For those who lost their homes, their businesses, their lives or the lives of loved ones, Sandy was tragic.  For me, reflecting back on my experience I am grateful.  I am grateful that my family is all safe, though not yet all with power, I am also grateful for the insight that this experience provided me.   As a research analyst that considers resource constraints and environmental risk, Sandy reaffirmed my personal perspective and insights that I bring to my work.

As we state in our Investment Philosophy, we believe that, “Human demand continues to exceed the earth's supply of renewable resources, which in turn creates stress on these systems and their ability to serve the economy through the 21st century.”

The Intergovernmental Panel on Climate Change has confirmed that an overwhelming majority of scientists now accept the fact that anthropogenic activity is the cause for climate change.  Climate scientists also agree that an increase in the frequency of extreme weather is the result of climate change.  According to a recent report by a leading global reinsurance company that tracks global trends in the insurance industry, “Nowhere in the world is the rising number of natural catastrophes more evident than in North America.”   The report also states that between 1980 and 2011 weather catastrophes created an overall loss burden of $1.06 trillion, an average of $34 billion a year, and took the lives of approximately 30,000 people.

It is imperative that companies in North America and around the world recognize the heightened volatility that climate change is bringing.  Companies must develop vulnerability assessments, set reduction goals to minimize resource use, and lobby for climate legislation that will create equal playing fields for all businesses.

The long-term cost of natural disasters will impact everyone across every industry sector from local municipalities to utility companies to food producers.  However, therein lays opportunity.  Once a company, independent of sector, recognizes its environmental risks and associated costs, investments to reduce that risk become economically viable.  At Portfolio 21 Investments, it is our belief that proactively managing environmental risks simultaneously builds financial resilience as well as resilience to deal with inevitable unforeseen events that will likely increase in an ecologically constrained future.

Beth is a Senior Research Analyst with Portfolio 21 Investments.  She has 10 years of environmental and social investing research experience. 

In early 2011, with 30% of Japan’s base energy no longer available, the nation was asked to conserve electricity by as much as 15%.  Power companies fired up old gas and oil powered stations and the country worked to secure imported fossil fuels.  Despite the country’s energy security challenges, and fears of increased energy prices and widespread blackouts, the citizens of Japan united and their demands for a nuclear-free Japan strengthened.

Japan recently announced its new energy policy entitled “Revolutionary Energy and Environment Strategy,” which seeks to phase out nuclear power by 2040. To accomplish this, the policy calls for Japan to seek cheaper sources of liquefied natural gas and other fossil fuels.  Additionally, the policy focuses on energy conservation, procurement of additional renewable energy sources, and energy saving measures, such as smart metering.  Unfortunately, the policy is not without caveats and loopholes and there is also potential for it to be rescinded by the country’s next political party.  But regardless of how Japan’s new energy policy is changed over the coming months the tone has been set: Japan’s future will no longer rely on nuclear energy.

It is encouraging to see countries around the world, including Italy, Switzerland, Germany, and now Japan, commit to weaning themselves off nuclear power.  At Portfolio 21 Investments we do not support the expansion of nuclear power because we consider the cost of new nuclear installations to be high relative to the environmental and health risks associated with nuclear reactors and waste.

Beth is a Senior Research Analyst with Portfolio 21 Investments.  She has 10 years of environmental and social investing research experience. 

In my opinion, the movement’s last demand is idealistic and not likely to be achieved.  As a result of the U.S.’s extensive supply of low priced shale gas, I believe that natural gas will continue to be a replacement for more carbon intensive coal and oil.   That being said, I do agree with the group that hydraulic fracturing poses significant environmental and health consequences.  Methane is the principal component of natural gas and is a potent greenhouse gas.  Over a 100 year time span, methane is over 20 times more effective in trapping heat in the atmosphere than carbon dioxide.  Beyond methane releases, natural gas production creates other air emissions that can have negative impacts on local air quality and on global climate change.

The chemicals used in hydraulic fracturing vary depending on geologic formation, but can include carcinogens such as benzene, arsenic, lead, and other toxic chemicals, such as hydrochloric acid, ethanol, diesel, and sodium hydroxide.  The total amount of toxic chemicals used during hydraulic fracturing can be as high as 110,000 gallons per well and is typically around 25,000 gallons[i].  Toxic chemicals have both human and environmental health impacts and can have long-term effects due to persistence, bioaccumulation, and carcinogenicity.

It is estimated that hydraulic fracturing uses between 2 and 10 million gallons of water per well[ii]. The extraction of such large amounts of water has raised concerns about drawing down drinking water aquifers.  Methane contamination of drinking water (shallow groundwater) has also been documented.[iii] While dissolved methane in drinking water is not characterized as a health hazard for ingestion, it is a fire hazard.  In the U.S., a recent Environmental Protection Agency investigation in Wyoming concluded that contaminants from fracturing fluid were released into the drinking water aquifer[iv].

Given these known environmental and health consequences, it is imperative to close loopholes exempting oil and gas companies from U.S. environmental regulations.  Currently, because of an exemption known as the “Halliburton loophole,” the EPA does not regulate the injection of fracturing fluids under the Safe Drinking Water Act.  Another loophole allows the oil and gas industry to emit toxic air pollutants without the same limits imposed on other industries.

Both of these loopholes are actively being protested by citizens and politicians alike.  To add your voice, join the Natural Resources Defense Council’s campaign to repeal the legislation that created oil and gas loopholes.

According to Jeffrey Hollender, co-founder and Board Chair of ASBC and co-founder of household product company Seventh Generation, “The White House summit was a unique opportunity for the American Sustainable Business Council to collaborate with the administration to develop the innovative strategies that will lead to a healthy, just and sustainable economy.”

ASBC believes that only through “responsible and comprehensive change” can we as a society “continue to enjoy the benefits of market capitalism.”  For change to occur, ASBC boosts that five core principles must be upheld.

1.  Market Economy:  ASBC believes that a market-based business system must remain; however, it needs to be adjusted to account for externalities, including human health and environmental costs.

2.  Broad Prosperity:  Education is a fundamental right.  Also, business development should anchor living wage jobs.

3.  Sustainability:  Managing our economy to meet the needs of the current generation without impairing the ability of future generations to meet their needs.

4.  Sensible Measures and Regulations:  Regulations have the ability to limit the power of harmful companies and technologies and by doing so they promote fair competition, innovation, and change.

5.  Democratic Control:  According to ASBC a “sustainable market should be structured and managed to be fair, transparent, well regulated, and fully accountable to all participants.”

I applaud ASBC for bringing together the business community, thought leaders, and politicians.  Although I do not believe that adherence to these principles alone will make for a sustainable global economy, I am encouraged by the high level of discussion.  It is my hope that the summit brings attention to the fact that our current market-based economy is flawed and in need of new paradigm thinking.  Only when the market embraces the business opportunities that environmental stewardship and equitable economy can have, will change occur.

Beth is a Senior Research Analyst with Portfolio 21 Investments.  She has 8 years of environmental and social investing research experience. 

As we all recall, on April 20, 2010 the Deepwater Horizon oil drilling rig exploded.  Eleven men were killed and a seabed well ruptured, which allowed approximately 210 million gallons of oil to enter the Gulf’s saltwater churn.   In addition to the oil leaked from the well, an additional 2 million gallons of chemical dispersants were introduced into the coast’s ecosystem to break up the heavy crude oil.*

Two years later, monitoring and research on the Gulf coast have yet to make clear scientific links between health concerns, food safety, and the oil spill.  The U.S. Environmental Protection Agency reports that it monitored for a range of air pollutants during the oil spill and cleanup.  The EPA states that its analysis “did not detect levels of air pollution higher than what is normal on the Gulf coastline for that time of year.”  However, critics question whether the government has gathered enough data to be able to declare the air safe, and noted that poly-aromatic hydrocarbon levels were not measured for days after the spill.  There is also concern that the health effects of the chemical dispersants are understood even less, and may have magnified in toxicity when combined with the crude oil.  Residents, specifically those involved in the clean up efforts, have reported exhaustion, headaches, stomach pains, and chronic coughs.

In addition to human health impacts, many scientists believe that the chemicals used to clean up the spill have induced ecosystem-wide changes, such as an increase in toxic algal blooms or interference in the absorption of arsenic by oil-coated marine rocks, which has increased the levels of this toxin in seafood.  According to a survey led by the University of South Florida, after the spill between two and five percent of fish in the Gulf have skin lesions or sores, compared with data from before the spill, when just one-tenth of one percent of fish had any growths or sores.

Meanwhile, the U.S. Food and Drug Administration officially deemed Gulf seafood safe for eating.   Yet the FDA’s findings assume that the average adult eats the equivalent of about three jumbo shrimp per week.  After spending a significant amount of time in New Orleans, I can say with confidence that locals’ diets traditionally rely on Gulf fish, in an amount much greater than three shrimp per week.  Today, however this reliance on local foods is changing.   I understand that many Gulf residents are refusing to eat the fish from their local waterways, choosing instead imported or farm raised fish, or other protein sources altogether.

Despite the repeated safety claims by federal agencies and BP, on April 18, 2012 (two days shy of the second anniversary of the spill) BP sealed an out of court settlement for $7.8 billion, representing thousands of individuals and businesses. Of this sum, the Gulf seafood industry is slated to receive over $2 billion for economic loss.  Needless to say, even this significant monetary compensation is a long way from addressing the true economic costs of the disaster’s damage to the Gulf region’s ecosystem and cultural food traditions.

Last month, the Environmental Protection Agency (EPA) issued its first ever rule on carbon dioxide emissions from new power plants, which was met with applause and some skepticism.   Currently the U.S. has no limits on the amount of carbon pollution that future power plants can emit.  The new rule states that any new power plant will be allowed to emit no more than 1000 pounds of carbon dioxide per megawatt-hour.  To offer some perspective on this number--natural gas plants currently average 800 pounds per megawatt-hour, while coal plants can average upward of 1800.  This makes it impossible for any new U.S.-based coal fired power plants to be built unless they capture and store their own carbon emissions, which is a technology that is currently not commercially viable.  With the low cost of natural gas, increased consumer awareness on climate change, preference for low carbon alternatives, declining costs of renewables, and now the new EPA ruling, many consider coal outdated and uneconomical.  From an environmental perspective, this rule is positive.  It also provides assurance to investors and businesses alike that we will not be returning to coal.

The EPA is also crafting carbon regulations for oil refineries and other stationary pollution sources.  According to the World Resources Institute, when the EPA’s carbon rules are fully deployed they could cover approximately three-quarters of the country’s greenhouse gas sources and could reduce U.S. carbon emissions anywhere from 5% to 12% by 2020 (using 2005 as a baseline).  We encourage the EPA to continue its regulatory work and we believe investors would be well served by comprehensive climate legislation.

Beth is a Senior Research Analyst with Portfolio 21 Investments.  She has 8 years of environmental and social investing research experience. 

Gilding believes “…that man has the ability to commit to huge change when there is no alternative.”  No individual can predict what will trigger the “Great Disruption,” when it will take place, or what it will look like.  Gilding makes the case that the global response could be strikingly similar to that inspired by Winston Churchill and others in the face of World War II—collaboration, sacrifice, and an astounding commitment to wartime necessities.

As investors, we expect the Great Disruption to trigger declines in consumer spending and discretionary goods, waves of innovation, and a unified drive aimed at the conservation of resources.  It was an honor to discuss these themes with Paul in person and to hear his perspective on how some of these trends may develop.

Have you read The Great Disruption?  Did you find its message frightening, exhilarating, or something in between?

Beth is a Senior Research Analyst with Portfolio 21 Investments.  She has 8 years of environmental and social investing research experience.