Climate Change: Addressing Big Problems through Small Changes

As we celebrate the 51st annual Earth Day, we continue to see a noticeable increase in ESG
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As we celebrate the 51st annual Earth Day, we continue to see a noticeable increase in ESG and climate change-related headlines across mainstream media sources. The details can be depressing and overwhelming! Plastic is a problem. We’re producing too many greenhouse gases. Greenwashing products abound. As we evaluate our lifestyles, it seems impossible to make a dent in such a vast, systemic, and global problem. But we can start with one small change at a time.

 

Plastic is integral to our everyday lives, and its complete elimination is unrealistic. There’s no denying that plastic is an important component in items like auto and computer parts, medical devices, and sports safety gear. It’s strong, doesn’t corrode, is resistant to harsh environments, and it’s inexpensive.  However, these characteristics can also make plastic a huge disposal problem, particularly given the massive volume of plastic currently being consumed.  The world produces over 380 million tons of plastic per year, most of which ends up in landfills or the ocean or is shipped across the globe to developing nations with lax environmental standards. Sadly, less than 10% of all plastic is recycled, and an estimated 10 million tons enter the ocean annually. That equates to about one garbage truckload every minute!  So really, much of our plastic ends up back in the fish that we eat (yum?!), disrupts the ocean’s ecosystem, and contributes to poor labor and health conditions for those stuck with that plastic we happily threw in our recycling bins.

 

Many of us are making changes and trying to do right by the environment.  Driving and flying are freeing, and often necessary, but a large part of our carbon footprints. Meat and dairy, dietary cornerstones for some of us, also contribute significantly to carbon emissions. And apparently, so does peat-based compost. Who knew?! Not me. To be fair, I can’t keep a cactus alive, so I’m probably not the best person to ask about gardening matters. A recent Financial Times article highlighted the carbon intensity of peat extraction and the power of understanding the impact of a seemingly simple decision at your local gardening center. You thought you were doing something good for the environment by buying some plants, but then you learn about the carbon intensity of peat, and you notice all of those plastic pots, and you start to panic. How are we supposed to know and keep track of it all?

 

Similarly, we think we’ve made progress by purchasing new green products but then discover that some manufacturers used greenwashed marketing to capture our attention. It can be deflating (and expensive!) spending so much time attempting to make changes and feeling like we’re back to square one. It’s complicated! What about changing from dairy milk to almond milk? Feeling good, right? Check out the water consumption needed to produce almond milk. Maybe that’s not the best choice (but still better than dairy?)? And those green cleaning products – check the labels and the packaging. Most of them still come in plastic bottles and contain harsh chemicals, impacting your household and often the surrounding ecosystem. And the microplastics entering the sewer system from your dishwasher and laundry tablets wreak havoc on the environment and are spread to all corners of the globe. New studies have shown shocking levels of microplastics in the ocean and the atmosphere with the potential to seriously impact human health.  How can we make large-scale changes when the small ones are hard? And how do we incent all parties to make a green choice, especially when that often requires paying a premium or disrupts a lucrative business?

 

Depressed and deflated yet?! The good news is that people are starting to really pay attention and demand change. There are green products that are affordable and can be trusted. As we celebrate Earth Day, we are reminded that small changes can make a difference. At IR+M, we’ve been focused on educating and challenging ourselves to make these changes as a firm. Before Covid (remember that?), we had made significant progress in cutting out our single-use plastics and focused on working with vendors to cut down on waste. We had revamped our recycling and composting efforts, purchased compostable straws and flatware, contracted with an eco-friendly document shredding provider, and participated in a smart toner recycling program, to name a few. When we shifted to our work from home environment, we started having more conversations surrounding the changes we could and have made at home. Colleagues are sharing ideas, and the enthusiasm is contagious!

 

This approach applies to our investment process, too. Companies and regulators recognize that climate change is a large systemic risk that needs to be addressed. Exposure to the physical risks of climate change, as well as the transition risks from needing to meet regulatory or technological hurdles to operate sustainably, can, and will impact a credit assessment. We look at how our investments across all sectors are exposed to these risks and evaluate material ESG factors when looking at issuers. We believe that this will continue to play a prominent role in how investors think about their portfolios, how companies run their businesses, and what information regulators will require.  In short, we believe that this is part of prudent portfolio management.

 

So, as we welcome spring and celebrate Earth Day, if we take a moment to reevaluate our choices and make a few small changes over time, then we can truly make a difference. As more people support greener alternatives, they become more mainstream, more available, and more affordable. Think twice before hitting the “buy now” button on Amazon and combine your packages. Or pick a routine – perhaps you want to clean up your laundry and cut out the plastic bottles, harsh chemicals, or the microplastics from your current detergents and replace them with some eco-friendly products. Try cutting down on paper towels and disposable napkins. There are lots of cloth alternatives! Or plan to eat a vegan or vegetarian meal once a week!?! There are more delicious options these days. We can’t solve the problem in a day, but Earth Day is a great time to start and see what works for you.

The views contained in this report are those of IR+M and are based on information obtained by IR+M from sources that are believed to be reliable.  This report is for informational purposes only and is not intended to provide specific advice, recommendations for, or projected returns of any particular IR+M product.  No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission from Income Research & Management.

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Data provided as of January 2, 2024
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