To be clear, not all investors are making counters to McKibben’s argument. In addition to Portfolio 21, I know of at least two other firms that affirm their positions to not invest in fossil fuel stocks (defined as those companies engaged in the exploration and production of coal, oil, and gas) based on their assessment of the risks created by these companies, as well as the risks to these companies as a result of being in the business they are in.

For the most part, what I have seen from investment firms are attempts to justify investing in fossil fuel stocks, because:  1) we need fossil fuel to heat homes and run the economy; 2) if you pick the best fossil fuel companies, they have lots of exposure to hydraulic fracturing (“fracking”) and natural gas, which is better than coal; 3) there are other ways to reduce the world’s carbon footprint, like investing in more fuel efficient businesses; 4) we should invest in these companies so we can engage in a dialogue with management and try to get the companies to change their ways.

This last argument I find particularly intriguing. Really? What could these companies possibly change that would solve the problems created by their core business?!

For Portfolio 21, it is not about divestment. We do not own these stocks because our research tells us that these companies pose too much risk to the environment and society, and that they face too much risk based on their business operation profile. On this latter point, the types of projects fossil fuel companies are involved with today indicate the increased risks they have to take in order to keep oil and gas flowing.  Deep water drilling in Arctic waters, shale oil production, and fracking close to populated areas are just a few examples.

Despite the fact that Portfolio 21 does not have to debate divestment, I find the counterpoints to the Go Fossil Free campaign to miss a point.  Any investor, especially a responsible investor or one interested in sustainability, invests in a company because they want to invest in that company, because they feel that their portfolio needs that company and that it is one of the very best opportunities available. Or maybe an investor owns fossil fuel stocks because they are afraid that they will underperform the herd if fossil fuel stocks rise sharply in value.

Fossil fuel stocks make up the bulk of the energy sector, which accounts for about 10% of the global equity market. Whatever you are doing as an investor, you can do it without exposure to any given 10% of the equity market - - unless you are an index fund trying to exactly replicate the market benchmark. There are many companies in other sectors ─ big, well-established, stable, high-quality, global companies ─ engaged in forward-thinking business practices that are helping to move our economy toward using less resources and a lower carbon future.  There are many companies to choose from in lieu of fossil fuel stocks.

I cannot accept any argument that relies on the concept that fossil fuel stocks are somehow irreplaceable in a portfolio, or that by investing in them one is somehow moving us towards a lower carbon future in a manner superior to what could be done with some subset of the other 90% of companies available for investment.

People invest in fossil fuel stocks because they like them and they are afraid to miss out on profits if fossil fuel stocks run up in price. Portfolio 21 does not like fossil fuel stocks because of the risks we see and if we miss out on those gains we will try to make it up elsewhere, or live without those particular profits.

John Streur is President of Portfolio 21 Investments. He has 25 years of experience in the field of investment management. 

The 1997 conference produced the Kyoto Protocol, a greenhouse gas reduction agreement, which most industrialized countries signed.  President Bill Clinton signed the Protocol, but Congress did not ratify it. In 2005, President George W. Bush rejected the agreement.  The Kyoto Protocol was set to expire this month; however, it has now been extended to 2020.  The Protocol actually set binding targets for most industrialized countries to reduce greenhouse gas emissions.

In 2009, there was agreement that the UNFCC should take actions necessary to keep the average global temperature from rising more than 3.6 degrees Fahrenheit from the temperatures recorded just before the start of the Industrial Revolution.  Today the average global temperature is 59 degrees and the temperature not to be exceeded is 60.3 degrees. Emissions are increasing rapidly, especially among developing countries using coal, and the feasibility of the international goal to control the global temperature is questionable.

At this year’s conference, there was agreement that the richest countries should provide financial aid to the poorest nations for the “loss and damage” of climate change since the poorest countries have contributed the least to the problem and are also the most vulnerable.  However, the process for determining the amount of aid and how it will be distributed is yet to be decided.

Delegates also decided that a new international agreement will be developed by 2015 and take effect in 2020.  China and the U.S., the world’s two largest emitters of greenhouse gases, will figure prominently in the new agreement.  Although China is classified as a developing country, it is the largest emitter and soon will be the world’s largest economy.

Global emissions of carbon dioxide are at a record high and developed countries are principally responsible as a result of more than 150 years of industrial activity.  The pace and scale of actions by the international community to reduce emissions and concentrations of greenhouse gases is of great concern.

Carsten is Portfolio 21 Investments' founder and Chairman. He has 30 years of experience in socially and environmentally responsible investing.

Water and energy are two commodities that are interdependent but priced very differently. The future projections of global water and energy use plus food production equal long-term challenges for an expanding world population.  It takes a lot of water to produce energy, and shale gas extraction requires more water than traditional energy extraction techniques.  According to Chesapeake Energy, it takes 4.5 million gallons of water to drill and fracture a typical deep shale gas or oil well.  Furthermore, it is estimated that up to 20 billion barrels of waste water is generated from hydraulic fracturing per year.  This figure is also expected to accelerate.  While the energy sector accounts for a relatively small percent of total water use in the U.S., it is forecast to rise due to increases in shale gas supply.  There are many questions about the future of hydraulic fracturing, like where to source water over the next 100 plus years, as it won’t likely be available from current sources, and then what to do with the waste water. Water use in hydraulic fracturing is affecting many groups, including energy companies, state and local regulators, the U.S. Environmental Protection Agency, municipalities, landowners, lawyers, water treatment and disposal companies, and equipment suppliers.  Dialogue among these parties is shaping standards of practice.

At the heart of the matter is water supply and demand dynamics.  State and local officials in many regions are forecasting a growing gap between supplies and demand as a result of expectations about population growth and climate change.  Increasing water demand from hydraulic fracturing is exacerbating the problem, as water is the key link in the supply chain that enables energy sector growth.  The hydraulic fracturing industry can address some water risk using various techniques.  Sourcing and disposal is key.  First, the use of “brackish” water instead of potable water to preserve fresh water supplies can be increased.  Recycled municipal water is also a viable option for energy production.  Waste water from gas and oil production can be treated and reused.  It could also be remediated for agricultural use.  Furthermore, metals and solids with commercial value can be extracted from the waste stream using advanced separation technologies.  However, there is more technological development needed to improve the cost dynamics.  Desalinization and reverse osmosis technologies are expensive, though costs are coming down.  It may even be possible to one day harvest water from flue gas.  Water distribution to and from drilling sites poses another problem.  Currently, most water is trucked, and trucking is struggling to keep up with demand.  It is also the biggest cost component of disposal.  Pipelines may be feasible solutions in some cases, or there may be cost effective ways to evaporate produced water.

Drilling companies are attempting to meet these challenges; however, changing regulations are complicating the matter as well as the mobility of the energy sector, and options vary by region. Often the practices used come down to economics and the low cost solution is likely to win out.  The hope is that the solution is long-term in nature and environmentally responsible.  There will be investment opportunities in finding effective solutions to the water challenges as it relates to new energy production.  At Portfolio 21 Investments, we have a policy not to invest in the extraction or production of oil, gas, or coal; however, we are proactively exploring potential investment opportunities in companies that apply environmental solutions and preservation in the energy sector.

Tony is Senior Portfolio Manager with Portfolio 21 Investments.  He has 15 years of experience in the field of investment management.

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. 

The first article in the series titled “Power, Pollution and the Internet” largely exposes the energy demands and associated pollution responsible to maintain and deliver instant satisfaction in the electronic age.

A data center is a facility used to house computer systems, usually many computer servers.  The facilities are typically spread over a large area to accommodate cooling requirements needed to maintain operational temperatures within the facilities.  Data centers aim to be operational 100% of the time so as not to cause outages for customers.  As a result, the servers within data centers gobble up energy regardless of whether they are processing information or waiting on standby.  According to the article, worldwide data centers use about 30 billion watts of electricity, which is roughly equivalent to the output of 30 nuclear power plants.  They can also waste up to 90% or more of the electricity they pull off the grid, due to low utilization rates of the servers.

In addition, the article highlights the use of backup diesel generators that data centers rely upon in order to limit the amount of downtime from potential power failures or a lapse in grid energy.  The author states that at least a dozen major data centers have been cited for violations of air quality regulations in Virginia and Illinois alone.  Even if a data center does not need to rely on a generator for operational power, generators still have to be tested on a regular basis to ensure functionality. In the second article in the series, the author focuses on a data center in Washington State that has 40 diesel generators located near an elementary school.  The scale of the backup operation was enough to convince the school superintendent to install particulate monitors to observe emission readings.

Industry reaction to the series of articles has been loud and swift.  Some argue the author has an outdated perception of the Internet, and chose to focus on minor uses such as emailing pictures to friends, versus focusing on how it serves a larger good by powering businesses, schools, public works, and the media.  Another primary criticism of the series is the failure to recognize the gains in data center energy efficiency since their inception.  Efforts such as The Green Grid have worked to establish baseline information on the power usage effectiveness of data centers and the water footprint of cooling efforts.  In addition, the 2012 Carbon Disclosure Project directly asks about companies’ data center activities, including specific emissions, annual electricity consumption, and power usage effectiveness of company owned data centers.  In our view, data monitoring, increasing transparency, and industry knowledge sharing is key to improving the environmental profile of data centers.

When evaluating companies operating large data centers, we prefer companies that are members of The Green Grid, actively upgrade facilities to reduce energy demands, purchase renewable energy, and report on the combined power usage effectiveness of their data centers globally.  Finally, companies that share best practices with their peers will help improve the energy efficiency of data centers across sectors and countries.

Emily is a Senior Research Analyst with Portfolio 21 Investments.  She has 10 years of experience in the environmental field.

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. 

Among the Global 500 group companies, representing the largest market capitalization, climate change is a growing concern and focus of their business planning—more than two-thirds identify climate change risks to their business operations, and more than one-third see these risks posing real and present dangers.  The impacts of recent extreme weather events have likely made an impression.  This acknowledgement of the current impacts of climate change has increased by 10% in the last two years among CDP respondents.

The CDP’s challenge at this year’s Forum indicates that although there is a growing corporate awareness and momentum toward emissions reductions, this will be only be part of the solution.   CDP Chairman Paul Dickinson framed the challenge:  “Most of the things that get done in the world get done by the world’s largest companies.  Governments need to step up and match the operational domain of the corporations.  That means international treaties.”  And further:  “The developed world has no moral authority to say that they can’t consume in the way that we do…if we don’t get leadership in your country, from the United States.”  We are seeing corporations demonstrate willingness, but there is a great degree of uncertainty about the future of energy—what will it cost and where will it come from?  Setting a price on carbon would likely help incentivize businesses to reduce pollution, and perhaps even compete with one another about who could do it most efficiently and in the shortest time period.  I hope that’s a race that we will one day see unfold.

Amanda is Portfolio 21 Investments' Communications Manager.  She has more than 10 years of research, communications, and interactive media experience in the financial industry.

The clean burning claim was bothering me, because I know that with the price of natural gas as low as it is, truly clean and renewable energy sources like wind and solar will have to become just as cheap in order to compete─or we will not continue to develop these important renewable sources as quickly as we would otherwise.  In checking on the clean burning claim, I found a spot-on research piece from the Flemish Institute of Technology in Belgium analyzing the emissions of actual city buses running on natural gas versus those running on diesel.  It found virtually no difference in carbon dioxide (CO2) emissions between the two fuels.  Even I was surprised, I thought the natural gas bus would have some CO2 emission advantage.  It turns out that the power output of natural gas under real life driving conditions causes the amount of fuel burned, and CO2 emissions released, to be higher than one would expect.

I also looked into the differences between the air emissions of electric generating facilities running on natural gas versus those running on coal.  The United States Environmental Protection Agency site summarized what I found nicely, “Compared to the average air emissions from coal fired generation, natural gas produces half as much CO2.”

Natural gas is just cheap; it isn’t clean.  And it might not even be cheap.

As you know, natural gas is cheap because the oil industry is aggressively exploiting a natural gas production technique known as fracking, and through this technique the supply of natural gas has increased greatly, which has caused the price to plunge by more than 50%.  However, fracking uses a tremendous amount of water and injects hazardous chemicals deep into the ground at high pressure.  The water use is an obvious issue and of immediate concern; the chemical injection will require years or decades to determine the real environmental impact.  The long-term environmental consequences of these practices are simply not reflected in today’s price of natural gas.

One of the energy sources that natural gas is very likely to crowd out is nuclear, because it has become expensive and complex to build and run a nuclear plant and therefore the price difference between gas fired plants and nuclear is greatest. Nuclear is expensive for many reasons, but two primary reasons are the regulatory system that governs nuclear power production and the money an owner of a nuclear plant has to set aside to properly decommission the plant at the end of its useful life. This governance system is designed to protect public health, safety, and the environment─which are, of course, closely related systems.  We do not have a strong regulatory system to govern the production of natural gas and there is no requirement to set aside funds to clean up wells at the end of their productive years. The problems caused by producing natural gas will be dealt with by society at some unknown future date in an unknown manner.  There are 450,000 gas wells in the United States, scattered throughout the countryside on top of shale deposits.  There are less than 70 nuclear power plants.  If one of those nuclear plants has a problem, it is worldwide news.  If one of those gas wells starts leaking chemicals into your local water supply, who is going to notice?

So I don’t think that natural gas is as clean or as cheap as we are being led to believe. And I think that the sign on our city buses should be removed.

John Streur is President of Portfolio 21 Investments. He has 25 years experience in the field of investment management. 

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.

The first important number he details is 2 degrees Celsius, which is the amount that scientists and most governments have agreed is the maximum increase in global temperature, without very serious consequences.  The second number is 565 gigatons, which is the amount of carbon dioxide that we can emit by midway through this century in order to keep us within the 2 degree Celsius range.  This all makes the third number even more daunting; 2,795 gigatons is the amount of carbon contained in the proven reserves of the world’s fossil fuel companies.  Meaning, the world’s inventory of fossil fuels is five times the amount that scientists think would actually be safe to burn.  And every day fossil fuel companies spend millions of dollars to find and extract more coal, oil, and natural gas.

This equation very clearly illustrates an unsustainable system with dire consequences for the economy.  Some kind of mechanism must evolve to increase the price of fossil fuels and decrease the cost of renewable energy sources, and quickly.  But if that optimistic climate-saving scenario does indeed play out, energy companies will be left holding assets that they can no longer sell, which will cause the industry losses in the trillions of dollars.  The consequences for investors of this “carbon bubble” are being researched by UK-based Carbon Tracker Initiative, which published a seminal report earlier this year titled, “Unburnable Carbon.”

McKibben’s article is sobering, but its prominent place in Rolling Stone is encouraging, and it is already getting a lot of attention.  Considering the extreme global weather this year, this could be a very good moment for the message.  A recent opinion poll reported that in July 70% of Americans stated that they believed that the climate is changing, which is a 5% increase vs. the same poll in March.  This is a rapid, and likely seasonal, increase in acknowledgment of the problem, but it remains to be seen when opinion might translate into significant national will.  There is still much progress to be made toward articulating the future that we want to see, and how we will transition to the energy sources that we need in order to get there.

Amanda is Portfolio 21 Investments' Communications Manager.  She has more than 10 years of research, communications, and interactive media experience in the financial industry.