Eric Campbell (00:07):
Hello and welcome back to another episode of Smart Prosperity the Podcast, a biweekly show about the green economy in Canada, the current affairs, the business, the technology, the people, and the ideas at the intersection of the environment and the economy. I'm your host, Eric Campbell. On today's show "to divest or not to divest". I speak with two experts Adam Scott and Tessa Hebb about how big investors - and small ones - should help the world transition away from fossil fuels. Then the second hand clothes economy. Freelance journalist H.G. Watson explains whether thrift shops stand a chance against the environmental impacts of fast fashion. After that, we'll hear a 60 second summary of a new report, and Mike Moffatt caps it all off with his list of 5 things happening in the green economy this week. That's today's agenda, let's have some fun!
Eric Campbell (01:01):
In 2012, the international charity "350.org" launched its now famous fossil free campaign. That was the campaign that popularized the notion of investors divesting from fossil fuels. That organization now reports over a thousand institutions globally and 58,000 high networth individuals that have divested more than $14 trillion away from fossil fuels. The idea is that where the money goes, the future goes. And if your investments are tied up in fossil fuels, then they're bank rolling a future of climate change, but is divestment the best way to accelerate the transition away from fossil fuels? And how do we harness the power of investment for environmental good? To help answer that I'm speaking with Adam Scott. Adam Scott is the director of Shift, a nonprofit initiative focused on educating and mobilizing around climate risks in the world of investment. Adam, thanks for joining the show.
Adam Scott (01:58):
Thanks for having me.
Eric Campbell (01:58):
Adam, I want to start with this fossil fuel divestment movement. Why should people care if their investments are invested in fossil fuels or not?
Adam Scott (02:07):
Fossil fuels are the leading cause of the climate crisis we find ourselves in. So investing in fossil fuel related companies, it means that you're directly profiting from a system that's accelerating harm for people and communities and ecosystems around the world. So that's the moral case for divestment that's been around for some time, but there's also a growing and strengthening understanding that being invested in fossil fuels today is a very substantial financial risk. And you know, we've seen already on the performance of fossil fuels over the last 10 years for various reasons and in the future, you know, the industry functionally can't grow in the face of the climate crisis. And so that's really taken hold as well within people thinking about divestment.
Eric Campbell (02:57):
Okay so, a moral case and a financial case increasingly. What does the divestment movement look like in Canada right now?
Adam Scott (03:04):
Yeah, it's growing and its sort of got roots in communities across the country. Folks involved in pension funds, but also institutional investment, and all different levels across the country. So we're seeing divestment pop-up local community foundations. We're seeing, you know, university endowments have always been a hotspot for divestment campaigns so those are continuing as well within a lot of new divestment announcements there. But we're also seeing, you know, the Canadian Medical Association announced a divestment not that long ago. We're seeing it moving across the health sector and in other places.
Eric Campbell (03:44):
And now it's not just about divestment. Your organization urges investors to watch out for other climate risks also. What are those risks and how should investors be treating climate change in their portfolio these days?
Adam Scott (03:59):
Yeah. We see divestment as just one of the tools that's available to investors to try to manage these risks. So the kinds of risks you know, there's quite a bit of detail I can get into there, but you know, I think most people are familiar with the sort of transition risks that's most commonly associated with fossil fuels. So let's assume, you know, fossil fuels are the leading cause of the climate crisis and addressing the crisis requires a rapid energy transition out of fossil fuels to zero carbon energy sources. So that's sort of the most obvious place you would expect to see risk in your portfolio if you're an investor, but you have to think more broadly, you know, climate change presents very serious physical risks to infrastructure and to real estate and to companies. We're seeing that every year with forest fires and droughts and flooding and sea level rise, all these different physical impacts of climate change. And if you think about large institutional investors like pension funds, they have huge portfolios of physical real estate and infrastructure around the world. So they're highly exposed to that particular type of climate risk, but there are also growing legal and regulatory risks. And finally, this is the one that I think is hardest to get your head around, which is there is no safe place that you can invest your money in the economy anywhere, if we don't succeed in achieving climate safety. Your whole portfolio is at risk. The growth of our economy and our ability to compound investments over time is in jeopardy if we fail to address the crisis.
Eric Campbell (05:36):
Now, Adam your organization focuses especially on pension funds. In Canada we talk about the big 8 pension funds. These are big public sector pension funds like the Canada Pension Fund, the Ontario Teachers, Healthcare of Ontario Pension Plan, OMERS and so on. How are these pension funds approaching these climate risks?
Adam Scott (06:00):
So Canadian pension funds, the sort of big 8, they manage over $1.6 trillion in pension funds that belong to average working Canadians. They're huge, their risks are quite high. They're only early in the process in terms of understanding where they're exposed and they've made very few moves to try to address that risk yet. So it's just in the last couple of years that really, you know, there's been a growing awareness in the sector and we have seen sort of some ad hoc moves. "Oh we're going to make more investments in clean energy and less investments in fossil fuels", you sort of see that anecdotally but there's no clear plan or pathway for most of them. And as a result, they're not making a major meaningful moves in that direction yet. It's really important that average Canadians understand that they have a lot of say here. Whether it's through their own personal investments and talking to their own financial advisor and how they were investing their retirement savings or talking to the people who run their pension fund. It's actually one of the most important actions that an individual can take because of the scale of influence that the finance sector has.
Eric Campbell (07:16):
Okay. Thanks for that Adam, I appreciate your time today.
Adam Scott (07:20):
Yeah, thanks for having me on!
Eric Campbell (07:22):
That's Adam Scott, director of Shift. Now let's hear from another point of view. Especially when it comes to divesting from fossil fuels, my next guest says "not so fast". Dr. Tessa Hebb is director of the Carlton Center for Community Innovation at Carleton University. She's also the author of three books on responsible investing and impact investing policies. Dr. Hebb, thanks for joining the show today.
Dr. Tessa Hebb (07:47):
And happy to join you, Eric.
Eric Campbell (07:47):
Now in a report you wrote in 2015 on the heels of a first wave of fossil fuel divestment campaigns, you wrote that fossil fuel divestment is an ineffective and blunt policy. Why is that?
Dr. Tessa Hebb (08:01):
Well, one of the things about divestment is that if somebody sells somebody else buys, and you know, that's the nature of the financial market. And so the organization that's selling or the person that's selling, loses their ability to have any influence on the company as a shareholder and who they sell to may or may not have any of the same concerns or issues around climate change and the use of fossil fuel. And that's why it's a bit of a blunt instrument. The other thing is it doesn't really tell the company what course of action we'd like them to take or what pathway we would like them to take in a transition to a low carbon economy. And in that way, that's kind of the blunt side of the instrument. I have an example of where I was calling for divestment. It was in the South Sudan and Talisman was the oil/gas company in that region and they were being asked to, you know, remove themselves from the South Sudan and to stop kind of feeding in the resources that was part of the civil war. So many of us said, okay, well, divest from Talisman. And what happened was that in the end Talisman did divest from its position in the South Sudan and it was bought by Petro China and Petro India, and neither of them had you know, any concerns about being in that region and investors lost their ability to influence those two big entities.
Eric Campbell (09:59):
I take your point. So if a big pension fund, for example, pulls out, you know, millions and millions or billions of dollars out of a sector then it loses the ability to influence that sector. One other question for you, Dr. Hebb there still are these divestment actions happening. What impact do you think this movement is having now that it's - whether or not it's the smartest approach for investors - it has gained this extra traction?
Dr. Tessa Hebb (10:28):
You're right that we have seen more divestment in the last couple of years than we had seen in the period before. One of the things is that in many of these instances, these big institutional investors are making very public their divestment from coal. So coal is very much one of the target areas. The other thing that's happening though, your listeners may be aware that there is what's called the green taxonomy that has been developed by the European Union. So basically this is a set of rules and definitions for investors as to what constitutes a green or sustainable investment, and they have indicated quite a number of areas that for the European institution investors that do not constitute a sustainable investment. And one of them quite explicitly is the Canadian oil sands. And so, you've probably seen that big European pension funds are divesting from their position in the Canadian oil sands. And that is something that I wouldn't have been able to predict. I would have predicted that there was going to be a transition. Those disclosures are gaining even more traction than what you see from divestment. So again, the institutional investors holding their positions but asking for more and more disclosure of what the company is doing. They can't make those requests for disclosure if they aren't holding their position.
Eric Campbell (12:23):Dr. Hebb, thanks so much for feeding into this conversation today.
Dr. Tessa Hebb (12:26):
Eric, it's been my pleasure.
Eric Campbell (12:29):
So where does that leave us? As Adam Scott says, there's a lot of divestment happening away from the fossil fuel sector, a lot of selling, and it is registering on the radars of the fossil fuel sector. But as Dr. Hebb says, for every seller there's a buyer, and when you sell you lose your influence on the future directions of that company. And so maybe it's better to continue investing and to shape the future. For more about fossil fuel divestment campaigns check out this episode webpage at podcast.smartprosperity.ca.
Eric Campbell (13:06):
Okay, question! How many times do you wear a new shirt before you consider it old and discardable? Well, according to a 2019 McKinsey report, up to one third of young women who are the biggest segment of consumers feel that way after wearing something only once or twice. This is a reflection of the fast fashion trend: buy it, wear it a couple times, dispose of it. It's what keeps the fashion industry's $3 trillion market growing. But behind this trend is a cascade of environmental problems. The fashion industry is responsible for 8% of all the world's climate emissions, 20% of the world's industrial water pollution, up to 35% of microplastic deposits in the ocean. So reusing and recycling clothes is good and there's a market for it. In fact, as my next guest can explain the secondhand clothing industry is a behemoth all its own. H.G. Watson is a freelance journalist based out of Toronto and just last week Chatelaine magazine published her exposé on the global secondhand clothing market. H.G., Thanks for joining the show.
H.G. Watson (14:14):
Thank you for having me.
Eric Campbell (14:16):
H.G., You uncovered some fairly eye-popping numbers about the size of the secondhand clothing market in your article, which ones really jumped out at you?
H.G. Watson (14:24):
I think the thing that really hooked me about this story was finding out about the sale of a $6,000 Aladdin t-shirt. I think probably growing up we all had Disney merch and we never thought it was going to be worth a ton of money. You know, I still have some that I really like and I could probably end up selling now for hundreds of dollars. I think that sort of shows the interest in pieces. Obviously this industry has grown to be quite powerful on its own because it's not just tourist stores, it's not just value village. You know, it's online, it's boutique thrift. It's places like the RealReal or Depop. So it just really encompasses every aspect of fashion and of clothing production at this point.
Eric Campbell (15:13):
Wow. I love that that's the - $6,000 allowed in shirt was the one that jumped out the most at you. It is incredible. So obviously there's a big market for this stuff and one of the statistics you cited was, you know, right now the secondhand market is a $28 billion market and it's expected to grow to $64 billion, more than double, just over the next 5 years - which is wild! The other thing that jumped out at me from your article is just the sheer scale of the secondhand clothing that's in circulation. We're not talking just, you know, a paper bag full of discarded t-shirts here and there. There's a lot out there isn't there?
H.G. Watson (15:54):
Yeah. I think that was one of the things that really came across to me from the interviews that I did from talking to other vintage dealers, was just how overwhelming it is to actually go in to these rag houses and just see how much clothing is coming down the line all the time. There's some of these places that could be running lines 24 hours if they wanted, right. You know, I think I - I interviewed a man for this piece who actually owns a rag house or a textile recycling. And he's told me he's been sorting at his facilities between 150,00 to a 180,000 pounds a day. So that's just an incredible amount of volume!
Eric Campbell (16:43):
So, you mentioned these rag houses, it's something that you describe in the article. Like a lot of people I've donated and I've bought secondhand clothes before and it's always seemed like a fairly simple arrangement, but it's not. What happens to used clothing when it gets given away?
H.G. Watson (17:04):
Right. So it does somewhat depend on where you're dropping off the used clothes, but let's say for the sake of this article and what we're talking about today, you're going to say a Value Village or Salvation Army or any of those things. So essentially at that point, they're going to start sorting through some of those clothes and some of them will end up in the store itself, so it may go back out onto the floor. But a majority of it is not going to be usable necessarily for their purposes. So that stuff is going to get bundled into what's called bale. These bales are massive, so they can weigh like a ton, basically, they're very very big. And they get shipped off to these different rag houses or textile recycling centers where they then go through subsequent sorting.
H.G. Watson (17:50):
So this is where they'll actually go out onto conveyor belts at the really big facilities or into bins at smaller facilities. And people who are either staff of the house itself, or that are coming from the outside because they're vintage pickers will go through, they'll sort them into what kind of textile it is. So pants, dresses, et cetera. And then they'll also begin looking for some of the higher quality stuff. But I think it's really important to emphasize that very little actually gets picked at that stage, just in terms of volume. Even like some of the biggest vintage pickers in Canada are taking enough that it's making a significant impact in the amount of textiles that are then being recycled or shipped out or just being garbage or trashed essentially. The clothes that remain that doesn't go to vintage pickers will end up going overseas, and there's lots of different locations. There's a huge market in Africa that we talked about in the story and that's one of the primary places that has been for years. Though it's interesting because there has been some pushback to that because you know, having this influx of clothing coming in from North America, from Europe, has really decimated local clothing industry. So there's been a pushback in some African countries to really, you know, try to help rebuild their own economy and their own manufacturing.
Eric Campbell (19:08):
And so the clothes, I assume, you know, a lot of them get re-worn. the textiles, what happens to them? Do they get reused, do they get recycled?
H.G. Watson (19:14):
I mean, there's so many things. I mean like there's textiles, of course, things like drapes will end up in vintage stores as well, right. There's a market for that. But there's going to be a lot that's just not usable because it's damaged, because it's cheap, because it's falling apart. The unfortunate thing is that the research seems to show that a lot of it is going to end up in landfills, or they're going to attempt to recycle it in some ways, but really the only way that you can recycle clothing is to reuse it in some way. Because modern clothing, most of it isn't made from material that's going to break down in like an organic way. Like even most cotton t-shirts will contain some amount of plastics, whether it's polyester or, you know, if you were a stretched denim, that's plastic. So yeah, the breakdown is very, very different. So definitely a huge challenge is figuring out what do we do with textiles that aren't going to have any use?
Eric Campbell (20:14):
It's so fascinating. H.G., Thank you for sharing some of these insights with us on the show today.
H.G. Watson (20:19):
Great, thank you so much.
Eric Campbell (20:22):
H.G. Watson, a freelance journalist. I reached her at her home in Toronto.
Eric Campbell (20:35):
Now it's time for something we do every show, it's called the 60 second report. It's where we invite the author of a major new report to sum it all up in 60 seconds or less. This week we're featuring a new report from the Institute for Sustainable Finance at Queen's University, on current Canadian corporate performance on GHG emissions, disclosures, and target setting. Here's Sean Cleary, he's the chair of the Institute and lead author of the report.
Sean Cleary (21:03):
We examined the firms included in the S&P TSX composite index and we found that about two thirds of them provided GHG emissions disclosure. This figure is in line with the US but well-below Europe at 79%, in the UK at 99%. Among the firms in the index just over quarter have stated emission reduction targets. This figure is well below the US percentage of 53% and even further below 67% for UK firms. The good news is among these 60 firms with targets they account for approximately half of the estimated emissions for the entire index firms. Just over three quarters of these firms provide plans for achieving their targets, varying from the detailed plans to achieve them to those that provide some level of detail. And similarly just about three quarters tie these plans to executive compensation, either very closely and loosely. Finally, the overall message from this report is that corporate Canada must step up its game with respect to both disclosures and setting reduction targets.
Eric Campbell (22:06):
Thanks Sean. For a link to that new report from the Institute for Sustainable Finance, go to this episode's webpage at podcast.smartprosperity.ca.
Eric Campbell (22:19):
Now there's a lot happening in the green economy every week, more than I can cover on my own. And so this last segment is courtesy of Mike Moffatt. Mike is the senior director of policy here at Smart Prosperity Institute and he's tracking the 5 most important things happening in the green economy right now. Mike, what's making the list this week?
Mike Moffatt (22:39):
Well, here are the 5 things that I'm watching this week. Number one, 2020 was a record year for global renewable energy investment according to the international renewable energy agency. Renewable energy accounted for 82% of all new electricity capacity with China alone adding 136 gigawatts about the equivalent of Spain's total power production. Number two, a new report from TD bank warns that the green energy transition could lead to significant displacement of oil and gas workers. In one scenario, as many as 450,000 jobs or three quarters of all of Canada's oil and gas related jobs could be lost by 2050. Number three, new research from Simon Fraser University says Canada will lose $11.9 billion from the trans mountain pipeline expansion project due to a more than doubling of construction costs and worsening economics because of global climate policies. Number four, president Joe Biden introduced a $2 trillion infrastructure plan. That includes massive investments in clean energy electric vehicles and building retrofits as well as a new clean electricity standard intended to make the US electricity grid net zero by 2035. And number five, the Canada Pension Plan investment board, one of Canada's biggest pension investment bodies, says it will create a new investment group to boost its portfolio of renewable energy investments. The new sustainable energy group will control about $18 billion in assets or about 3% of the CPPIB's total portfolio. I'm Mike Moffatt and those are the 5 things that I'm watching this week.
Eric Campbell (24:26):
Thanks Mike! For a list of those five stories with links, go to podcast.smartprosperity.ca. Well, that brings to an end another episode of Smart Prosperity the Podcast. Let's keep the conversation going. If you've got a reaction to anything you heard on today's show, or if it inspired some ideas, let me know. We might feature it on our next episode. All the contact info for this show is at podcast.smartprosperity.ca. Thanks for tuning in, my name is Eric Campbell. The next episode of Smart Prosperity the podcast is out April 27th. Hope you'll tune in then.