"Across the country and around the world", writes John Hewson in the AFR, "those who manage our money, who lend to us, who hold our savings are realising they have a burning elephant on their balance sheets." And it's not just intellectually honest former Liberal Party leaders that are making the call.
Bendigo and Adelaide Bank Limited (ASX: BEN) has recently announced that it will "not lend to companies for whom the core activity is the exploration, mining, manufacture or export of thermal coal or coal seam gas." This means that the company would not lend to value traps such as Metgasco Limited (ASX: MEL) and Whitehaven Coal Limited (ASX: WHC) down 85% and 75% respectively in the last three years. It's absolutely mind-blowing to think that anyone would have actually held the shares for that long.
To date the big electricity retailer-generators have held up well – the likes of Origin Energy Limited (ASX: ORG) and AGL Energy Ltd (ASX: AGK) have used their incumbency and political clout to the advantage of their shareholders. Both companies plan to export liquid natural gas extracted from coal seams, and these revenues may well insulate the companies against the decreasing profitability of electricity retailing.
Origin Energy deserves special mention. The company has made unrelenting attacks on the Renewable Energy Target (RET) – a mechanism originally put in place by the Howard government that has encouraged investment in renewable energy infrastructure, creating employment in the fledgling renewable energy industry and reducing our reliance on the ongoing extraction of fossil fuels.
AGL Energy once strongly supported the RET, though it has given in to the inevitability that renewable energy will be a lower priority for the current federal government. However, it remains the big electricity retailer and generator best poised to profit from clean energy should the government change.
Early movers such as AMP Limited (ASX: AMP) have acknowledged that many fossil fuel companies do not belong in a socially responsible share portfolio. Socially responsible investment fund Australian Ethical Investments Limited (ASX: AEF) is well aware that reducing investment in fossil fuels can be a positive for your portfolio. The CEO Phil Vernon recently commented that: "There are quite sound financial reasons why being invested in fossil fuels is a risk to investment portfolios over the long term," and he has recently debunked the Mineral Council's attack on ethical investors.
Incidentally, Australian Ethical's small companies trust is averaging 10% p.a. over the last 10 years, which isn't bad for a managed fund. Indeed, ethical funds outperform the rest. It is no wonder that Morgan Stanley said divestment campaigns were a top trend to watch in 2014.
Personally, my ethical share picks are doing considerably better than 10% p.a., although I am a small investor and therefore have certain advantages (I also don't have a 10-year record). Nonetheless, there are plenty of individual investors applying their own values to their investment portfolios, with considerable success.
