, the UK has seen this as an opportunity to form a sustainability-focused recovery plan. The government has just released a £2bn green home grant which will go towards making households more energy efficient and save on energy bills (Giordano, 2020). Knowing that the UK’s economy is amongst one of the worst hit, it would be intriguing to witness whether the amalgamation of sustainability and macroeconomic growth policies can necessitate the level of growth required to recover from the recession.
References Dorling, D., 2014. Inequality And The 1% By Danny Dorling. [online] Available at: <http://www.dannydorling.org/books/onepe rcent/> [Accessed 17 July 2020]. Dorling, D., 2017. Is Inequality Bad For The Environment?. [online] the Guardian. Available at: <https://www.theguardian.com/inequality/2 017/jul/04/is-inequality-bad-for-theenvironment> [Accessed 17 July 2020]. Giordano, C., 2020. How Can Government’S Green Money Help Me Insulate My House?. [online] The Independent. Available at: <https://www.independent.co.uk/news/uk/p olitics/green-homes-grant-funding-rishisunak-vouchers-a9608906.html> [Accessed 17 July 2020]. Islam, S. and Winkel, J., (2020). Climate Change And Social Inequality | Multimedia Library - United Nations Department Of Economic And Social Affairs. [online] Un.org. Available atL a<https://www.un.org/development/desa/p ublications/working-paper/wp152> [Accessed 17 July 2020]. Lawson et al. (2020) Time To Care | Oxfam International. [online] Available at: <https://www.oxfam.org/en/research/timecare> [Accessed 12 July 2020]. Mail Online. (2015). Women Who Ditch Clothes They've Worn Just Seven Times. [online] Available at: <https://www.dailymail.co.uk/femail/article -3117645/Women-ditch-clothes-ve-wornjust-seven-times-Items-left-shelf-buyerfeels-ve-weight-ve-bought-whim.html> [Accessed 17 July 2020]. Neumann, B., Vafeidis, A., Zimmermann, J. and Nicholls, R., (2015). Future Coastal Population Growth And Exposure To SeaLevel Rise And Coastal Flooding - A Global Assessment. Oxfam International. (2015). Extreme Carbon Inequality | Oxfam International. [online] Available at: <https://www.oxfam.org/en/research/extre me-carbon-inequality> [Accessed 17 July 2020]. White, K., Hardisty, D. and Habib, R., (2019). The Elusive Green Consumer. [online] Harvard Business Review. Available at: <https://hbr.org/2019/07/the-elusivegreen-consumer [Accessed 17 July 2020].
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TACKLING THE 2 CS - COVID-19 AND THE CLIMATE CRISIS
INSIGHTS FROM BEHAVIOURAL ECONOMICS
T
he immediate urgency of the coronavirus pandemic is causing many climate change advocates to wonder what our response to this public health crisis tells us about our ability to reduce greenhouse gas emissions. The UK government’s own climate change advisors state that only 38% of emission cuts will come from technological change; the majority will need to come from societal and behavioural changes. What lessons do we have to learn and what insights does behavioural economics have to offer in rising to the challenge of these two crises? The worldwide lockdown, which has seen approximately three billion people under some form of restriction, has led to global energy demand being predicted to fall by 6% (IEA, 2020), a decline seven times greater than that in the 2008 financial crisis. The most relevant question, really, is: will the lifestyle changes that facilitated this fall persist as government restrictions are lifted? Will status quo bias - the preference for the current state of affairs – help these lifestyle changes stay in the long term? Aviation emissions may stay low for years as people prefer local tourism either to support local industries or avoid health risks. However, once COVID-19 passes, carbon-intensive private transportation will pick up and, in a worst-case scenario, could even
by Janina Gleed exceed pre-COVID-19 levels if fears of virus transmission hold people back from using public transport.
Lessons From Behavioural Economics To derive behavioural lessons from the coronavirus pandemic for climate change mitigation, let’s consider how the two crises compare. The perceived ‘psychological distance’ between humans and climate change is a key difference to coronavirus, with the negative impacts of climate change being perceived as more distant in time, space and likelihood than coronavirus infection (Wang et al., 2019). Several studies show this
danger being that while COVID-19 infections grow exponentially, the greenhouse gases driving global warming do so in complex and highly nonlinear ways that can result in tipping points. Secondly, the delay in impact of any action or inaction makes it hard to learn from experience (Weber, 2020). Thirdly, the costs to reduce the severity of both crises are incurred now and for certain while the benefits accrue only in the future and with some uncertainty. As such, public perception of climate change as abstract, distant and with uncertain consequences undermines climate action.
So, What Does All This Mean
to have a negative correlation with
For Climate Change Solutions?
public concern, yet a key driver for
Getting people to adopt behaviours that reduce costs for the environment requires a multifaceted approach. Four key objectives aligned with this goal serve as signposts: we need to get people’s attention, engage their desire to contribute to the social good, make complex information more accessible, and facilitate accurate assessment of risks, costs, and benefits (Yoeli et al., 2017). As shown in Figure 1, many tools contribute to these objectives: from choice architecture interventions (e.g. establishing defaults, adapting frames, limiting options) to communication (e.g. giving timely feedback) and persuasion methods (e.g. utilising
urgent, societal level change is increased
public
support
and
willingness to engage in individual climate action. The two crises also differ in three major psychological risk
dimensions:
perceived
controllability, dread, and risk (Constantino et al., 2020) with climate change scoring higher in “perceived controllability” whereas COVID-19 elicits higher levels of dread (Fox-Glassman & Weber, 2016). Yet both crises also exhibit several parallels. Firstly, the costs of delaying action are seriously underestimated for both crises (Kunreuther & Slovic, 2020); the
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ECONOMICS risk and controllability of climate change. The existence of practical, cost-effective behavioural tools proves that behavioural economics can boost climate mitigation behaviour and can serve as a useful complement to traditional regulations.
References
Figure 1: Behavioural Tools and Objectives (Yoeli et al, 2017) social norms, encouraging commitments). While getting people’s attention (the first objective) appears not to be an issue for COVID-19, it seems to be the case for climate change, given its much greater psychological distance. The other three objectives are equally useful to direct individual and policy responses to COVID-19. Communicating social norms about social distancing rules and the wearing of face masks (tool 11) will be important as the economy slowly reopens (Weber, 2020). Since this behaviour is highly observable (tool 10), these individual behaviours will be enforced by society, however it is important to highlight the consequences people care about (tool 7), such as protecting their family from virus transmission, to effectively incentivise these behaviours.
Similarly, at the time of panicbuying, peer-generated and enforced norms of fairness and equity would have proved potentially more beneficial than individual store regulations (Weber, 2020). Social norms have also been found to lead to tipping points in behaviour (Nyborg, 2017) and so are proving popular as a tool to incentivise climate action.
Moving Forward Tackling the long-term climate emergency will not come from shutting down the economy, as coronavirus has done, but from restructuring systems to enable people to live in a low-carbon way. Understanding the possible link between psychological factors and support for climate action is therefore important since it may provide insights into ways in which climate change communicators can reduce the perceived distance,
Constantino, S., Cooperman, A., Keohane, R., & Weber, E. (2020, May 8). COVID-19 and climate change pre-registration. Retrieved from https://osf.io/u4cea. Constantino, S. M., Wijermans, N., Weber, E. U., & Schlüter, M. (2020). Behavior in context: Towards a selection and taxonomy of behavioral theories for socio-ecological systems research. Under review, Sustainability Science.Fox-Glassman, K. T., & Weber, E. U. (2016). What makes risk acceptable? Revisiting the 1978 psychological dimensions of perceptions of technological risks. Journal of Mathematical Psychology, 75, 157-169. IEA. (2020). Global Energy Review 2020. IEA. Kunreuther, H., Gupta, S., Bosetti, V., Cooke, R., Dutt, V., Ha-Duong, M., Held, H., Llanes-Regueiro, J., Patt, A., Shittu, E., & Weber, E. U. (2014). Integrated risk and uncertainty assessment of climate change response policies. In O. Edenhofer, R. Pichs-Madruga, Y. Sokona, E. Farahani, S. Kadner, K. Seyboth, A. Adler, I. Baum, S. Brunner, P. Eickemeier, B. Kriemann, J. Savolainen, S. Schlömer, C. von Stechow, T. Zwickel, & J. C. Minx (Eds.), Climate change 2014: Mitigation of climate change. Contribution of Working Group III to the fifth assessment report of the Intergovernmental Panel on Climate Change (pp. 151-205). Cambridge, UK: Cambridge University Press. Weber, E. U. (2020) Behavioural Economics Guide 2020. Yoeli, E., Budescu, D. V. Carrico, A. R., Delmas, M.A., DeShazo, J. R., Ferraro, P. J., Forster, H. A., Kunreuther, H., Larrick, R. P., Lunell, M., Markowitz, E. M., Tonn, T., Vandenbergh, M. P. & Weber, E. U. (2017). Behavioural science tools to strengthen energy and environmental policy. Behavioural Science and Policy, 3, 69-79.
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T
WHY CIRCLES ARE ‘IN' THIS SEASON
he fashion industry has been head over heels for lines in the past 20 years – production lines to be exact. As of 2020, the fashion industry is valued at over $1.5 trillion (Statista, 2020), and employs approximately 300 million globally (Fibre2Fashion, 2018) – that’s 1 in 6 of all workers. This runaway success began in the mid-2000s, when businesses switched from the traditional low sales volume, high cost system with 4 fashions seasons per year, to high sales volume at low costs. High street retailers, e.g. H&M, Zara, and Topshop led the charge. Suddenly, 4 seasons a year became 52 ‘micro-seasons’, as trends changed weekly and both consumers and producers were pressured to keep up. Nowadays, the average person buys 60% more clothes than 20 years ago, whilst the average lifespan of a garment has dropped by 36% (McKinsey, 2016). A new culture began, one of advertising and consumption. Consumers got prestige and a deluge of clothes whilst producers got profits – a win-win on first appearance. This encapsulates the fast fashion business model, which had linear production at its core, as the fashion industry’s darling. Linear production has another name: the ‘take-makewaste’ system, and it is every bit as
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by Dominique Gomez
Figure 1: H&M, One Of The Most Well-Known High Street Retailers (Shutterstock, 2019) callous as the title suggests. Every stage of the production line is rife with exploitation and ensuing negative externalities. Polyester is found in 60% of all clothing, which releases 2 to 3 times as much CO2 as cotton (Greenpeace, 2016). Cotton production itself is responsible for the emission of 220 million tons of CO2 annually (The World Counts, 2020). In addition, 35% of all microfibres polluting the oceans come from synthetic textiles like polyester (IUCN, 2017), which does not break down in landfill. Its alternative, cotton, is so water-intensive that it has led the fashion industry to be the 2nd largest consumer of water world-wide (UNECE, 2018).
In efforts to keep prices at rockbottom, huge fashion brands have turned to offshore manufacturing, where they are often the sole buyers of labour. Garment workers in developing countries endure gruelling hours and lifethreatening conditions for subpoverty pay, without power or protection. These examples are merely a few of an overwhelming number of environmental and social issues present in production. The biggest impact is yet to come, however.
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Figure 2: A Visual Representation Of The Linear Production Method (Ellen McArthur Foundation, 2017) Meanwhile, consumers face pressurising directives from advertising. Young people are told to ‘see it and buy it’ before the best outfits are gone, and are then told to ‘never wear an outfit more than once’ for fear of seeming unfashionable. So, naturally, the turnover speed for clothing is astronomical. It has led to greater pressures than ever for more intensive production, all for a one end-product: mountains of waste. Every second, approximately 1 dump truck full of clothing is burned or landfilled (UNEP, 2018). Overall, the industry’s annual emissions of 1.2 billion tonnes of GHGs (Motif, 2020) per year is 10% of total emissions globally (UNEP, 2018). Opaque supply chains and built-in obsolescence blinds billions to the fact that there is a false
economy - where one is deluded that value is being created. It is not a good look. Though, fashion tastes are still ever-changing and many are disillusioned with lines, presently, circles are now all the rage. A circle self-replenishes, its end becoming its beginning. Circular fashion, a microcosm of the circular economy, aims to mimic this in a circular, selfreplenishing production cycle. This way, the true value of all clothing is fully captured, at every stage of production. In fact, the Ellen McArthur Foundation (2017) estimates that if circular fashion is implemented, the fashion industry could regain $192 billion in value. In this new production system, ‘waste’ is phased out completely. Every part of the product becomes new raw material in its afterlife, either through direct recycling or
biodegradation to feed nature. The circle is more than merely recycling, however. A notable fact is that all inputs are from renewable sources without toxic by-products. Extraction must be sustainable and regenerative, whilst production must be entirely non-polluting and socially just. This focus on achieving the social optimum is particularly revolutionary in terms of use. The goal is to make garments as durable as possible, to be worn again and again. Clothes should be repaired or remade in order to extend its lifespan. Once an individual has finished their personal usage, the item should be resold to other
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buyers, swapping hands should occur until its final days. Then, when it can be used no more it is recycled back into raw materials and the circle begins yet again. In a world where currently only 1% of clothing is recycled into new clothes (Common Objective, 2019), this is a radical change. It requires a complete restructuring of the fashion industry, keeping growing recycling and repair markets central to it. Luckily, both new and
old players are trailblazers in this area. Companies such as the RealReal and Patagonia are revolutionizing the resale and repair markets for consumers. The Ellen McArthur Foundation has launched the ‘Make Fashion Circular Initiative’ to foster collaboration towards circular fashion between industry leaders. Numerous top brands have joined the initiative, such as Stella McCartney, Burberry and and Adidas, signalling the beginning of a major shift in the
industry. Younger players are driving change as well. New brands such as Rapanui and Thousand Fell have achieved the Cradle2Cradle certification, which credits firms using circular design (Vogue, 2019). However, for creative destruction to truly defeat linear production, indubitably, there must be demand-side change. It’s visibly up to consumers to ‘slow fashion down’ and change their relationship with clothing – so make sure to shop circular.
Figure 3: The Principles Of Circular Production (Common Objectives, 2017) ECONOMICS | 25
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Figure 4: A Comparison Of Different Production Methods (Global Fashion Agenda)
References Common Objective. 2019. What Is Circular Fashion?. [29 June 2020 online] Available at: <https://www.commonobjective.co/article/what-is-circular-fashion> [Accessed 18 June 2020]. Ellen MaCarthur Foundation. 2017. [online] Available at: <https://www.ellenmacarthurfoundation.org/assets/downloads/ANew-Textiles-Economy_Summary-of-Findings_Updated_1-1217.pdf> [Accessed 27 June 2020]. Farra, E., 2019. The Future Of Fashion Is Circular: Why The 2020S Will Be About Making New Clothes Out Of Old Ones. [online] Vogue. Available at: <https://www.vogue.com/article/sustainability2020s-circular-fashion-textile-recycling> [Accessed 27 June 2020]. Fibre2fashion.com. 2020. Fashion Industry Employs 300 Mn Workers Globally: Report. [online] Available at: <https://www.fibre2fashion.com/news/apparel-news/fashionindustry-employs-300-mn-workers-globally-report-242435ewsdetails.htm> [Accessed 10 July 2020]. Greenpeace. 2016. [online] Available at: <https://storage.googleapis.com/planet4internationalstateless/2018/01/6c356f9a-fact-sheet-timeout-for-fastfashion.pdf> [Accessed 26 June 2020].
McKinsey. 2016. [online] Available at: <https://www.mckinsey.com/business-functions/sustainability/ourinsights/style-thats-sustainable-a-new-fast-fashion-formula> [Accessed 29 June 2020]. MOTIF. 2020. Moving Towards A Circular Fashion Economy MOTIF. [online] Available at: <https://motif.org/news/circularfashion-economy/> [Accessed 29 June 2020]. Portals.iucn.org. 2017. Primary Microplastics In The Oceans | IUCN Library System. [online] Available at: <https://portals.iucn.org/library/node/46622> [Accessed 26 June 2020]. Statista. 2020. Value Of The Global Apparel Market 2005-2020 | Statista. [online] Available at: <https://www.statista.com/statistics/821415/value-of-the-globalapparel-market/> [Accessed 6 July 2020]. UN Environment. 2018. Putting The Brakes On Fast Fashion. [online] Available at: <https://www.unenvironment.org/news-andstories/story/putting-brakes-fast-fashion> [Accessed 26 June 2020]. Unece.org. 2018. [online] Available at: <https://www.unece.org/fileadmin/DAM/RCM_Website/RFSD_2018 _Side_event_sustainable_fashion.pdf> [Accessed 26 June 2020].
ECONOMICS | 26
ECONOMICS
The Green New Deal
THE GREEN NEW DEAL VS. VEGANISM
You may have heard of The Green New Deal. It is similar to President Franklin D. Roosevelt’s New Deal - a series of domestic programs, regulations and public work projects, introduced during the Great Depression era of the 1930s to tackle the economic recession (Wall, 2016). The Green New Deal is a 21st Century upgrade - introduced by Representative Alexandria OcasioCortez in the US House of Representatives and Senator Ed Markey in the US Senate. This transformative congressional resolution aims to address the climate crisis, as well as systemic inequalities and injustices in society.
by Keval Shah
Veganism
This includes protecting vulnerable communities already bearing the brunt of environmental degradation – ethnic minorities, indigenous populations and the poor – through including these groups in the planning processes to benefit from a greener economy. Through bold policies of investment and regulation, it transforms America's economy away from reliance on fossil fuels and nonrenewable resources, towards sustainable, renewable sources of energy, in addition to investments in zero-emission transport, healthcare, and housing, as well as public ownership of utilities.
An alternative practice surging in popularity to tackle the climate crisis is the adoption of veganism. Going vegan was the biggest food trend in 2018 (Food Revolution, 2018) with almost half of UK vegans (42%) making the change in 2018 – this demonstrates that veganism is growing at an exponential rate (Vegan Trade Journal, 2018). Veganism is a form of living which aims to exclude the exploitation and harmful treatment of animals as far as is both practical and possible, through various practices including diet and clothing (The Vegan Society). In the UK, orders of vegan meals grew by 388% between 2016 and 2018 (Food Navigator, 2019). Mainstream veganism is a consumerbased strategy – individual choices of consumers to switch their diets from animal to plant-based. This varies across our diet (The Guardian, 2019) – including switching from meat-based to soy-based alternative main meals and from dairy to non-dairy milks, as shown (Figures 2 and 3). So, where does this emergent trend of veganism tie into all of this? Whilst veganism is surging, livestock production has also increased massively – the tonnage of pigs produced has increased by 4 and a half times between 1961 and 2013, whilst chicken production has grown by almost 13 times (Vegan Society).
Figure 1: Alexandria Ocasio-Cortez, Democratic Representative from New York, and Ed Markey, Democratic Senator from Massachusetts, Introduce Their Green New Deal Resolution on 7 February 2019 (The Guardian, 2019)
ECONOMICS | 27
ECONOMICS
Animal agriculture has increased; consequently, demand for crops have significantly increased to feed these animals – this increased demand
for
land
leading
to
deforestation, land degradation and endangered
species
facing
extinction. One study found that a vegan diet could be the single biggest
way
to
reduce
your
environmental impact on earth, reducing an individual’s carbon footprint from food by up to 73% (Nemecek and Poore, 2018). There is a direct impact of cows producing and release methane into the atmosphere – one of the most potent greenhouse gases; 23 times more harmful than CO2 (CFAES, 2017). There is also a significant impact on water usage – it is estimated that a meat eater consumes at least 3 times the amount of water compared to a vegan. This is because animal products are incredibly resourceintensive, as shown in Figures 4 and 5. Veganism could significantly reduce food’s land-use by 76% and food’s greenhouse gas emissions by 49% (BBC Food, 2018). This could help to protect endangered species as well as enable large-scale reforestation. Two Paths Forward The Green New Deal approach is very much focused on government intervention to transform the economy – through investment in renewable energy and public ownership of utilities, as well as increased government regulations
Figure 2 - The Rising Popularity Of Plant-Based Milks With One In Four Drinking Non-Dairy Milks, Including Soy, Almond and Oat. (Yahoo, 2019)
(The New York Times, 2019). Vegans, on the other hand, actually offer a much more free-market friendly approach – working through the basic laws of supply and demand. Significant spikes in demand for plant-based foods and meals haven't gone unnoticed, with food shops and restaurants responding with a huge increase in supply for these alternatives. As supply for vegan food increases, this greater choice and availability will continue to raise demand, thus the cycle continues. Equally, veganism and the Green New Deal can also complement each other in many ways - both require mass social participation and offer systemic solutions (Le Monde Diplomatique, 2019). Both these factors will be necessary in our global attempt to address the common cause of protecting our environment and tackling the climate crisis. If there is one thing vegans and climate activists can agree on it is that the status quo is an unacceptable offer, and change
Figure 3 - The Growing Demand For Plant-Based Meatless Protein Options With The Innovation Of 'Impossible Burgers.' (Food Service , 2019)
is desperately needed one way or another, and our planet cannot wait.
If there is one thing vegans and climate activitists can agree on it is that the status quo is an unacceptable offer.
ECONOMICS | 28
ECONOMICS
Figure 4 – Depicting The Varying Water Use (Litres) Needed For Different Food Produce – 1kg Beef, 1kg Potatoes And 1kg Tomatoes (Vegan Society)
References BBC Food. ‘Vegan v flexitarian – which will save the planet.’ Available at: https://www.bbc.co.uk/food/articles/vegan_ vs_flexitarian [Accessed Online: 3rd July 2020] DeMartini, A. 2017. ‘Reducing the Environmental Impacts of Cow’s Waste.’ CFAES. Available at: https://cfaes.osu.edu/news/articles/reducing -the-environmental-impact-cowswaste#:~:text=COLUMBUS%2C%20Ohio%20 %E2%80%94%20No%20disrespect%20to,pro duce%20a%20lot%20of%20gas.&text=With% 20every%20episode%20of%20gas,greenhous e%20gas%20in%20car%20emissions [Accessed Online: 2nd July 2020] Duktiewicz, J. 2019. ‘What the Green New Deal will mean for your hamburger.' The Guardian. Available at: https://www.theguardian.com/commentisfre e/2019/mar/07/green-new-deal-clean-meathamburger Accessed Online: 1st July 2020] Holden, E. 2019. ‘What is the Green New Deal and how would it benefit society.’ The Guardian. Available at: https://www.theguardian.com/usnews/2019/feb/11/green-new-dealalexandria-ocasio-cortez-ed-markey [Accessed Online: 1st July 2020] Morrison, O. 2019. ‘Vegan meals are ‘UK’s fastest growing takeaway choice.'
Figure 5 – Comparing The Carbon Dioxide Emissions, Land Use And Water Use Of 1 Litre Cow’s Milk Compared With 1 Litre Oat Oilk (Switch4Good, 2020)
Food Navigator. Available at: https://www.foodnavigator.com/Article/2019 /09/02/Vegan-meals-are-UK-s-fastestgrowing-take-away-choice [Accessed Online: 3rd July 2020] Nemecek, T., Poore, J. 2018. ‘Reducing food’s environmental impacts through producers and consumers.’ Available at: https://science.sciencemag.org/content/360/ 6392/987 [Accessed Online: 2nd July 2020] Oberst, L. 2018. ‘Why the Global Rise in Vegan and Plant-Based Eating Isn’t A Fad (600% Increase in U.S. Vegans + Other Astounding Stats).' Food Revolution Network. Available at: https://foodrevolution.org/blog/veganstatistics-global/ [Accessed Online: 6th July 2020] Selwyn, B. 2019. ‘Combatting climate change: veganism or a Green New Deal.’ Le Monde diplomatique. Available at: https://mondediplo.com/outsidein/veganism -or-a-green-new-deal [Accessed Online: 2nd July 2020] Specter, F. 2019. ‘Quarter of Brits are drinking plant-based milks, but are the dairy-free alternatives healthier?’ Yahoo! Style. Available at: https://uk.style.yahoo.com/plant-basedmilks-are-milk-alternatives-healthier092524708.html [Accessed Online: 2nd July 2020] Switch4Good. 2020. ‘Planetary Reponsibility.’ Available at:
https://switch4good.org/ [Accessed Online: 8th July 2020] The Vegan Society, 2020. ‘Why go vegan?’ Available at: https://www.vegansociety.com/govegan/why-go-vegan [Accessed Online: 2nd July 2020] Vegan Trade Journal, 2018. ‘Almost Half Of UK Vegans Made The Change In The Last Year, According To New Data.’ Available at: https://www.vegantradejournal.com/almosthalf-of-uk-vegans-made-the-change-in-thelast-year-according-to-new-data/ [Accessed Online: 1st July 2020] Wall, W. L. 2016. ‘The New Deal.’ Oxford Research Encyclopedias. Available at: https://oxfordre.com/americanhistory/view/ 10.1093/acrefore/9780199329175.001.0001/acr efore-9780199329175-e-87 [Accessed Online: 3rd July 2020]
ECONOMICS | 29
ECONOMICS
CAN WE LEARN TO EMBRACE THE D UGHNUT? HOW THE COVID-19 CRISIS HAS AMPLIFIED OUR NEED TO ADOPT A NEW ECONOMIC MODEL by Marina Symington
What is "Doughnut Economics" Since the birth of economics, conversations about growth and development have been centred around GDP and GDP growth. Many criticise this fixation on GDP and believe that we need a new way of thinking when it comes to understanding the global economy. Economist and author, Kate Raworth, proposes “Doughnut Economics”. Her model, depicted below, illustrates the economy with two rings. The inner ring is our “social foundation” and represents the minimum basic needs of humans. Factors considered to be our basic needs include access to food, water and housing as well as education, income and gender equality. The outer ring is our “ecological ceiling” and represents our planetary boundaries, as identified by scientists (Rockström, et al., 2009). This includes factors such as climate change, air pollution and ocean acidification. Our aim when engaging in economic activity should be to remain between these two rings. Where basic human needs are not met, we are falling
Figure 1: The Doughnut (Raworth, 2017)
operating
months; but what was the global
beyond our planetary boundary, we
outlook at the beginning of 2020?
short;
where
we
are
are overshooting (Raworth, 2017).
The Problems With Pre-Crisis Operations World-wide lockdowns have all but
Before countries’ borders were closed and financial markets had collapsed, 2020 was set to “define the habitat of humanity and many other species” (Bennet,
2020).
To
limit
global
warming to just 1.5°C above pre-
halted production on a range of
industrial levels, we need to cap total
goods and services over the last few
CO2 emissions at 400Gt. In 2020
ECONOMICS | 30
ECONOMICS alone, we are on track to produce 40Gt CO2. This means that, at the current rate of emissions, we will reach 400Gt of emissions in just 10 years. Without drastic change, therefore, we are set to experience more than the ideal 1.5°C. In fact, by 2050, average global temperatures could have increased by as much as 3-5°C (Rogelj, et al., 2019). This is just one example of how we are pushing (or perhaps even crashing through) our planetary boundaries. Meanwhile we are also falling short of our social foundation. 785 million people across the globe do not even have access to a basic drinking-water service (WHO, 2019) and in 2018, 9.2% of the world’s population were “exposed to severe levels of food insecurity” (FAO, et al., 2019). It is clear from these statistics that our current model does not result in the “environmentally safe and socially just space in which humanity can thrive” that exists inside the doughnut (Raworth, 2017). The traditional socioeconomic urge to seek a return to ‘normal’ during our recovery phase is not ideal when the pre-crisis outlook was undesirable. Why would we want to return to a society that is simultaneously stretching our planetary boundaries and failing to provide basic human needs? Covid-19 has offered us an opportunity to change. In tackling the roots of the pandemic, we must abandon the idea that “limitless growth in consumption and production” are the way forward (Bennet, 2020).
What Does The Doughnut Model Look Like For Policymakers? Raworth’s “doughnut economics” is more than just a theoretical ideal. In April,
the
model
was
“formally
embraced by the municipality of Amsterdam as the starting point for public 2020).
policy
decisions”
Raworth
(Boffey,
worked
with
representatives of the city to scale down her model to produce a “city portrait”. One problem identified was the increasingly unaffordable housing market. A solution to this might be to simply build more housing, but does that fit with doughnut economics? Amsterdam’s carbon emissions are already 13% higher than in 1990 and the importing of building materials contributes to a
References Bennet, J., 2020. 'Reorienting the PostCoronavirus Economy for Ecologial Sustainability'. Journal of Australian Political Economy, Issue 85, p. page numbers needed. Boffey, D., 2020. ‘Amsterdam to Embrace 'Doughnut' Model to Mend PostCoronavirus Economy,’. The Guardian. FAO, et al., 2019. 'The State of Food Security and Nutrition in the World 2019. Safeguarding against economic slowdowns and downturns.', Rome: FAO. Raworth, K., 2017. Doughnut Economics: 7 Ways to Think Like a 21st-Century Economist. 1st ed. New York: Random House. Rockström, J., Steffen, W. & Noone, K., 2009. 'Planetary Boundaries: Exploring the Safe Operating Space for Humanity'. Ecology and Society, 14(2), p. 32. Rogelj, J. et al., 2019. 'Estimating and tracking the remaining carbon budget for stringent climate targets'. Nature, Volume 571, pp. 335-42. WHO, 2019. World Health Organisation. [Online] Available at: https://www.who.int/news-room/factsheets/detail/drinking-water [Accessed July 2020].
high proportion of these emissions. The deputy mayor of Amsterdam, Marieke van Doorninck, said that “the doughnut does not bring us the answers but a way of looking at [the problems]”. As such, they plan on ensuring that builders use recyclable, bio-based materials such as wood as much as possible, though regulation. It is initiatives like this that show that a new way of thinking is possible and how the Doughnut can be a helpful tool in sustainable
policymaking.
The
coronavirus pandemic called into question
so
many
aspects
of
individual’s lives; with that in mind, is a new and more sustainable economic model so drastic after all?
ECONOMICS | 31
Q&A David Tyler Chairman of The White Company
Interview
Discussing Retail, Covid-19 and Sustainability: An interview with David Tyler, Chairman of The White Company 12/06/2020 By Abdur Choudhury, President
Store space will be contracting over the coming years but I think what you will see is a ‘polarisation' effect.
Photo by Unsplash
As consumers have focused their spending on essential products as a result of the effects from Covid-19, there’s been a significant decline in foot traffic in brick-and-mortar stores with e-commerce playing a larger role in a retailers strategy. How was The White Company affected by this and how have you adapted to the ‘new normal’? The White Company had half of its sales online until Covid-19 came along where we then closed all our stores; since then, 100% of our sales have been online so that’s been a big change. Our overall sales are less than the previous year which is not surprising as all our 50 stores have been shut. But the fall is not that
more time at home during this period and people are spending more time thinking how they can renovate their home which has ultimately benefited The White Company. With strong resilience in online sales, do you believe this will bring the high-street closer to its end, or do you believe the joy of entering a shop will help to retain the highstreet?
significant because we’ve had tremendous growth in our traffic online which has been in clothing and all the home materials we sell. So although we haven’t been trading through our stores, our sales have only fallen modestly relatively to last year. With e-commerce, we have a good online experience already but we’ve tried to make it deeper with an editorial online explaining more on what The White Company does and explaining all our products more to make it more interesting. Investments have been made in our social media outlets to bring traffic to the site and to generate sales, and I’m sure other companies are doing the same. Inevitably, more people are spending
Consumers will still be keen in visiting their most attractive shopping centres and high streets. The most successful shopping centres such as Bullring in Birmingham or Westfield in London will continue to grow as they have everything there; shop keepers will want to be there because of the footfall and individuals will be increasing the footfall as everything is there so it is a virtuous cycle if you like. That is the good part of the ‘polarization effect’, but on the other hand in more and more high-streets, in particular secondary towns, there will be far fewer shops there as it won’t be profitable to operate there. People in small towns will either tend to drive to the large shopping centres if they want to touch products, or they’ll use online more. So I think there will be this ‘polarization effect’ where there will be less retail capacity, with fewer stores, less space and with digital offerings online. Do you believe UK retailers would return to the old ways and resume operations as normal after the Government lockdown? For example, consumers in China were coming out of lockdown and INTERVIEW | 33
Interview
Photo by Unsplash
displaying pent-up demand where sales were returning to pre-lockdown levels; a similar thing happening with consumers in Italy. Well I think retailers will adapt and consumers will adapt their preferences, particularly those consumers who weren’t shopping much online before that have now been forced to do so during the lockdown. People are social animals, they like to go to places like shops very often with a friend or family member and have a social experience; a day out. They might go looking for a dress or have a cup of coffee in a restaurant which is all a form of experience which can’t be replaced online, as well as the fact you can touch and feel the objects that you’re buying which computers cannot replace, as of yet. So there is still merit to having facilities offline because of what it provides. From my understanding of Europe and Asia where shops have opened is that footfall has been lower than at the same time last year, but on the whole people have spent more on each visit.
People are now going shopping as a mission.
They want to go get that new dress, and not so much browsing as they were before. This is all early days but how it unfolds over the next few months, we don't know. Whilst you were at Sainsbury’s, was the transition to thinking sustainably a gradual process, or do you remember a specific event which forced companies to act fast? It has become more of a concern gradually throughout my life and is an issue that is more and more of a concern to me, particularly where I was the Chairman of Sainsbury’s where I became very conscious that [Sainsbury’s] were the second biggest buyer in the UK for food, clothing and other hard goods. It became increasingly clear the carbon footprint that [Sainsbury’s] were leaving, so in 2010 we set 20 targets for 2020 and a high proportion of those were associated with sustainability, particularly to do with carbon but also other forms such as agriculture. With the thoughts of my grandchildren and what their life would be like in the early 22nd century, I could see in my head that they would question my involvement in making a difference, and this has certainly re-energised me in helping the business go more sustainable.
INTERVIEW | 34
INNOVATION
Unlocking New Value
Urban Agriculture: Planting the Seeds for Future Generations by Maxine Miller
ALSO IN THIS SECTION
43
Hydrogen trains driving a green revolution
Photo by Markus Spiske
FEATURED
INNOVATION
AN URBAN CHALLENGE The announcements of national lockdowns as a result of Covid-19 prompted people worldwide to begin stocking-up on food, generating a shortage of numerous essential items. In this context, urban areas are particularly vulnerable due to their reliance on external sources and lengthy supply chains. Model of the ‘ReGen Villages’ Netherlands (EFFEKT, 2018).
vertical
farm
in
the
This is the case for the UK, where only 16% of fruit sold during 2019 was grown domestically, according to the UK Department for Environment, Food & Rural Affairs. As a result, the coronavirus pandemic has inevitably re-ignited the debate on whether we should implement more local food production to achieve a more sustainable world.
THE GLOBAL OUTLOOK The world is experiencing a sustained growth of urban populations (see figure 1). In 2018, the UN reported that 55% of the world’s population (including 74% of Europe) were residing in “urban areas.” This figure has continued to grow annually alongside global population, demanding a reconsideration of our global agricultural system, a need that has been identified by the UN Food and Agriculture Organization (FAO) since 2011. An increase in food production will be required to meet rising demand, but supply may falter due to climatic changes and finite land and water: resources that are already under pressure. It is evident that future agricultural methods must be more productive.
AN URBAN SOLUTION ‘Urban agriculture’ (UA), defined by the UN FAO as “an industry that produces, processes and markets food...within a town, city or metropolis" (Smit et al. 2001), could be a remedy to these threats. Whilst land scarcity is one of the biggest challenges faced by cities worldwide, this has not proven to be a hindrance for urban farmers, who have turned to creative spaces such as rooftops, terraces, roadsides and
“an industry that produces, processes and markets food…within a town, city or metropolis.."
Figure 1: Ritchie, H. (2018) - "Urbanization". Published online at OurWorldInData.org. Retrieved from: 'https://ourworldindata.org/ urbanization' [Online Resource]
buffer zones to grow their crops. Vertical farming, where plants are grown hydroponically or aeroponically, is another solution to combat the limited space in urban zones. These systems are not only more water efficient and produce higher yields than soil-dependent farms (Marginson, 2010), but can also be designed to produce crops year-round (Brechner & Both, 2013). Some of the world’s largest vertical farms are already based in Europe, such as ‘Intelligent Growth Solutions’ in Dundee. Although this farm is strictly for research purposes, the Scottish company began donating its produce to vulnerable people during Covid-19 (Milne, 2020), demonstrating how local food production can
55% of the world's population residing in urban areas as of 2018
FROM THE COVER: URBAN AGRICULTURE | 36
FEATURED
INNOVATION
benefit communities during volatile times.
Is there a Future for Urban Farming?
UA has also been able to stimulate local economies via job creation and income generation, facilitated by the rising popularity of farmers markets and community-supported farming schemes (Halweil, 2002). These ventures can provide opportunities for vulnerable groups. For example, a project in Brisbane, Australia employs young people to collect food waste from restaurants surrounding the city’s urban farms. The waste is then used to make compost to grow more food, which is subsequently supplied back to the restaurants (Wilson, 2002). Through the reduction of waste, this initiative also lowers costs and logistical issues associated with waste disposal, a significant and growing concern for most cities.
Ultimately, if UA is to become a sustainable food source, governments and international institutions must support urban farmers along the value chain (Cabannes, 2012). Laws prohibiting UA must be reviewed and efforts should be made to engage local communities with relevant projects. These efforts will convert UA into a sustainable food source, rather than a recreational activity.
Is Urban Farming a Truly Green.. Although this agricultural innovation seems to be a promising advance towards sustainable food production, we must still overcome the challenges related to the true environmental contribution of these alternative farming methods. Despite hopes that UA will reduce emissions linked to food transportation, the climate-controlling systems (LEDs, humidity detectors and heating/ cooling devices) that are required may negate the intended energy savings if fossil fuels are used (Goodman et al. 2019).
...or even Realistic Solution? UA’s economic viability has also been questioned as bankruptcies across the industry are continuously announced, notably that of ‘FarmedHere’ in 2017, once the largest UA player in the US. Financing has been the major bottleneck for expanding the industry (Cabannes, 2012) and high production costs often force farmers to charge a price premium, making UA food inaccessible to low-income populations (Goodman et al., 2019). The value of UA evidently goes beyond meeting a portion of rising food demand, but the present cost remains too great to provide a viable economic alternative to conventional farming. Renewable energy sources would need to be incorporated to make urban-grown food more accessible to a wider demographic.
References:
Brechner, M. and Both, A., 2013. Hydroponic Lettuce Handbook: Cornell Controlled Environment Agriculture. New York: Cornell University. Cabannes, Y., 2012. Financing urban agriculture. Environment & Urbanization, [online] 24(2). Available at: <https://journals.sagepub.com/doi/full/10.1177/0956247812456126> [Accessed 10 July 2020]. EFFEKT, 2018. Regen Villages. [image] Available at: <https://www.effekt.dk/regenvillages> [Accessed 15 July 2020]. Goodman, W. and Minner, J., 2019. Will the urban agricultural revolution be vertical and soilless? A case study of controlled environment agriculture in New York City. Land Use Policy, [online] 83. Available at: <https://www.sciencedirect.com/science/article/abs/pii/S0264837718308202 > [Accessed 10 July 2020]. Halweil, B., 2002. Home Grown: The Case for Local Food in A Global Market. 1st ed. Washington, D.C.: Worldwatch Institute. Marginson, S., 2010. Aerofarms Urban Agriculture System - Less Space, Less Water and No Pesticides. [online] New Atlas. Available at: <https://newatlas.com/aerofarms-urban-agriculture/15371/> [Accessed 10 July 2020]. Milne, S., 2020. Vertical Farming Is Feeding the Hungry During Coronavirus Pandemic - The Courier. [online] Available at: <https://www.thecourier.co.uk/fp/news/local/dundee/1379807/dundeecommunity-groups-lend-a-helping-hand-during-coronavirus-pandemic/> [Accessed 10 July 2020]. Paris EXPO Porte de Versailles, 2020. The World's Largest Rooftop Urban Farm is Set to Open in Paris Next Year. [online] Available at: <https://www.renovation-portedeversailles.com/en/news/La-plusgrande-ferme-urbaine-en-toiture-au-monde-bientt-Paris> [Accessed 10 July 2020]. Reeves, J., Cheng, Z., Kovach, J., Kleinhenz, M. and Grewal, P., 2013. Quantifying soil health and tomato crop productivity in urban community and market gardens. Urban Ecosystems, 17. Ritchie, H., 2018. Urbanisation. Our World in Data. Available at: <https://ourworldindata.org/urbanization> [Accessed 25 July 2020]. Smit, J., Nasr, J. and Ratta, A., 2001. Urban Agriculture: Food, Jobs and Sustainable Cities. United Nations Development Programme. UK Department for Environment, Food & Rural Affairs, 2020. Horticulture Statistics 2019. UK Department for Environment, Food & Rural Affairs, [online] Available at: <https://assets.publishing.service.gov.uk/government/uploads/system/uplo ads/attachment_data/file/897063/hort-report-02jul20.pdf> [Accessed 10 July 2020]. United Nations Department of Economic and Social Affairs, 2018. 68% Of the World Population Projected to Live in Urban Areas By 2050, Says UN. [online] Available at: <https://un.org/development/desa/en/news/ population/2018-revision-of-world-urbanization-prospects.html> [Accessed 10 July 2020]. Wilson, G., 2002. Can Urban Rooftop Microfarms be profitable? UAMagazine.
FROM THE COVER: URBAN AGRICULTURE | 37
18
ATTIC | JANUARY 2016
INNOVATION
Shaping a Sustainable Future with Blockchain By Aditya Chauhan
Simple Blockchain Diagram (Department of Homeland Security (DHS), n.d.)
What is BLOCKCHAIN? Imagine a scenario where an individual must record each and every detail about their activities in a ledger, with one condition: once an activity is recorded it cannot be altered or deleted. The ledger created represents the most accurate footprint of the person’s activity. This is exactly what blockchain is: an incorruptible digital ledger of economic transaction which can be programmed to record not just financial transactions, but virtually everything of value (Golosova and Romanovs, 2018). The applications of blockchain will almost certainly drive industries and businesses globally towards a more sustainable path.
The Key to Supply Chain Sustainability? Despite their growing complexity, blockchain can drive the transition towards more sustainable supply chains. by facilitating the access of information, for example
regarding material flow, the technology can reduce the working capital tied up in the supply chain. In turn, this decreases the likelihood of administrative error and prevents costly supply chain frauds. The transparency and immutability of blockchains allows all parties in the supply chain to have access to highquality data, eliminating the need for any third-party intervention, therefore maintaining data integrity between agreed parties. When it comes to payment processing, blockchain promises to lower transaction costs, through the lowered rate of errors and absence of centralised verification systems. Leading experts say that huge multi-nationals like PwC could reduce financial services infrastructure costs between US$15 billion and $20 billion per annum by 2022 (Di Gregorio, 2017). This could significantly reduce costs faced by all parties involved in the supply chain.
INNOVATION | 38
18
A further benefit of incorporating this technology into global supply chains is the consequent streamlining of the chain for every stage: production, collection, transportation, arrival, and even disposal. A streamlined supply chain, like that of Walmart or Amazon, helps companies to optimise processes, generate new innovations, and increase productivity.
Applying Blockchain to the Real World
CAR LEASING is quite complicated. A major challenge faced by today’s leasing networks is that even though the physical supply chain is usually integrated, the supporting systems are often fragmented. Each party within the network maintains its own ledger, which can take days or weeks to synchronize (see Figure 2). By using a shared ledger on a blockchain network, every authorized participant can access, monitor, and analyse the state of the vehicle regardless of where it is within its life cycle (see Figure 3).
Figure 2 - Tracking vehicle ownership without blockchain (Gupta, 2020)
ATTIC | JANUARY 2016
INNOVATION
The Battle Against Counterfeit Goods Counterfeiting, a crime known for its devastating global economic impacts, also causes hidden damage to the environment, due to the unregulated manufacturing of products. Counterfeit chemical products are a prime example of this, which often do not comply with safety or environmental standards (OECD/EUIPO, 2019). Distinguishing authentic products from fake ones helps to combat counterfeiting and its subsequent environmental and economic repercussions. In 2014, counterfeit drugs provided approximately $75 billion in revenue to illegal operators, costing pharmaceutical companies an estimated $18 billion in lost profits (Gilbert, 2016). Blockchain technology helps to identify these fake products and any unethical suppliers and consumers early in the production and distribution processes. In the case of human rights and fair work, a clear record of product history helps buyers to be confident that goods being purchased are coming only from sources that have been recognized as being ethically sound (Welfare, A., 2020).
The Challenges of Blockchain Blockchain has also been widely criticised, particularly due to its immense energy consumption. The global power consumption for servers running the software for blockchain-operated Bitcoin is almost that of Switzerland (McCarthy, 2019), calling into question its promised environmental benefits. Many large companies have spent vast sums of money on the technology without much reward, but tangible examples of success are beginning to generate some movement. Some examples are JP Morgan’s peer-to-peer payments network, Interbank Information Network, which reduces payment delays and multinational travel company, TUI group, which recently invested ~€1Million into blockchain technologies, expecting annual savings of approximately €100 Million (Pegus Digital, 2017).
Final Remarks
Figure 3 - Tracking vehicle ownership with blockchain (Gupta, 2020)
It is clear that blockchain and its applications, especially to the supply chain, show promise for more sustainable (and more lucrative) business practices in the future. Given that the technology is relatively premature today, it might take some time before more companies around the world figure out how to successfully implement it in a way that is both profitable and sustainable.
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References: Department of Homeland Security (DHS), n.d. Blockchain and Suitability for Government Applications, s.l.: Available at <https://www.dhs.gov/sites/default/files/publications/2018_AEP _Blockchain_and_Suitability_for_Government_Applications.pd f.> Di Gregorio, M., 2017. Blockchain: A new tool to cut costs. [Online] Available at: <https://www.pwc.com/m1/en/mediacentre/articles/blockchain-new-tool-to-cut-costs.html> Gilbert, D., 2016. Blockchain Technology Could Help Solve $75 Billion Counterfeit Drug Problem. [Online] Available at: <https://www.ibtimes.com/blockchaintechnology-could-help-solve-75-billion-counterfeit-drugproblem-2355984> Gupta, M., IBM, 2020. Blockchain for Dummies. 3rd Edition ed. Hoboken: Wiley and Sons. Golosova, J. and Romanovs, A., 2018. The Advantages and Disadvantages of the Blockchain Technology. s.l., ResearchGate. JP Morgan, 2020. Largest Number of Banks to Join Live Application of Blockchain Technology. [Online] Available at: <https://www.jpmorgan.com/global/treasuryservices/IIN> McCarthy, N., Forbes, 2019. Bitcoin Devours More Electricity Than Switzerland. [Online] Available at: <https://www.forbes.com/sites/niallmccarthy/2019/07/08/bitcoi n-devours-more-electricity-than-switzerlandinfographic/#761e69421c0e> OECD/EUIPO, 2019. Trends in Trade in Counterfeit and Pirated Goods, Illicit Trade, OECD Publishing, Paris/European Union Intellectual Property Office. Available at <https://doi.org/10.1787/g2g9f533-en> Pegus Digital, 2017. Blockchain Technology: Recent Success Stories. [Online] Available at: <https://pegus.digital/blockchain-technologyrecent-success-stories/> Welfare, A., Forbes Technology Council, 2020. The Circular Economy And Sustainability Powered By Blockchain. [Online] Available at <https://www.forbes.com/sites/forbestechcouncil/2020/01/13/th e-circular-economy-and-sustainability-powered-byblockchain/#3e5c9931b8cf>
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INNOVATION
Floating Turbines: Taking Wind Power to Uncharted Waters By Alex Westwood The last decade saw incredible growth in the offshore wind industry, with global installed capacity now over 28 gigawatts – a staggering 13 times more than in 2009 (see figure 1). This has been driven by the need for zero-carbon energy, of which the strong and consistent winds at sea are a huge potential source. However, the continued expansion of offshore wind faces a major problem in deep waters. At greater depths, it becomes increasingly expensive to construct turbine towers from the ground to sea level. So far, offshore turbines have been mainly constructed in shallow waters, but 80% of potential offshore wind locations are over 60m deep (Musial, 2020). In these waters, fixed-bottom turbines are no longer economically viable. A new approach is needed: floating turbines. One of the biggest challenges to implementing floating wind power on a wide scale is finding and optimising the best design for turbines.
The Turbine Design Currently, a variety of different floating platform designs are being pursued, the three main ones being: spar buoy, semi-submersible and tension leg platforms (see figure 2). These designs have all seen use in the oil and gas industry, so have all been shown to be feasible.
Figure 2: Left to right: spar buoy, semi-submersible and tension leg turbine platform designs. (Ocean News, 2019).
Figure 1: Global offshore wind capacity (gigawatts) from 2009–2019. Data from Sönnichsen (2020)
"One of the biggest challenges to implementing floating wind power...is finding and optimising the best design" The spar buoy uses a tall, buoyant substructure to support the turbine. This is then weighted down at the base for stability and moored to the seabed to prevent it from drifting. As this design sits so deep in the water, it is much less affected by wind and waves at the surface. However, this also means that the design is only viable in very deep water - typically at least 100m (IRENA, 2016). Equinor, a Norwegian company, is at the forefront of spar buoy wind power development. They have experience of the technology from offshore oil and with total assets of $118 billion, are in a uniquely strong position for early investment. Their recent project, Highwind Scotland (see figure 3), is the world’s first full scale floating wind farm. It started electricity production in 2017 and has since been achieving significantly high capacity factors – greater than any other offshore wind farm in the UK (Smith, 2020).
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INNOVATION Figure 3: Spar Buoy Turbines at Hywind Scotland (Equinor, 2017).
The Market Leader Forecast to become the market leader by 2022 (Hannon et al, 2019), the semi-submersible platform design is both cost-effective and versatile. It has a similar design to the spar, but instead of a single large and deep pontoon, it uses multiple smaller ones. These are arranged around the turbine to provide a wide base, which gives it static stability and means less base-weighting is required. The structure sits high in the water, which makes assembly, transportation and installation all possible in shallower waters. That said, having so much of structure near the surface also means it is greater affected by wind and waves – which becomes more problematic in the rougher waters further out to sea. The tension leg platform again uses a buoyant substructure to support the turbine. But unlike the other designs, it is stabilised by the mooring cables, which are highly tensioned. This uses less material (as no base-weighting is required) and reduces wind and wave induced motion. They are more difficult to transport and assemble though, as they are inherently unstable until the cables are attached. Additionally, their feasibility is limited by seabed conditions, as the ground must have sufficient strength to resist the large upwards forces from the cables. These challenges partly explain why only one tension leg turbine has been constructed to date – a demonstration scale turbine, which operated for a year in 2008 (Hannon et al, 2019). However, companies like GICON are looking to overcome the challenges, and are working with universities and research groups across Europe on the design (GICON, 2018).
While floating wind is currently expensive, the cost is forecast to fall as more projects are completed and investment risk decreases. Industry experts predict floating wind will be price competitive with fixed-bottom offshore and natural gas by 2030, at about $0.05 per kWh (Musial, 2020). More innovation will certainly be occurring over this period too. Projects on multi-turbine floating platforms, platforms that also use wave or solar power generation, and better optimised turbine designs are just a few of the exciting things on the horizon for offshore wind.
References:
Equinor (2017). <https://www.equinor.com/en/news/worlds-firstfloating-wind-farm-started-production.html> GICON (2018). <http://www.gicon-sof.de/en/technical-solution.html> Hannon, M. Topham, E. MacMillan, D. Dixon, J. Collu, M. (2019). Offshore wind, ready to float? Global and UK trends in the floating offshore wind market. <https://strathprints.strath.ac.uk/69501/13/Hannon_etal_2019_Offshor e_wind_ready_to_float_global_and_uk_trends_in_the_floating_offshor e_wind_market.pdf> International Renewable Energy Agency (2016). Floating Foundations: A Game Changer For Offshore Wind Power. <https://www.irena.org//media/Files/IRENA/Agency/Publication/2016/ IRENA_Offshore_Wind_Floating_Foundations_2016.pdf> Musial, W (2020). NREL. <https://www.youtube.com/watch? v=58EYcYbRKqk&t=3045sN> Sönnichsen (2020). Statista. <https://www.statista.com/statistics/476327/global-capacity-ofoffshore-wind-energy/> Ocean News (2019). <https://www.oceannews.com/news/energy/floating-wind-technologyacceleration-competition-launched> Smith, A. (2020). UK offshore wind capacity factors. https://energynumbers.info/uk-offshore-wind-capacity-factors
Looking Ahead...
The next decade will likely see a mixture of all three designs being built in different situations, due to each turbine’s unique set of challenges.
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Changing Track with Hydrogen-Powered Trains By Tejas Hirani
The race to net zero is certainly on, causing a mounting pressure on countries to decarbonise their railways. Despite this, in 2016, 20% of Europe’s rail traffic was still coming from diesel trains (Railway Technology, 2016). Meanwhile, the UK, Estonia and Belgium, to name a few countries, are constantly finding loopholes within emissions regulations in the EU. Passengers are nine times more exposed to pollutants on diesel trains than on a busy city street (University of Toronto, 2017), prompting the question whether enough progress is being made towards decarbonisation and radical innovation. Diesel phase out plans may need to be accelerated, in order to mitigate its environmental impact. Governments must consider whether electrification is the best investment for the future, in order to speed up the diesel phase out.
Photograph by Alstom
When it comes to rail innovations, it is usually the fastest, longest and newest connections that draw the public’s attention. Germany definitely bucked that trend, constructing the world’s first hydrogen train, the Coradia iLint, in Cuxhaven in 2016. Hydrogen fuelled trains only release water vapour and therefore zero emissions, whilst making around seven to eight trips in the same time as a diesel train makes just one (Hirschlag, 2020). This is just the first of a growing new list of hydrogen trains globally. While the city may be rural and lesser known, it shares the same ambition of greener, scalable ideas in global cities, with significantly lower environmental damage than diesel trains. Of course, the transition requires substantial investment, but it is a big step in reducing the carbon footprint of railways. This is just the first of a growing new list of hydrogen trains globally. While the city may be rural and lesser known, it shares the same ambition of greener, scalable ideas
in global cities that they say will have a growing involvement in communities with a much lower environmental impact than diesel trains. Of course, it requires substantial investment, but is a big step in reducing the carbon footprint of railways.
The Science
Hydrogen trains are equipped with fuel cells that produce electricity through a combination of hydrogen and oxygen, a process that leaves steam and water as the only emissions, meaning the excess energy is stored in lithium ions on board the train (Imperial College, 2020). Each Coradia ILint train has one tank which contains a significant amount of fuel; hence, the innovations are very competitive with the conventional diesel train. Such trains have already replaced more polluting diesel engines from Belhaven to Bremervorde.
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The trains can run for approximately 600 miles on a single tank of hydrogen, matching the capacity of diesel trains (Hirschlag, 2020). This change corresponds with Germany’s radical plans to combat air pollution. Producing nothing but steam as a by-product, the motor will run far more quietly and cleanly than a diesel engine. The biggest challenge to hydrogen rail transportation is financial feasibility. A recurring problem is the cost of constructing hydrogen filling stations. By 2021, a fixed filling station will have been built in Bremervorde, at an estimated cost of €10 million, to be financed by the German government (Dixon, 2016). If French manufacturers were to complete 14 of these trains by 2021, the cost to the German government would easily exceed €100 million. It seems that there is a trade-off to be made by governments when developing a greener rail network: invest in the future or implement a temporary fix.
A further barrier to the large-scale implementation of hydrogen rail transportation is the electrification of railways, which can often prove to be a stumbling block. With the UK being one of the notable countries looking to follow Germany’s lead, the hurdle here is that for hydrogen trains to work, railways must be electrified in order for the phase out to happen (Scott-Quinn, 2019). A recent study by McKinsey showed that 58% of the UK track is not yet electrified, so diesel trains are still needed to keep these areas connected by rail (Hein & Ott, 2018). With this currently costing £750,000 per kilometre (Business Insider, 2017), a decision has to be made between the environment and affordability.
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INNOVATION
Finally, it is important to consider whether this progress can incentivise governments to transform their rail networks. Plans that are both sustainable and realistic for the future have grown with the UK’s growing green response. Former Transport Secretary Chris Grayling has talked of “retrofitting multiple diesel trains to facilitate the process” (Financial Times, 2018). In light of the UK’s 2040 target of eliminating diesel trains, will we soon see Hydrogen trains in big cities? Governments and organisations are still looking into whether this shift is truly environmentally beneficial and if the transition should be optional or compulsory for a sustainable green response.
“Sure, buying a hydrogen train is somewhat more expensive than a diesel train, but it is cheaper to run” - Stefan Schrank: Project Manager at Alstom References:
Alstom (2018), “Coradia iLint- the world’s first hydrogen powered train”, 1st September. <https://www.alstom.com/our-solutions/rolling-stock/coradia-ilintworlds-1st-hydrogen-powered-train> [Accessed 4 July 2020] Business Insider (2017), “Hydrogen powered trains to run on German rails by 2021”, 9th November. <https://www.businessinsider.com/ap-hydrogen-powered-trains-torun-on-german-rails-from-2021-2017-11?r=US&IR=T> [Accessed 6 July 2020] Dixon, S. (2016), “Transport in the Digital Age”, Deilotte Insights. <https://www2.deloitte.com/uk/en/pages/business-and-professionalservices/articles/transport-in-the-digital-age.html> [Accessed 6 July 2020] Financial Times (2018), “Diesel trains in UK to be phased out by 2040” <https://www.ft.com/content/026e3bc6-0f4e-11e8-940e-08320fc2a277> [Accessed 9 July 2020] Hein, A. & Ott, A. (2018) “How OEMS can succeed in digitized rail infrastructure”, Mckinsey Insights, 17th September. Downloaded from https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/howoems-can-succeed-in-digitized-rail-infrastructure [Accessed 7 July 2020] Hirschlag, A. (2020), “How hydrogen powered trains can tackle climate change”, BBC Future Planets, 27th February. <https://www.bbc.com/future/article/20200227how-hydrogen-powered-trains-can-tackle-climate-change> [Accessed 5 July 2020] Imperial College London (2020), “Performance of lithium-ion batteries and fuel cells”, Science Daily. <https://www.sciencedaily.com/releases/2020/06/200625080942.htm> Railway Technology (2016), “The big stink: How much do trains really emit?” <https://www.railway-technology.com/features/featurethe-big-stink-how-much-dotrains-really-emit4807131/#:~:text=Pollution%20produced%20by%20trains%20is,according%20to%20t he%20European%20Commission. > [Accessed 8 July 2020] Scott-Quinn, B. (2019), “Hydrogen trains are coming- can they get rid of diesel for good?”, University of Reading, 1st February. <https://research.reading.ac.uk/research-blog/hydrogen-trains-are-coming-canthey-get-rid-of-diesel-for-good/> [Accessed 4 July 2020 University of Toronto (2017), “Diesel trains may expose passengers to exhaust”, Science Daily, <https://www.sciencedaily.com/releases/2017/02/170208111547.htm#:~:text=A%20n ew%20study%20finds%20that,on%20a%20busy%20city%20street. > [Accessed 7 July 2020}
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GREEN FINANCE
FINANCE IN FOCUS
Green Finance is Sending the Meat Sector to the Slaughterhouse by Sofia Akuamoah
ALSO IN THIS SECTION
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Woes and greenwashing in the bond industry
54
Managing the green recovery in real estate Photo by Unsplash
Source: The Financial Times
Green Finance is Sending the Meat Sector to the Slaughterhouse By Sofia Akuamoah Intensive farming has long been the most significant contributor to global warming. The meat sector produces almost half of the world’s methane gas, causes one fifth of all greenhouse emissions, requires 20,000 litres of water for each kilogram of meat produced, and is responsible for 80% of tropical deforestation. Historically, these negative externalities have been ignored and left as an issue for future generations to face.
However, in the past 30 years, methane emissions have risen by two-thirds (Meyer 2020). To put it simply, if meat production rises in line with population growth, by 2050 intensive farming will single-handedly cause flooding, droughts, storms, the spread of tropical disease, incurable antibiotic resistant bacteria and the loss of many lives (Lyman 2016). Unfortunately, given the nature of the sector, it is safe to assume that the meat industry does not concern itself over moral philosophy - which is where green finance comes in.
The Green Finance Revolution The global transition towards sustainability means the meat sector will face pressure from governments to follow new green regulations, as well as from investors who increasingly see value in ESG investments. In a financial model published by FAIRR, the financial implications of climate change on the meat sector were affirmed. The model found that the profitability of the meat sector is at risk in 7 different ways and estimates that alternative proteins will account for 60% or more of the market in the future (Mehmet 2020). It now pays to be green. Investors fear returns in the meat sector will dissipate, either due to the huge sums of money needed for research and construction of cattle rearing tactics which follow green regulations, or due to huge fines implemented for environmental crimes. Research analyst Robert Wilson explains the climate ‘megatrend’ has significant effects on all sectors, meaning any company which fails to transition to a low-carbon economy will negatively impact investor returns. Considering the meat sector’s overwhelming carbon footprint, it will face detrimental disruption (Foote 2020).
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The Costs of Climate Change
Can the Meat Sector be Saved?
In addition, climate change itself will significantly affect the production costs of the meat sector, potentially to the point of extinction. It is predicted that by 2050 the world climate will be 2°C warmer. FAIRR’s ‘Climate Risk Tool’ found the meat sector will face more livestock mortality from heat stress, higher costs of feed due to poor crop yields, and increased cost of electricity due to carbon pricing, estimated to cost the sector billions of pounds (Mehmet 2020). A change to production of meat alternatives at this point seems to be not only a necessity, but a natural evolution. Alternative protein production, such as plant, microbial and insect-based proteins and meat-substitutes require very little energy and land, making it extremely profitable. If the meat sector ignores this, it will inevitably be outcompeted by rapid growth of alternative protein companies.
The most alarming factor of the green finance revolution is that the meat sector appears to be blissfully unaware. Only 2 out of 43 of the world’s largest meat companies have disclosed a scenario analysis which is climate-related, compared to almost 25% of companies publishing the same information in the oil, gas and utilities sectors.
The failure to plan ahead may lead investors to do this analysis for themselves and cash out of the sector (Mehmet 2020). Remaining ignorant to its biggest threat means the meat sector is a helping hand in its own downfall. The meat and dairy industries have long been subsidised by governments, so whether the government is truly committed to a green future and removes all subsidies from the sectors, or whether they continue to fund the meat sector despite its carbon footprint, may determine how long the sector survives. Regardless, as consumers wake up to the environmental crisis and unethicality of consuming meat, coupled with investors who would much rather invest in ESG ventures, it is only a matter of time until the meat sector is sent to the slaughterhouse. For companies to survive, there will need to be instant action taken to either convert to meat-alternative production or to develop technology which makes cattle farming sustainable and ESG-friendly.
References: Foote N 2020, Meat sector must adapt to climate change or face ruin, new analysis warns, Euractiv, viewed 26 June 2020, <https://www.euractiv.com/section/agriculturefood/news/meat-sector-must-adapt-to-climate-change-or-faceruin-new-analysis-warns/> Lyman H 2016, The Effects of Intensive Animal Agriculture on the Environment, Act Sustainably, viewed 8 July 2020, <https://www.actsustainably.com/blog/2016/8/8/the-effects-ofintensive-animal-agriculture-on-the-environment> Mehmet S 2020, Climate financial model shows billions of dollars at risk in meat sector, New Food Magazine, viewed 26 June 2020, <https://www.newfoodmagazine.com/news/107317/climat e-financial-model-shows-billions-of-dollars-at-risk-in-meatsector/> Meyer G 2020, Methane from manure offers green fuel revenue for US farmers, The Financial Times, viewed 27 June 2020, <https://www.ft.com/content/773b8934-51a7-11ea-a1efda1721a0541e>
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FINANCE
Source: Los Angeles Times
To Dread or Not to Dread? Introducing Amazon’s $2 billion Climate Pledge Fund By Asha Pandit Calls such as “break free from fossil fuels” emblazoned across signs were a common sight during the climate strikes in September 2019. Over 1,500 Amazon employees took to the streets to publicly criticise the world’s largest online retailer for their unresponsiveness towards the growing climate crisis. In April 2019, more than 8,000 employees signed an open letter to Amazon founder and CEO, Jeff Bezos, asking the company to adopt a diverse climate plan. Some of the upshots the letter called for included increased lucidity of climate goals and the cessation of donations to climate-delaying legislators; Amazon donated to 68 members of congress in 2018 who have always voted against climate legislation. Following the company walk outs and the collective letter, Amazon announced The Climate Pledge in September 2019. In this pledge, the company committed itself to use 100% renewable energy by 2025 and achieve carbon neutrality by 2040, 10 years ahead of the Paris climate agreement. Conversely, rival Microsoft pledged to become carbon negative by 2030. On 23rd June 2020, Amazon announced its $2bn Climate Pledge Fund to support their promises. The fund will support the development of sustainable technologies and services to enable Amazon and other companies to meet the goals set out in The Climate Pledge – notably, the commitment to be net zero carbon by 2040.
The Good
There are reasons to be optimistic about the venture fund. With Amazon currently inviting a diverse range of companies to show interest in the initiative, from ‘pre-product start-ups’ to ‘wellestablished enterprises’, there is undoubtedly potential for far-reaching positive impact if the fund is implemented correctly. Many clean energy innovation researchers have praised the move, suggesting that it will complement other existing funds like Breakthrough Energy Ventures, which is worth $1 billion. Dan Reicher, a former director of climate initiatives at Google and a senior research scholar at Stanford University lauded the investment as being “helpful and timely,” and particularly effective if used alongside public dollars.
The Bad
Naturally, others are not convinced. Amazon is a company which has vehemently emanated controversy in recent years and continued to dominate media headlines. In an email shared at the start of this year, Amazon employee-turnedactivist, Maren Costa, risked “formal corrective action” if she continued to criticise the company’s climate response (The Guardian, 2020). This has vetted a mixed picture for the estimated $810 billion company, and naturally eluded to scepticism around the company’s true attitude towards green ventures.
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FINANCE The Ugly
As part of its Climate Pledge, the company would be ordering 100,000 electric delivery trucks from Rivian. Ironically, this is a Michigan-based start-up which Amazon has invested in. Furthermore, the company also quietly released its 2019 sustainability report on the same day the announcement of the fund came. It revealed that the total carbon emitted by the online retailer, founded in 1994, had actually reached 51 metric tonnes of CO2 equivalent waste; this is an increase of 15% from 2018. Some key findings from the revealed sustainability report can be found below.
Matt Nisbet also went on to explain how the fund may not necessarily be a net positive for emissions if directed by the world’s richest person, Bezos. He suggests that governance of the fund, and ultimately a large portion of the climate change response, would become concentrated in a way which “threatens a basic principle of democracy.” According to the Bloomberg Billionaires Index, Bezos has a total net worth of nearly $178bn. If Bezos’ wealth continues to grow at a yearly rate of 34%, he is on track to become the world’s first trillionaire as soon as 2026 (Comparisun, 2020), according to an analysis from Comparisun. Indeed, this raises unease around the governance of the fund for many. Instead of starting the fund, activists have called for Amazon to withdraw funding from think tanks hostile to climate action to show real commitment instead.
Final remarks Overall, it appears that the Fund could indeed chiefly be an advantageous move for Amazon, but this does not entirely negate the positive implications it could have for a cleaner planet. There is likely to be a helpful impact, albeit one riddled with controversies surrounding governance and credibility. Source: Amazon (2020)
Matt Nisbet, a professor who has studied the role of philanthropists in climate change policy accentuates the “huge PR, greenwashing aspect” that cannot be overlooked, in his email to E&E news. Many activists and employees have accused Amazon of greenwashing, following the company’s controversial partnerships within the fossil fuel industry and contribution to diesel pollution, hitting communities of colour the hardest. This has led Amazon Employees for Climate Justice, an employee-activist group, to advocate that the new venture fund should find ways to “reduce emissions in frontline communities” and focus on environmental justice as opposed to “technocratic” solutions (Medium, 2020).
References: Amazon, 2020. All In: Staying The Course On Our Commitment To Sustainability. [online] Amazon. Available at: <https://sustainability.aboutamazon.com/about/report-builder> Comparisun. 2020. The Trillion Dollar Club | Comparisun. [online] Available at: <https://www.comparisun.com/resources/the-trillion-dollarclub/> Medium. 2020. Amazon Employees For Climate Justice – Medium. [online] Available at: <https://medium.com/@amazonemployeesclimatejustice> The Guardian. 2020. Amazon Threatened To Fire Employees For Speaking Out On Climate, Workers Say. [online] Available at: <https://www.theguardian.com/technology/2020/jan/02/amazon -threatened-fire-employees-speaking-out-climate-changeworkers-say>
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FINANCE
The Name's Bond: Green Bond
In a society where the newest crazes are metal straws to save the turtles and dazzling pieces of jewellery made out of callous animal traps, surely there must be something within the financial world to spur on green finance and promote a sustainable future. There is - just as the likes of Daniel Craig, Pierce Brosnan and Sean Connery manage to save the world, supposedly so will green bonds.
By Prashina Harjani Green Bonds Green bonds are a form of issued debt which specifically raise money for environmental projects. They typically come with incentives (e.g. tax exemptions) to enhance their attractiveness to investors. As the environment becomes more of a salient issue in society today, pressures to follow ESG leadership have escalated, encouraging the growth of the green bond market. This is because ‘green bonds often serve as an entry point for issuers and investors interested in using their investments to overcome global challenges as highlighted by the 17 UN Sustainable Development Goals’ (Hua, 2019). With companies facing increasing pressures to adhere to ESG criteria, whether it be out of a genuine commitment to sustainability or merely a façade to acquire a more favourable outlook to new investors remains to be seen. However, whatever the motive, it has massively aided the growth of the green bond market as demonstrated by the ICE BAML Green Bond index which increased from $55bn in 2015 to $345bn in 2019.
Source: Rockcontent
Source: United Nations
With cut-throat economists the sole motivation for investment is profit margin, which is why many investors disregard green investments – viewing anything ‘green’ as a low-yielding bubble ready to burst. What they fail to acknowledge is not only have ESG investments provided a higher return than other financial products during the current health pandemic, with ESG indices holding ‘up better through the downturn than their broadmarket counterparts’ (Nauman, 2020), they also act as a warning to investors. This is because the ESG components act as a determinant of companies’ future financial performance, enabling investors to identify companies which pose greater financial risks due to their environmental, social or governing practices. So why, with such large benefits, has the green bond market not grown quicker?
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FINANCE One significant drawback of green bonds is the limitation and exclusion of smaller issuers. The biggest obstacle being that smaller corporations struggle to identify sufficient expenditures on business activities related to sustainability. In order for a bond to be considered attractive to investors the risk has to be well distributed, meaning bonds generally need to be issued at a minimum aggregate principal amount of over $250 million. This ‘benchmark’ is only continuing to increase. The minimum in global bond markets for EUR is 500m with investors requesting €1bn and larger given that the ECB can buy 33% of outstanding bonds, even 50% for supranationals like ESM or EIB, through their QE programmes (PSPP and PEPP). This massively hinders the expansion of the green bond market, capping and limiting the growth of sustainable finance as it excludes many potential issuers. This, albeit a very large problem, is not the only issue. Green bonds also encounter the problem of ‘greenwashing.’ Simply put, this term is used for when corporations use green concepts as a PR marketing scheme in order to obtain a more favourable public image, as well as to avoid coming under scrutiny for their lack of sustainable procedures. Take BP’s recent commitment to the UN’s ’Race to Zero’ initiative, could it be a way to disguise their notso-ethical practices? Perhaps it’s a way to disassociate themselves from the Deepwater Horizon oil spill of 2010.
Sustainability-linked Bonds Sustainability-linked bonds however manage to overcome these issues of exclusion and greenwashing. These are bonds in which the proceeds are applied to finance a combination of green and social projects. This means that they not only meet the environmental aspect of ESG criteria but go one step beyond green bonds by fulfilling more of the ESG components. The Italian energy group ENEL issued the first successful sustainability-linked bond of $1.5 bn with a 5-year maturity and a 2.65% coupon, subject to the energy group having 55% of its installed capacity in renewable energy.
If this goal isn’t reached by 2021 the coupon on the bond will increase by 25bps until the bond matures. Thus, showing sustainability-linked bonds have overcome many of the issues associated with green bonds through not only avoiding ‘greenwashing’ by requiring companies to meet certain sustainability conditions but through the expansion of the market as well. This is because they facilitate more issuer participation through linking financing to sustainability in a different way rather than restricting how the proceeds are used. Instead, they link the interest rate to sustainability. Meaning issuers with lower levels of sustainability funds are also able to enter the market, further promoting and enhancing the quality of sustainable finance. So surely corporations must be scrambling to issue these bonds? Unfortunately, no. Whilst sustainability-linked bonds are supposedly the way forward, when ‘putting the terms “sustainable investments” alongside fixed income, investors think principally – if not entirely – of green bonds’ (Reznick, 2019). Despite green bonds posing more issues, investors and issuers rarely consider sustainability-linked bonds as an alternative due to its recent introduction, making investors wary. However, in such a fast-paced industry with a constantly evolving market this is sure to change. Perhaps in the future a better alternative will be found like the ‘green striped bond’ but for now, just as the cinematic industry is struggling to cast a new James Bond, the financial sector struggles to find a suitable alternative to save green finance.
References:
Green Bond Impact Report (2019) The World Bank [online]. Available at: http://pubdocs.worldbank.org/en/790081576615720375/IBRDGreen-Bond-Impact-Report-FY-2019.pdf Nauman, Billy (2020) ‘Coronavirus is strengthening the hand of ESG investors’ (15 May 2020) The Financial Times [online]. Available at: https://www.ft.com/content/19047cda-0648-48a9-a51287653149026c Reznick, Mitch (2019) ‘Green bonds on the rise’ (27 November 2019) Financial Times Adviser [online]. Available at: https://www.ftadviser.com/investments/2019/11/27/greenbonds-on-the-rise/
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Source: Oil&Gas IQ
The Future of Oil ,
Buildings and power 13%
By Bozhidar Dinkov
Covid-19 has caused a shift in consumer behaviour globally whether it be travelling, shopping, or working from home we all had to adjust to life in lockdown. These radical changes to daily life have had a notable impact on many oil-dependent industries including aviation, travel and tourism. All these changes caused a 30% contraction in global demand for oil and consequently a historic price collapse of such an important commodity (Tverberg, 2012). Crude oil hit negative prices for the first time in history on the 20th of April when the closing price for 42-gallon barrel WTI crude was -$37.63. The reduction in demand, accompanied with the high opportunity cost of storing oil led to producers running out for storage space to hold the oversupplied commodity, forcing them to pay buyers to take on the barrels they could not hold (Ambrose, 2020). In May the top oil producers Saudi Arabia and Russia massively cut oil production in an attempt to support prices and ease this massive oversupply.
According to data in China, oil consumption is now back to pre-pandemic levels, but it is still down across Europe in countries like Italy and Spain.
Aviation and shipping 12%
Road transport 44%
Other sector 12%
Industry and petrochemicals 19%
When/will Oil Recover?
This begs the question "When will oil demand recover?" As transport and petrochemicals make up half of all oil used, the downward shift in consumption in these sectors is the determining factor of whether oil demand will rebound to prepandemic levels. A more important question for us to ask perhaps is whether the decrease in consumption of oil will be permanent. It is still too early to say what changes to consumer attitudes and behaviour we will see globally post lockdown. Although there has certainly been public opinion against returning to normality and looking to instead take it as an opportunity to move towards a greener society (Binding, 2020), after seeing the positive impacts of changing our actions for just a small period of time have had on the environment with dolphins returning to the Venice canals and deer roaming across typically busy London streets. Among oil company’s opinion is divided, British Petroleum is assuming that the long-term price of Brent crude will be about $55 per barrel. Prompted by the current crisis earlier the oil giant wrote off $18 billion worth of assets which points to an important change in the oil industry and perhaps important change overall, having enjoyed extortionate control and profits in the market for years.
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FINANCE The stock market more generally has recovered due to the expectation that many countries will return to life as normal, but oil stocks have not. On the flip side companies focusing on alternative forms of energy and renewables such as Enphase Energy Inc. whose net income grew 2,393% in Q1 (Ambrose, 2020), have seen promising high levels of growth. The hard reality for oil might be that production never returns to its previous levels and companies have to either adapt to greener alternatives or accept lower future profits.
Why Oil Matters
The oil industry has had a bad reputation with connections to environmental destruction and climate change for many years, huge oil firms including Saudi Aramco are well aware of the damaging impact growing climate awareness may have on them going forward (Murphy, 2020). These firms and many others argue this reputation to be unfair as oil is the single most important resource to the wellbeing of the world economy which is de facto built on oil. Oil products and derivatives are a cheap energy solution which have brought prosperity to those countries with resources of it and improved living conditions globally, not without drawbacks. In these unusual times countries are going to face a perhaps unprecedented opportunity to diverge from oil and invest in a carbon-neutral economic recovery.
This would not come cheaply. According to a study by Fuels Europe, the cost of replacing oil-derived road fuels in Europe by 2050 would be around $735 billion. Given the cost of such a massive undertaking and the current economic situation, an oil-powered V-shape recovery seems unfortunately more likely, than any attempts for a switch to green. The UK and other major European economies are facing a historic economic contraction and the additional expense of a CO2 reducing project might be one too many for the taxpayer and debt-ridden governments at the moment.
References:
Tverberg, G., 2020. Recession Fears Cap Oil Prices In 2020 | Oilprice.Com. [online] OilPrice.com. Available at: <https://oilprice.com/Energy/Energy-General/Recession-FearsCap-Oil-Prices-In-2020.html> [Accessed 26 July 2020]. Ambrose, J., 2020. Oil Prices Dip Below Zero As Producers Forced To Pay To Dispose Of Excess. [online] the Guardian. Available at: <https://www.theguardian.com/world/2020/apr/20/oil-pricessink-to-20-year-low-as-un-sounds-alarm-on-to-covid-19-relieffund> [Accessed 26 July 2020]. Binding, L., 2020. Coronavirus: Only 6% Of Public Want Life To Return To Pre-Pandemic Times. [online] Sky News. Available at: <https://news.sky.com/story/coronavirus-only-6-of-publicwant-life-to-return-to-pre-pandemic-times-12017151> [Accessed 26 July 2020]. Murphy, D., 2020. Aramco Chief Adds To Bullish Calls For An Oil Demand Rebound In Late 2020. [online] CNBC. Available at: <https://www.cnbc.com/2020/07/01/aramco-chief-adds-tobullish-calls-for-an-oil-demand-rebound-in-late-2020.html> [Accessed 26 July 2020].
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The Self-Isolation of the Real Estate Market – A Good Thing? Some, such as the World Economic Forum, believe the pandemic is a time to rethink the way business and investments should be undertaken in the future (Bhattacharya, 2020). The increasing importance of environmental, social, and corporate governance goals have drastically altered the landscape for property markets in recent years. Perhaps, given the lockdown and a pause in transactions, firms and investors have had time to alter their priorities towards responsible investment. “ESG has definitely become more of a topic of discussion. The (real estate) market was moving in that direction already, but COVID-19 is accelerating this trend,” says Dirk Aulabaugh, managing director at Green Street Advisors (Blaisdell, 2020). Is this true, and what does it mean for the future?
The UK government could be blamed for closing all non-essential shops, but its £4.5bn debt and declining value of its portfolio did not help (Hammond, 2020). Blackstone, the largest private equity firm specialising in alternative investments and the UK’s largest small business landlord, was forced to permit its tenants to defer payments for 3 months (Donnellan, 2020). In New York, 25% of the city’s apartments haven’t paid rent since March (Gopal, 2020) and can’t be evicted due to the Tenant Safe Harbour Act, leaving landlords without money to pay bills and engaged in a legal battle to forgo property tax. Combine this with falling rent and property prices, and it makes for bleak reading. Uncertainty surrounding the economy and the way real estate will be used in the future has inspired a ‘wait-and-see’ investor mindset, exacerbating the consequences.
Real Estate getting Real
Look on the Bright Side
The halt in economic activity damaged the property sector heavily, as in all markets. But perhaps more importantly, the changing attitudes and interactions with physical space because of social distancing has caused the demand for all types of space to drop, a very new global phenomenon (Gujral et al., 2020). This unprecedented crisis’ effects are most profound in commercial real estate – Intu, a shopping centre behemoth in the UK, only received 30% of the rent it was due in March (Kleinman, 2020), plunging the firm into administration.
Byron Wien, vice-chairman of a Blackstone subsidiary, said “some believe that environmental, social and governance issues will get more focus at the policy level and among investors” despite the immediate focus on medical and economic issues (Wien, 2020). He may be right. Recent data illustrated below from Goldman Sachs suggests that shareholder climate-related proposals have increased in 2020, mostly due to Europe (Della Vigna et al., 2020).
By Sebastian Thomas
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FINANCE The demand for things like affordable housing, preventative healthcare, and great education is not going anywhere, “ explained Bobby Turner, CEO of Turner Impact Capital, “the same can’t be said for hospitality or high-end condos where demand is being eviscerated.”
Real estate investment arms of Schroders and Aberdeen Standard Investments have already laid out full plans on how they aim to implement ESG into their decisions and setting goals for future years. But this shift towards impact real estate investment is likely to accelerate after illustrations of the shortcomings of healthcare systems, the exacerbation of inequality, the need for social infrastructure and the importance of defensive allocation options (Blaisdell, 2020). Despite the economic downturn, 67% of investors polled by the Global Impact Investing Network expect to hold constant or increase commitments to impact and ESG investments this year (Hand et al., 2020). The following graphic demonstrates that real estate has emerged as a prominent fixture of the impact investing landscape (Preqin, 2020). Considering it can have a direct impact on urban regeneration, affordable housing, and the environment, this is obvious. Reliance on government spending to address these issues has fallen short since the 2008 financial crisis from widespread austerity programmes, widening the disequilibrium between needs and budget (Deloitte, 2018). COVID-19 makes this problem worse, as governments across the world are scrambling to spend to rejuvenate economies. Yet there is an opportunity for an ESG-focused recovery, with some of the onus on real estate investors to build inclusive communities (Blaisdell, 2020). Not only that, but LPs (limited partners, investors that commit capital to real estate or private equity firms) are looking for more resilient real estate opportunities - ESG investing is the key.
Practice what you Preach However, there have been instances demonstrating ESG principles are not being as strictly held as people may hope. For example, the Tenant Safe Harbour Act in the US prevents evictions which, in theory, support the poorest in society. However, landlords can claim ‘money judgements’ (meaning tenants have to pay back the money owed even if they leave the property) from tenants for missed rent. This indebtedness is still rising and may have adverse effects on credit scores, meaning this shortterm fix is likely to have long-term consequences for the poor, exacerbating generational inequality (Gopal, 2020). Additionally, 48% of investors still have no plans to consider ESG in their criteria (Preqin, 2020). Perhaps a pandemic was needed to open the eyes of LPs to the possibilities ESG offers?
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FINANCE Skipping past the destruction of the economy on a scale not seen before in human history, one still can be optimistic about the future. Shifting investor attitudes will make humanity more sustainable and the world a better place. For those who do not have morals and require a monetary incentive, research proving that a focus on ESG can lead to financial outperformance for banks (Kotsantonis and Bufalari, 2019) is spurring further discoveries in other sectors. ESG investing has never been more important than it is today, but it also has never been more rewarding.
References: Bhattacharya, C. (2020). How the great COVID-19 reset can help firms build a sustainable future [Online]. Available at: https://www.weforum.org/agenda/2020/05/the-covid-19-resetsustainability/ (Accessed: 10 July 2020). Blaisdell, K. (2020). How COVID-19 Could Drive ESG Adoption in the Real Estate Industry [Online]. Available at: https://www.preqin.com/insights/research/blogs/how-covid-19could-drive-esg-adoption-in-the-real-estate-industry (Accessed: 10 July 2020). Della Vigna, M., Stavrinou, Z., Gandolfi, A., Patel, A., Mehta, N., Bingham, D.R., Chetwode, S. and Tylenda, E. (2020). Carbonomics: The green engine of economic recovery [Online]. Available at: https://www.goldmansachs.com/insights/pages/gsresearch/carbonomics-green-engine-of-economic-recoveryf/report.pdf (Accessed: 11 July 2020). Donnellan, A. (2020). Breakingviews – Virus leaves all landlords under same leaky roof [Online]. Available at: https://uk.reuters.com/article/us-health-coronavirus-propertybreakingv/breakingviews-virus-leaves-all-landlords-undersame-leaky-roof-idUKKBN21D2EY (Accessed: 10 July 2020). Gopal, P. (2020). NYC Rental Market Pushed to Breaking Point by Tenant Rents [Online]. Available at: https://www.bloomberg.com/news/articles/2020-0708/coronavirus-moves-nyc-affordable-housing-crisis-tobreaking-point? (Accessed: 11 July 2020). Gujral, V., Palter, R., Sanghvi, A. and Vickery, B. (2020). Commercial real estate must do more than merely adapt to coronavirus [Online]. Available at: https://www.mckinsey.com/industries/private-equity-andprincipal-investors/our-insights/commercial-real-estate-mustdo-more-than-merely-adapt-to-coronavirus (Accessed: 8 July 2020). Hammond, G. (2020). UK shopping centre owner Intu files for administration [Online]. Available at: https://www.ft.com/content/97b54a02-4ccf-4ac5-b31c03e71a9abc40 (Accessed: 9 July 2020). Hand, D., Dithrich, H., Sunderji, S. and Nova, N. 2020 Annual Impact Investor Survey [Online]. Available at: https://thegiin.org/research/publication/impinv-survey-2020 (Accessed: 12 July 2020). Kleinman, M. (2020). Coronavirus: Lakeside-owner Intu to lay bare scale of retail rent crisis [Online]. Available at: https://news.sky.com/story/coronavirus-lakeside-owner-intu-tolay-bare-scale-of-retail-rent-crisis-11963708 (Accessed: 9 July 2020). Kotsantonis, S. and Bufalari, V. (2019). Do sustainable banks outperform? Driving value creation through ESG practices [Online]. Available at: https://www2.deloitte.com/content/dam/Deloitte/lu/Documents /financial-services/Banking/lu-do-sustainable-banksoutperform-driving-value-creation-through-ESG-practicesreportdigital.pdf (Accessed: 12 July 2020). Wien, B. (2020). Byron Wien: Speculating on the Secular [Online]. Available at: https://www.blackstone.com/insights/article/byron-wienspeculating-on-the-secular/ (Accessed: 6 July 2020). https://www.aberdeenstandard.com/docs?editionId=d5f669b8312d-449f-9f83-e6bd58bebdee (Accessed: 8 July 2020). https://www.schroders.com/en/uk/realestate/products-services/sustainability/integration/ (Accessed: 8 July 2020). https://www.preqin.com/insights/global-reports/2020-preqinglobal-real-estate-report (Accessed: 11 July 2020). https://www2.deloitte.com/content/dam/Deloitte/global/Docum ents/Public-Sector/gx-ps-funding-and-financing-smart-cities20181.pdf (Accessed: 11 July 2020).
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Fast Fashion: The Industry's Dirty Secret
By Zahra Rahman
Fast fashion has fundamentally changed the way consumers shop and dress. It’s a highly profitable system (developed over the past fifty years) with investors pouring millions into brands that constantly churn out the latest trends from the runway at low prices. However, the fashion industry creates many challenges; both environmental and social. So, what does the future hold for such a controversial industry?
What are the Impacts of Fast Fashion? To consistently produce clothes at a fast rate and low-cost, companies source their production in developing countries like Bangladesh, where they can take advantage of cheap labour and lack of workers’ rights. Zara has taken advantage of this extractive system by becoming the second most valuable apparel brand (after Nike) in 2019 (value is measured through the royalty relief valuation method) (Brand Finance, 2019). [i] But this comes at a great cost. Fast fashion relies on low wages to keep costs down and textile workers in sweatshops are often exploited and earn below a living wage (Labour Behind the Label reported that Sri Lankan workers in 2018 on average earned only $197/month)[ii]. There are also many environmental effects, the fashion industry is the world’s second largest polluter producing 10% of total carbon emissions and contributing to 20% of water pollution. Despite these poor practices retailers provide huge profits for investors and shareholders. In 2019, Boohoo’s share price nearly doubled in price, further fuelling investors’ appetite for fast fashion.
How has Sustainability Impacted the Industry? There has been a shift in attitudes towards fast fashion, consumers have become increasingly aware of problems in the industry leading to a demand for a more sustainable approach. This shift is global, Sweden (home of fashion giant H&M) has seen a change in consumer behaviours, ‘köpskam’ refers to a shame in overbuying and Swedish consumers are actively embracing a more sustainable approach to consuming and producing clothes. Meanwhile globally buying second-hand has become extremely popular, with companies like Depop fuelling a demand for more sustainable forms of purchasing clothes. This has proven to be profitable too, it’s predicted that in the next five years the second-hand market will reach $64Bn in size[iii].
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FINANCE The financial industry is also experiencing change. The 2015 Paris Agreement highlighted sustainable financial flows as fundamental towards climate change mitigation and investors are now incorporating the ESG criteria into their investment decisions. In fact, BloombergNEF reported that in 2019 there was a record high of $465 bn sustainable debt issued and it’s predicted that ESG assets will continue to grow from 11% (2015) to 50% by 2025[iv]. These trends are crucial to facilitating a sustainable fashion industry. While fast fashion giants dominate the industry there are brands that embrace sustainability. The outdoor apparel company Patagonia is a testament to the profitability of sustainability[v]. Patagonia produces high-quality products while staying committed to its environmental ethos, this approach has been highly successful – Patagonia has experienced an upward trend in growth and an estimated $1 bn in annual revenue in 2019.
What Does the Future Hold? The future is somewhat promising. Changing attitudes and public pressure have forced wellknown brands to reconsider their attitudes and practices – H&M have pledged to become completely ‘climate positive’ by 2040 although critics have branded schemes like the Conscious Collection as greenwashing[vi] (which describes when brands mislead buyers into believing that they are environmentally friendly when in reality they are not). The financial industry has started to embrace its role in aiding the transition towards a sustainable, low- carbon world. The continued growth of the green finance market signals a commitment to tackling climate change - Goldman Sachs in 2019 announced plans to invest $750 bn on financing and advising companies dedicated to sustainable finance issues over the next decade. But it remains unclear whether this change will infiltrate the fast fashion industry, especially without enforcement from governments forcing companies to behave ethically and change their practices.
Unfortunately, unsustainable practices still plague the industry. Poor working conditions, irreversible environmental impacts and overproduction remain key characteristics of the industry. While public pressure has forced companies to address these issues, substantial change is yet to come. Poor working conditions, irreversible environmental impacts and overproduction remain key characteristics of the industry. While public pressure has forced companies to address these issues, substantial change is yet to come. For the industry to fully embrace sustainability it requires a united change in its approach and business model. It requires investors to act in line with ESG criteria – currently only a small amount of capital reaches fashion technologies, this prevents innovative, eco-friendly approaches to fast fashion to reach the market. For meaningful progress to be made the industry must invest approximately $30bn yearly to achieve sustainability (which has yet to happen). [vii] Only time will tell which direction the fashion industry will go. It can continue on its current course or take advantage of the opportunities available and embrace a green sustainable future. If one thing is clear however it is that change is due.
References
[i] Brand Finance (2019). Apparel 50 2019. pp. 4-14. [ii] Malik Chua, J. (2018). Why Is It So Hard for Clothing Manufacturers to Pay a Living Wage?. [online] Vox. Available at: https://www.vox.com/2018/2/27/17016704/living-wageclothing-factories [Accessed 19 Jul. 2020] [iii] ThredUp (2020). 2020 Resale Report. [online] pp.4. Available at: https://www.thredup.com/resale/#resale-growth [Accessed 19 Jul. 2020] [iv] Henze V. (2020). Sustainable Debt Sees Record Issuance at $465bn in 2019, Up 78% From 2018. [online] BloombergNEF. Available at: https://about.bnef.com/blog/sustainable-debtsees-record-issuance-at-465bn-in-2019-up-78-from-2018/ [Accessed 19 Jul. 2020] [v] Rigby, R. (2018) The profitable company that cares about the planet. [online] Financial Times. Available at: https://www.ft.com/content/1564e99a-5766-11e8-806a808d194ffb75 [Accessed 19 Jul. 2020] [vi] Ramaniah, Z. (2019). H&M’s Greenwashing: Short-Sighted and Unethical. [online] Brandingmag. Available at: https://www.brandingmag.com/2019/12/12/hms-greenwashingshort-sighted-and-unethical/. [Accessed 19 Jul. 2020] [vii] Boger, S., Watten, D., Seara, J., Martinez-Pardo, C., Zuo, C., Ley, K. and van Mazijk, R. (2020). Financing the Transformation in Fashion. [online] BCG Global. Available at: https://www.bcg.com/publications/2020/financingtransformation-fashion-investment-scale-innovation [Accessed 19 Jul. 2020]
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When it Rains it Pours: Financial Instruments Against a Volatile Weather derivatives were created to address nonClimate By Jokūbas Paičius Long-term business planning for ski resorts does sound a little comical in the context of climate change. Is artificial snow the only future? Nobody knows. However, investors and businesses did not wait around to find out. Enterprises and financial markets have constructed so-called weather derivatives to ensure firms have something to rely upon in case unfavourable weather conditions reduce expected revenues.
What are Weather Derivatives? They are financial instruments, which involve a contract between two parties: a buyer and a seller. The seller is paid a premium to bear the risk of weather-related losses and will have to pay compensation if they are incurred. Otherwise, the seller makes a profit. The buyer is the one paying a premium to hedge against the risk of losing revenue due to “bad” weather. For instance, a farmer could buy a weather derivative, and if say, there was not enough rain in a given period, the farmer would get compensation. In practice, unfavourable conditions could be too much (too little) precipitation, too high (low) temperatures etc.
Risks of Weather Derivatives: Risks associated with the weather could be separated into two categories, catastrophic and non-catastrophic. Catastrophic risks, which are unlikely to happen but can result in major losses e.g. earthquakes, can be managed properly with direct insurance contracts (Cui & Swishchuk, 2015).
catastrophic weather risks and are relatively new. The emergence of weather derivatives arose from the energy sector, which was deregulated in the US in the mid-1990s where monopolies were crumbled making way for new competition. These firms later realised they had no instruments to insure against weather risks as higher temperatures could lead to a sharp decrease in demand for energy (Brockett et al., 2005). In 1999, Chicago Mercantile Group launched the first exchange of weather derivatives. But these instruments can be purchased by firms operating in many different sectors e.g. agriculture, construction, and transportation. For example, it is estimated that trucking companies face costs of $2.2-3.5 billion due to weather-related delays (Berlage, 2013).
Weather Derivatives in Practise: Weather contracts may offer a few advantages over traditional insurance. Firstly, since the payoff is completely determined by weather, there is no information asymmetry. Both parties have complete access to weather data, and neither will have inside information. Furthermore, there is no adverse selection and moral hazard. An insurance company cannot know if a particular firm will take good care of its equipment or even damage it on purpose to receive compensation. Consequently, some firms may be unable to receive insurance. However, no firm can influence the weather to their favour. It is argued that companies are taking more risk by not engaging in weather contracts. Jeff Hodgson, the President of the Chicago Weather Brokerage said
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FINANCE "If your business is dependent upon the weather you are gambling by not participating in this marketplace, because your revenue is driven off of something you cannot control." The effectiveness of different types of weather derivatives can be measured by how much it reduces the volatility of revenues. Many different studies have estimated the effect on various industries across the world (shown in Table 1):
Weather derivatives are solution created by the financial markets with no government intervention, which can be used for companies to fight the effects of climate change. Importantly, the market for weather derivatives was only made possible due to improved measurement of weather conditions and improved weather databases (Berlage, 2013). Overall, this suggests that financial markets could use the improvements in climate research to come up with new solutions in adapting to climate change.
References:
Table 1: Summary of studies on the effectiveness of the weather derivatives application in agriculture (Source: (Stulec et al., 2018)). For the aforementioned skiing industry, a study of Serbia’s ski business (Đorđević, 2018) has shown the effectiveness (reduction in volatility) to be over 40%. So, hedging strategies could be effective for businesses to ensure that any weather-related losses are covered. The problem for firms is to figure out whether they are worth the price. And for many companies, the answer seems to be yes. At its peak in 2005-2006, the market for weather derivative was estimated to be $45 billion. Many financial institutions exited the market during 2008-2009 crisis. “ [The] market has functioned sporadically ever since” (Thind, 2014). Even though the market size is past its peak, these financial instruments are still relevant. The problem with centralised exchanges is that the products are standardised. On the contrary, the demand for these products is very differentiated and is said to be custom. Companies can hedge on heating/cooling degree days, rainfall, snowfall etc. Therefore, most companies choose to engage in over-the-counter deals, which are done through dealer networks and are not a part of the exchange market. That is why the numbers appear disappointing, even though weather contracts are still being used. (Kimbarovsky, 2014, as cited in Till, 2015).
Alexandridis, A. (2015, June 31). Weather Derivatives: Answers to 10 most popular questions – Part B | Dr. Antonis Alexandridis’ Research Webpage. https://blogs.kent.ac.uk/antonis/2015/07/31/weatherderivatives-answers-to-10-most-popular-questions-part-b/ Antonis Alexandridis. (2015, June 28). Weather Derivatives: Answers to 10 most popular questions – Part A | Dr. Antonis Alexandridis’ Research Webpage. https://blogs.kent.ac.uk/antonis/2015/07/28/weatherderivatives-answers-to-10-most-popular-questions-part-a/ Berlage, K. (2013). The weather business: How companies can protect against increasing weather volatility. https://www.agcs.allianz.om/content/dam/onemarketing/agcs/ agcs/reports/AGCS-Weather-Risk-Report.pdf Brockett, P. L., Wang, M., & Yang, C. (2005). Weather Derivatives and Weather Risk Management. Risk Management <html_ent Glyph="@amp;" Ascii="&amp;"/> Insurance Review, 8(1), 127–140. https://doi.org/10.1111/j.1540-6296.2005.00052.x Cui, K., & Swishchuk, A. (2015). Applications of weather derivatives in the energy market. In Journal of Energy Markets (Vol. 8, Issue 1). www.risk.net/journal Đorđević, B. (2018). Hedging by using weather derivatives in winter ski tourism. Ekonomika Poljoprivrede, 65(1), 125–142. https://doi.org/10.5937/ekopolj1801125d Finas, B. (2012). Resource library | SCOR.COM. https://www.scor.com/en/search/sitelist/The%20Transfer%20of%20Weather%20Risk%20Faced%20w ith%20the%20Challenges%20of%20the%20Future?#results Thind, S. (2014, January 23). As Temperatures Tumble in North America, Weather Derivatives Warm Up | Institutional Investor. https://www.institutionalinvestor.com/article/b14zbksjmn4504/ as-temperatures-tumble-in-north-america-weather-derivativeswarm-up Stulec I., Petljak K., Bakovic T. (2016): Effectiveness of weather derivatives as a hedge against the weather risk in agriculture. Agric. Econ. – Czech, 62: 356-362. Till, H. (2015). Why haven’t weather derivatives been more successful as futures contracts? A case study. Journal of Governance and Regulation, 4(4), 367–371. https://doi.org/10.22495/jgr_v4_i4_c3_p1 Wang, Y., & Zhi, Q. (2016). The Role of Green Finance in Environmental Protection: Two Aspects of Market Mechanism and Policies. Energy Procedia, 104, 311–316. https://doi.org/10.1016/j.egypro.2016.12.053 Weather Futures and Options | WeatherWatch 12. (n.d.). Retrieved July 13, 2020, from https://weatherwatch12.wordpress.com/2011/02/28/weatherfutures-and-options/ Weather Products Homepage - CME Group. (n.d.). Retrieved July 13, 2020, from https://www.cmegroup.com/trading/weather/ Zara, C. (2010). Weather derivatives in the wine industry. International Journal of Wine Business Research, 22(3), 222– 237. https://doi.org/10.1108/17511061011075365
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The EU Drives Forward on its Emissions Trading Scheme By Ed Cox
Teething Trouble The European Union’s Emissions Trading System (EU ETS) allocates pollution permits among heavy energy using installations in 31 European countries. These permits are tradeable; meaning that companies that can reduce pollution at lower costs can pick up the slack for companies for which it is more costly. Theoretically, this reduces pollution by the desired amount at the least overall cost. Policy has been developed to reach deeper into and further across European polluters during the scheme’s implementation ‘phases’; currently the EU ETS covers around 45% of all EU greenhouse gas emissions making it the world’s largest tradable pollution permit system (Bayer, Aklin, 2020). The key to the systems long term success is a sensible and stable price so there is sufficient financial incentives for firms to invest in carbon reducing and offsetting schemes.
In phase 1 (2005-2008) it became apparent that allocations greatly exceeded actual emissions and so the price collapsed. In the second phase (20092012) the rules of the market were changed so that permits can now be held to be redeemed at a later date, this stimulated demand briefly before the global financial crisis. The ensuing reduction in demand for carbon intensive activities meant that a large surplus opened up in the market; allocations traded at well below 20EUR/tCO2e and approximately 1.8 billion permits were left unused by the end of 2012 (Muûls, Colmer, Martin, Wagner, 2016). So, despite concerted efforts to maintain a price sufficiently high to incentivise decarbonisation, allocations have traded at relatively low prices for much of the scheme’s existence. Nonetheless, the EU ETS has led to an estimated 11.5% reduction in emissions from regulated industries between 2008 and 2016. This is partly attributable to the fact that the scheme, as part of the wider political narrative, implies that polluting will come with increasingly high costs in the long term. Industry is therefore keen not to waste time in decarbonising (Bayer, Aklin, 2020).
Volatility is Not Over As the system enters its next implementation phase at the end of 2020, regulators must remain committed to the long term aims of the system in order to further increase the speed of decarbonisation.
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Finance
FINANCE There has been considerable price volatility following the reduction in emissions from aviation in particular as a result of lockdowns across Europe this March. Allocations slipped from the relatively high and stable price that had been enjoyed throughout much of 2019 to a 16-month low. Polluters and speculators alike are becoming increasingly cautious of the wider shift in public opinion that will likely lead the EU to tightening market rules at the end of the current phase (Hatherick, 2020). This has led to a recent rallying of the market that has placed allocations at their highest price in well over a decade. Following intense lobbying from the International Emissions Trading Association and a revision of the EU’s 2030 emissions target to a more ambitious 40% reduction on 1990 levels; the EU is expected to reduce the quantity of free permits it allots the aviation industry and increase the number of surplus permits it effectively removes from the market with its market stability reserve. Allocations are already auctioned off in annually decreasing quantities, however in the schemes newly revised next phase (starting 2021) the total quantity of allocations will be reduced by 2.2% annually rather than the previous 1.74% (European Commission, 2020).
References:
Bayer, P, Aklin, M 2020, The European Union Emissions Trading System reduced CO2 emissions despite low prices, Proceedings of the National Academy of Sciences of the United States of America, <https://www.pnas.org/content/117/16/8804#sec-4> European Commission 2020, EU Emissions Trading System (EU ETS), <https://ec.europa.eu/clima/policies/ets_en> Hatherick, V 2020, EU mulls ETS aviation changes, Argus Media, <https://www.argusmedia.com/en/news/2121349-eu-mulls-ets-aviationchang es> Holder, M 2020, How best to solve a problem like carbon pricing, BusinessGreen, <https://www.businessgreen.com/newsanalysis/4016807/best-solve-carbon-pricing> Muûls,M , Colmer, J, Martin, R & Wagner, U.J 2016, Evaluating the EU Emissions Trading System: Take it or leave it? An assessment of the data after ten years, Imperial College London, <https://www.imperial.ac.uk/media/imperial-college/granthaminstitute/public/publications/briefing-papers/Evaluating-the-EUemissions-trading-system_Grantham-BP-21_web.pdf>
A Meaningful Next Phase: With the application of such policies, the price of carbon is expected to average at around 32 EUR/tCO2e across the next decade. Despite being a large improvement on the systems performance over the past decade this may not be high enough; it has been suggested that a price of around 55 EUR/tCO2e in 2020, increasing to as much as 180 EUR/tCO2 by 2050 is required to force industry onto a trajectory leading to net carbon zero by the mid-century (Holder, 2020). The uptake in the market is spurred on in part by the prospect of a tightening of the supply side. This is a promising sign that if the correct policies are implemented, the system may be able to reach a steadily increasing and meaningfully high price within the next phase and proves that the continued commitment of the EU to the ETS is crucial if the scheme is to remain the cornerstone of European decarbonisation policy.
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Q&A David Hidderley Head of Investment at Roebuck AM
Interview
Discussing Real Estate Investing and ESG: An interview with David Hidderley, Head of Investment at Roebuck Asset Management 04/06/2020 By Abdur Choudhury, President
Photo by Unsplash
Where do you see investor demand shifting to in the property world after Covid-19, and how has Roebuck Asset Management managed during this crisis? Firstly, what I think that you will see over in the next three to six months is a flight to safety where investors will predominantly go after long-term secure income. Post Covid19, individuals will be factoring in on tenants which have shown resilience throughout the Covid-19 crisis, which is why you will see a substantial increased demand in Amazon logistics warehousings. Supermarkets, for instance, which may not have been the flavour of the month for investment purposes over the past three years compared to 15
years ago, I predict there to be an increased demand for Grocers because clearly they were able to trade, along with also having a strong e-commerce presence. Interestingly, what we’ve seen is top FTSE100 retailers have really struggled; an example is Primark who were struggling as they haven’t had much of an online presence which makes sense as they’re a substantial discount retailer so that doesn’t work from e-commerce perspective, but what they have been able to do is be the backbone of the high street in the last several years and bring foot-fall to the highstreet; the last few months have been tough for them. 'Next' is an example who does have an e-commerce operation, but have had to
scale down their operations for the best part of 6 weeks, and they have been hugely impacted over this time period. What we’re seeing is that consumers aren’t buying new clothing and so there’s been a large amount of stock build up so companies have had to increase their warehousing. From our perspective and portfolio, we’re a third party asset manager and we’ve always invested in best-in-class long-let secure income whether it’s logistics or office occupiers. From our perspective, 95% of our tenants will pay their rent on the last quarter date which shows the security of the portfolio. However, I think going into Q3 and Q4, I think investors will be concentrating on those investments that have been stable or outperforming despite the covid-19 crisis, which is why the leisure industry and hotel industry will be affected, with e-commerce further butchering prices on the high street. Compared to resilient businesses such as logistics, warehousing and ecommerce, they’ve been able to trade; therefore, I think you will see prices stay the same or investor demand increasing, particularly in logistics. For our portfolio we haven’t been able to keep out of trouble, but we’re in a good place because of the security of the tenants. How do you see the landscape for ESG Real Estate Investing changing as a result of Covid-19? I’ve done a various number of talks on ESG and ESG is one of the most key talked about areas in the past year, dare I say it, it's almost the ‘Greta effect’ and the impact that she has had which is quite phenomenal.
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Interview
Photo by Unsplash
There’s no doubt about it that decision-making for investments, investors, occupiers and the occupation of their premises, this is becoming a key point from board level down, that they’re having to show significant improvements on the wider environment. However, one thing is saying that it's a priority, but I think in practise, are we actually seeing this? This all comes down to, in my opinion, the property fundamentals (i.e. the decision making). As of today, we had an occupier that was looking at a large allocation for their headquarter building - will they be looking at paying a significant premium for an ESG building? My own view, over the next few years, is that the economic impacts of Covid-19 will be very challenging and I strongly believe corporate real estate will still be at the forefront of their mind. Likewise, if you are a developer at the moment are you in the next few years going to make a significant increase in your
capital expenditure and your development at a time when the market is going to be moving into new territories to attract a tenant. I say that in particular for speculative developments such as large office buildings and large warehousing.Are they going to be spending more to attract a tenant, or are they going to be reducing their costs because they’re going to be worried about the rent? That rent sensitivity towards requirements is what I think is one of the key points of ESG and it's my own view that it's definitely at the forefront of most occupiers and also investors’ minds. In practise though, we may be seeing a retreat over the next three to six months to what practically can be achieved. Do you believe ESG is a key consideration for investors at this moment of time? As an example, we act for South Korean investors and international capital. One of the questions we regularly get asked is, how keen is ESG currently, for instance South Koreans being one of the largest investors into the European marketplace, investing approximately $15-17 billion into the
European marketplace, investing approximately $15-17 billion over the last few years in commercial real estate - how important has ESG been n their decision making? Firstly, I think it is important to be able to state that, in most cases for international investors, their first question is the return profile (the quality of the building) and at this moment, I don’t think we’re at advanced stages where ESG is at the top of their list of requirements. An example is most private investors are still looking at the quality of the real estate, location, return profiles, liquidity and future growth; all elements of the prospects. Is ESG one of their key requirements? Not at this stage, however that will change because, as the market evolves, tenants will require more environmentally friendly buildings as a requirement. If landlords and investors aren’t able to adapt in the next five to ten years, what you’ll find is their tenants will start relocating to new buildings, at which point will impact an investors returns so I think by that point ESG will be having a stronger impact.
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SolarEdge Technologies Inc (SEDG) Written by:Â Aaryaman Gandotra (LSESU Green Finance Society)
Equity Research Report Company: SolarEdge Technologies, Inc Headquarters: Herzliya, Israel Founded: 2006 Industry: Photovoltaics Ticker: SEDG (NASDAQ) Price: $171.58 Market Cap: $8922 million Target Price: $190 Investment Recommendation: BUY
Investment Summary SolarEdge Technologies Inc., the Israeli microinverter and photovoltaic manufacturing firm, is listed on NASDAQ under the ticker SEDG. According to analyst estimates, the firm is going to face a reduction in Free Cash Flows of around 3% for FY2020 as a result of COVID-related-disruptions but is well positioned to not only sustain the pandemic-resulting recession, but also come out stronger as the market leader in the renewable space. This is a result of highly efficient management and R&D thereby, improving SEDG’s preexisting revenue source in the Photovoltaic subsegment and inviting new sources of revenue through its planned vertical expansions which includes venturing into the EV, EV charging, and energy storage subsegments. The analyst believes that the stock is fairly priced and has high potential to increase in value. This is supported by: 1) Near 50% YoY increase in annual profits, nearly doubling in value over the last 4 years 2) Increased adoption of renewable energy with governmental incentives such as subsidies to those consuming energy provided through renewable sources
Valuation Summary (in thousands)
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Equity Research Report Business Description Established in 2006, SolarEdge developed a DC optimized inverter solution that changed the way power is harvested and managed in photovoltaic, known as PV systems. Solar Edge’s direct current, or DC optimized inverter system maximizes power generation while lowering the cost of energy produced by the PV system, for improved return on investment, or RoI. Additional benefits of the DC optimized inverter system include providing comprehensive and advanced safety features, improved design flexibility, and improved operating and maintenance, or O&M with module-level and remote monitoring. The typical SolarEdge optimized inverter system consists of inverters, power optimizers, a communication device which enables access to a cloud based monitoring platform and in many cases, additional smart energy management solutions. Solar Edge’s solutions address a broad range of solar market segments, from residential solar installations to commercial and small utility‐scale solar installations. (SolarEdge Technology Inc., 2020) Since commercial shipments began in 2010, SolarEdge has shipped approximately 16.2 gigawatts (“GW”) (till 27/02/2020) of their DC optimized inverter systems and their products have been installed in solar PV systems in 133 countries. Products Offered: SolarEdge, with the evolution of the Photovoltaic and solar industry, has evolved. It began with offering a simplified inverter, power optimizers, and a cloud-based monitoring platform but later developed further energy solutions that further enhance smart technology including inverters that include compatibility with batteries for increased self-consumption and storage. These include inverters that allow EV charging, smart meters, smart energy devises and smart PV modules. This has been achieved due to organic growth, with nearly 348 issued patents and 266 pending, and via acquisitions. Acquisitions of UPS, Kokam and SMRE have further propelled SolarEdge’s lead in the photovoltaic space. Industry Overview and Competitive Positioning SolarEdge Technologies Inc. falls into the Semiconductor and Other Electronic Component Manufacturing industry group of the North American Industry Classification System or NAICS. In specific, the firm falls within the renewable energy sub-industry. The industry has vastly benefited from the world’s conscious switch towards environmentally friendly energy production. Adoption of renewable energy sources is expanding and currently accounts for nearly 17.1% of all energy production (expected to till 24% by 2030). Solar Energy in specific, occupied an 11% of overall renewable generation in 2017 but is estimated to occupy around 48% of overall renewable generation by 2050, making it the fastest growing electricity source). More interestingly, according to IEA’s Renewables 2019 report, global solar PV market is set for “spectacular growth” in the next 5 years. However, with COVID 19, supply chains and overall demand have suffered, leading IHS Markit to cut down the expected Global PV installation forecast for 2020, by around 20%. This directly impacts complementary products like solar inverters purchased with it and may hint at SolarEdge’s recent rally as a general bullish trend exploited by Robinhood traders bored indoors due to COVID. This however, may not represent the true reason the industry is growing. There is significant belief that despite the solar industry facing an overall contraction currently, it may not remain for long. This is because of the many fundamental benefits of solar. Solar PV harnesses a clean, reliable and cheap source of electricity. Importantly, it is price independent of global fuel supply which, as seen in the last few months, has been heavily volatile, generally requires high OPEX (due to storage costs) and is environmentally unfriendly. Besides this, given the significant investments promised by energy behemoths like Shell towards low carbon sources in its “New Energies” business indicates their desire to diversify and gradually shift to solar.
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Equity Research Report Simply put, SolarEdge dominates its marketplace, occupying nearly 60% of all Residential PV Inverter Installations. It has consistently outperformed the market, gaining a near 12882.2% in overall Cash Flows over the past 5 years. It had previously found itself in a serendipitous position as its biggest competitor Enphase was on the brink of financial collapse in 2015-2017, strengthening its position in the market.
Figure 1 (Green Tech Media , n.d.)
Along with SolarEdge’s market leader position, its forward looking mindset has set it apart from competitors whereby it has chosen to integrate with several verticals in industries like EV, solar-plus-storage, home appliances and smart meters; seen through its deals with Tesla in 2015, and acquisition spree from FY 2017 onwards. Catalysts for SolarEdge: 1) Biden Win: as of now, majority share is expected to be won by Joe Biden in the US election. Biden has proposed a climate plan which will spend $2 trillion over the course of 4 years to boost US’s movement towards a carbon free economy by 2035. A plan of this sort can skyrocket the valuations of companies in the renewable space and market leaders like SolarEdge will get the biggest share of the pie. 2) Reducing costs of PV cells – provides an increased incentive for SMEs and domestic consumers to install PV. 3) Artificial Restriction against Huawei – Huawei, using its economies of scale and massive capital backing could have drastically cut costs while providing a high quality product and would give tough competition to SolarEdge. However, restrictions due to security concerns have slowly deterred governments and consumers from Huawei’s products.
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Equity Research Report Risks for SolarEdge 1) Political Risk – Conditions in Israel may affect the firm’s operations and might limit the firm’s ability to develop, produce and sell products. Given Israel’s political situation with respect to Palestine, the country and as a result the firm, might be under threat of operational inefficiency during warring times. 2) Elimination of government subsidies – reduction and or removal of subsidies like the solar Investment Tax Credit (ITC). The introduction of ITC helped exponentially grow the solar PV market in the USA however, with reductions to it, the demand for solar may go down thus affecting its complement (SolarEdge’s products) adversely. This however, may get combated by Biden’s plan mentioned above and cancel out any loss due to the ITC cut. 3) Increasing interest rates – solar installation has high first time costs and may require individuals to seek loans. However, given the current near zero interest rates due to COVID, interest rates are expected to remain at historically low levels keeping cost of borrowing low, encouraging consumers from performing solar installation.
Valuation Comparable Company Analysis
Figure 2: Comps Analysis of Firms in Semiconductor space
This ability to venture to further verticals is accentuated by its strong liquidity position in comparison to other companies in the industry. With a Debt/EBITDA ratio of 0.07x and nearly $224 mm in cash and equivalents at hand, the company seems to be very well positioned to engage in this growth. Interestingly, it has more than enough capacity to handle greater amounts of debt capital and that can in turn be used to increase expenditure on R&D (already highest in the market at 22% of gross profits) and/or be deployed as capital for acquisitions. In addition to this, the market seems to favour SEDG over its main rivals ENPH and SPWR as observed from the differentiation in their PEGs. ENPH does however, remain a close contender for SEDG’s market share given its increasing gross margins and expansions (despite its downturn in FY15-17)
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Equity Research Report Reverse Engineered DCF
Figure 3 FCF projection and Absolute Valuation Finally, using market metrics and an estimation of the growth rate by assuming a boosted FCF period in FY2021 in a post-COVID recovery and a gradual convergence to the industrial YoY percentage increase of 18% at the end of the planning period, we obtain its Enterprise Value of $8.4 billion; indicating the market’s fair value pricing of the company’s stock. Sensitivity Analysis
Figure 4 Sensitivity Analysis SolarEdge’s stock constitutes as green because of the following reasons: 1) Value of products derived from Solar PV development, production and sales with an intention to promote the adoption of solar. By providing the highest quality of products from DC inverters to partnering with Tesla to produce solar energy electric chargers, SEDG definitely maintains its commitment to green. 2) Despite the obvious cost advantage of importing precious metals from DRC and affiliates, SEDG chooses not to and strictly adheres to the fair trade No raw materials imported from DRC or affiliated countries
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Equity Research Report Concluding Remarks: Even with the most conservative measurements, SolarEdgeâ&#x20AC;&#x2122;s common stock seems fairly priced and has a demonstratable upside potential in the longer term allowing the analyst to give it a BUY rating. For investors seeking the quick-buck, waiting for a cheaper price will allow the short term rate of return to be greater.
-----------------------------------------------------------------------------------------------------------------------------------------------------------Contact LSESU Green Finance Society: Facebook Page: www.facebook.com/lsesugreenfinance Linkedin: www.linkedin.com/company/lse-su-green-finance-society Email: greenfinance@lsesu.org Instagram: @lsesugreenfinance Contact Gekko Investments: Linkedin: www.linkedin.com/company/gekko-investments-student-fund/ Website: www.gekkoinvestments.com/ Instagram: @gekkoinvestments
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How Covid-19 Has Affected a Shift to ESG Investing By Gary Martin, Investment Manager at Hawksmoor IM Photo by Alec Fevale
photo by Alec Fevale
Guest Article
COVID-19 AND THE SHIFT TO ESG INVESTING By Gary Martin, an Investment Manager at Hawksmoor Investment Management
“Build back better” has become a popular phrase during the coronavirus pandemic, as consumers, businesses and investors alike focus on what the world may look like after the COVID-19 crisis. As countries around the world have locked down, air quality has improved, wildlife has returned to the waterways of major cities - the world has been healing. Investment commentators have often mused what might encourage more widespread use of sustainable or “ESG” (Environmental, Social and Governance) investing. Could the Coronavirus be that catalyst?
The theory is that COVID-19 is the warning bell for a much larger, more dangerous crisis: climate change. We have seen growth in demand for sustainable investments. One need only review asset flows during the first half of 2020 for confirmation, as fund managers with a track record of managing sustainable investment portfolios such as Liontrust, Foresight Group and Royal London Asset Management have seen significant inflows into their funds. ESG funds saw $45.6bn of inflows over the first quarter of 2020, avoiding the coronavirus market sell-off that saw a $384.7bn outflow from the overall fund universe, according to Morningstar. Performance of sustainable funds has eclipsed that of nonsustainable peers, not just during the pandemic but over the longerterm too. Old-world industries are operating on a day-to-day basis on government-funded life support. There is understandable concern at what happens to those companies when the taps are
"ESG funds saw $54.6bn of inflows in Q1 2020"
turned off. Many sustainable investments - renewable energy, online payment systems, video conferencing platforms - continue their operations virtually unhindered, and in many cases are seeing increases in demand. These companies provide services or products that contribute to improvement in quality of life as well as to meeting carbon emission targets. The trends we have witnessed are likely to continue - more working from home, less business travel, more online shopping. Those companies that are unable to adapt or alter their business models will almost certainly struggle. ESG is a hot topic. The coronavirus has put it on the lips of even more investors. Sources: 1)https://www.bbc.co.uk/news/uk-scotland53015092 2)https://www.theguardian.com/environment/ 2020/mar/20/nature-is-taking-back-venicewildlife-returns-to-tourist-free-city 3)https://www.morningstar.co.uk/uk/news/202 274/investors-back-esg-in-the-crisis.aspx 4)https://www.ft.com/content/733ee6ff-446e4f8b-86b2-19ef42da3824
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SUSTAINABLE SUSTAINABLE BUSINESS BUSINESS REVIEW REVIEW Sustainable Business Review Green Economy Society Nottingham nottinghamgesoc@gmail.com
Sustainable Business Review, 2020. Published July 2020.