Ethical investing momentum boosted by Europe's new Green Deal

Italy’s Euro Championship win put to bed any doubt that continental Europe is back, not just in football, but as an economic powerhouse in a post-pandemic world. The biggest news out of Europe this week has been their already progressive and world leading climate policies.

We’re now at a tipping point for socially responsible and ethical investments.

On 14 July, the European Commission adopted a set of proposals to make the EU's climate, energy, transport and taxation policies fit for reducing net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels.

This is huge. It follows on from a post I wrote two weeks ago about carbon concious investments (here for a quick catchup as to where I see investment opportunities).

What’s the big fuss about the European Green Deal

The policies will have an impact on energy consumption, commercial buildings, global food trade, transport, packaging and trade related commerce.

There’s already talk of countries who are less progressive in their energy policies suffering tarifs and other penalties. This is the most radical part of the deal…

Countries like Australia are already feeling the heat.

I’m still reading through the policies to understand the implications. On my initial impressions, the carbon concious investment movement is moving quicker than expected. The momentum will snowball even faster given these new European iniatives.

The Americans are keeping a close eye. A White House official said on Wednesday afternoon that it was reviewing the European Commission’s proposals and broadly welcomed the idea of a carbon border tax.

Congressional Democrats took a preliminary step on Wednesday toward a similar tax, which they called a “polluter import fee” also intended to reduce emissions.

Carbon prices will only go higher

At the heart of the European road map is increased prices for carbon. Nearly every sector of the economy would have to pay a price for the emissions it produces, affecting things like the cement used in construction and the fuel used by cruise ships.

Here’s where it gets interesting…

China officially launched its national carbon emissions trading scheme (ETS) on Friday, creating the largest carbon market in the world. While planned for several years, the ETS is being initiated shortly after China set long-term climate goals, which include achieving climate neutrality by 2060, and an interim goal to reach peak emissions prior to 2030.

China produces more greenhouse gases (GHGs) than any other country, with emissions nearly double those of 2nd place U.S., as of 2016. The ETS is one of the country’s key tools aimed at achieving its climate ambitions.

Around 4.1 million tonnes of carbon dioxide quotas worth 210 million yuan ($32 million) changing hands, Shanghai Securities News reported.

Adding carbon positive exposure to your portfolio

It’s still early days but I get a sense that carbon positive investment exposure, through private companies, tradeable carbon credits and other financial instruments are coming and will become key assets in portfolios in the years to come.

Just as having gold, silver, crypto, cash, real estaet, stocks etc are part of a diversified portfolio, carbon credits will become large tradeable commodities and it won’t be far fetched to be holding exposures in the same way some investors have other energy exposure in their portfolio. BHP Biliton is one of Australia’s largest companies, held in many portfolios and a 100% minerals and mining company.

Perhaps we’re yet to see the carbon positive energy power companies of the future. They’re coming and it feels to me like we’re in the early days of the gold rush.

One simple way to get exposure is through Exchange Traded Funds (ETFs) such as the KraneShares Global Carbon ETF (which trades on the US market). I’ll be updating when I see similar, simple and transparent opportunitie in the next few months.

The stage has been set, the momentum is building, the investments will follow. Subscribe to make sure you get each week’s update in your inbox.