Scottish Widows is committed to net zero alright. For years, the endowment policy I had with it was worth pretty well just what I had paid into it. Although, on second thoughts, maybe Maria Nazarova-Doyle, head of pension investments at Scottish Widows, wasn’t referring to the returns on its policies when she said this week: 'Moving to net zero will protect savings against climate-related risks and uncertainty and offer longer-term sustainable growth by accessing low-carbon transition opportunities.'
The firm says that as an interim target it wants to halve the emissions from its share portfolio by 2030. What exactly it means by this isn’t clear. I’m not sure my share portfolio emits any emissions whatsoever – the cardboard file detailing my investments sits in my office with no signs of smouldering. But if Scottish Widows means that it intends that it wants to halve the stated emissions from the companies in its £170 billion book of investments, that does sound pretty easy to achieve: sell the oil companies, miners, manufacturers and buy stuff like wind farms.
But does that help the planet, or merely result in a load of overvalued green energy companies? Scottish Widows is really just being a bit late onto the investment bandwagon of the moment. In 2020, the two best-performing funds available to US investors were both clean energy funds: Invesco Solar Exchange Traded Fund which put on 238 per cent and a more general clean energy fund which went up 220 per cent. In Britain two of the best-performing shares were the hydrogen duo ITM Power (up 462 per cent) and Ceres Power (up 310 per cent). I declare an interest in that I own a small stake in both, but I can’t be the only one a little dazzled by those rises, and wondering whether I’m not just joining a lunatic Gamestop-style bubble. ITM Power is now worth £3.55 billion -- not bad for a company which widened its losses in the six months to 31 October to £12 million, on just £4.4 million worth of sales.
It wasn’t long ago that divesting in fossil fuels was the preserve of student unions, universities and the like. Now it has crept into mainstream pension and investment houses. For the past two years, Blackrock CEO Larry Fink has written to investors promising to hold companies to account over their carbon emissions. Mark Carney tells us that oil companies will be left with ‘stranded assets’ which threaten the stability of the financial system. And sure enough, Shell posted a full-year loss of £21.7 billion last week, caused in large part by down-valuation of its assets on the grounds that oil prices can be expected to be lower in future than previously thought.
I am sure the future belongs to clean energy. But then so, too, in the late 1990s did the future belong to the internet. That didn’t, however, mean there was much of a future for the many dotcom companies whose shares were being bought up willy-nilly by eager investors. A few of those companies survived and thrived and have become the giants of today. Most went bust.
I don’t doubt the same will be true of clean energy companies. A few of those whose shares have been booming in recent months will become the big players; most will go under. And it will be anyone’s guess which will be which.
I suspect, however, that what we have seen so far will be just the beginning of a boom which will last several years. It’s not a Gamestop which will burn out in days. Green energy surely has more legs than Bitcoin. But when the bust comes it will be big – bigger, perhaps, than the dotcom bust. It won’t be so much a case of stranded assets as ones which evaporate overnight. But just look at that promise from Scottish Widows: 'to protect savings against climate-related risks'. No word, I note, about protecting savings against investment fads.