The sustainable supply chain has become a common term in global organisations and is increasingly practiced as well as preached. The idea that an organization that creates a good or service is responsible for how that good is created from its raw materials to the finished good seems a sensible one.
Yet the idea of a sustainable investment chain is yet to really catch on. A sustainable investment chain is the idea that an investor whether it be a bank, investment fund or private individual, has a responsibility to ensure that the activity that they are making possible through their investment is properly governed, has positive social and environmental impacts and has an overall net benefit to society.
Historically, investment decisions have paid scant regard to these considerations and are based purely on economic metrics. In recent times some organizations have started to ban investment in certain areas such as prostitution, gambling and the like, however, the avoidance of more mainstream areas such as fossil fuels, where there is unambiguous scientific evidence that the industry is having a detrimental impact on the global commons, has been more difficult to achieve.
International frameworks such as the Equator Principles have tried to standardize methods of governance for investment decisions taking into account environmental and social factors, and, organisations have taken credit for signing up to these principles. The principles now explicitly talk about the need to consider climate related impacts when assessing investment decisions. But the hard decisions have yet to be taken.
Take the Abbott point coal mine. This is a new coal mining project situated near to a world heritage site, the Great Barrier Reef, which promises to simultaneously bring economic growth to the people of Australia, while dragging millions out of poverty in India through the supply of cheap electricity. This is at least the hype created by those that want the project to go through.
However, there is a clear scientific consensus that the existing level of known fossil fuels reserves cannot be burned if we are to prevent catastrophic warming of the planet. Coal is the dirtiest of all fossil fuels and contributes both carbon to the atmosphere through burning and methane through mining. The overwhelming majority of people in India don’t want to have a large dirty coal mine adding to the already horrendous pollution. Add to this a company in charge (Adani) that has a particularly chequered environmental record that brings significant uncertainty to the future of an Australian national icon, the Great Barrier Reef, and you have a proposed investment that clearly does not align with the Equator Principles.
Yet, major banks in Australia are helping to fund this project and these are the same banks, in some instances, that have signed up to the Equator Principles on the basis they want to market themselves as responsible members of society.
So the difficult decisions have not been taken..
It is nice and easy to put yourself forward as a sustainable bank that has won international awards for sustainability, has implemented policies to increase recycling, to become a zero emission company but when the rubber hits the road it is the banks core business, lending, that counts.
Funding the largest new coal mine in the world may be economically attractive, although this in itself questionable given the doubts about the long-term viability of coal, but it certainly does not align with the framework set out by the Equator Principles.
It demonstrates that asking an industry to regulate itself by signing up to voluntary frameworks is great until we actually want to see real change.
Is it time for regulation on investment decision making to be mandated and overseen by government?