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Ray Anderson set an ambitious target in 1994.

The founder and chief executive of Interface Inc. had just read Paul Hawken’s The Ecology of Commerce, which excoriates business for plundering the earth’s resources but also argues that corporations hold the keys to a more sustainable future.

Moved by Hawken’s indictment, Anderson vowed that Interface, one of the world’s largest makers of carpet tiles and thus a heavy petrochemicals consumer, would shrink its carbon footprint and other environmental costs to zero by 2020.

Anderson died in 2011, but his Mission Zero lived on. So much so that Interface was able to proclaim in November that it had met the target a year ahead of schedule.

Mission Zero began with a focus on reducing waste, from carpet scraps to industrial effluent. Interface has nudged a nylon supplier to produce a yarn with recycled content. It has worked on ways to stick carpet tiles to a floor without glue and replace natural gas with landfill gas.

The Atlanta-based company estimates that it has cut the carbon footprint of its carpet tiles by 69% over the past 25 years and virtually eliminated greenhouse gas emissions from its operations. Its factories in the U.S. and Europe are now almost entirely powered by renewable fuels.

“We’ve transformed our supply chain and our products, and we’ve implemented new business models,” the company said.

“Many others from our industry and beyond have followed us, creating a powerful ripple effect that exceeds our original ambitions.”

In 2017, Interface unveiled its Proof Positive carpet, which it claims is the world’s first carbon-negative carpet tile – in other words, it takes more carbon dioxide out of the atmosphere than it puts in. The raw material for the tiles stores carbon for at least a generation and can then be recycled to create new tiles.

“At Interface we can see a not-so-distant future in which architects, designers and businesses collaborate to create spaces with climate change in mind by choosing materials that will reverse global warming,” said Interface’s chief innovation officer, Chad Scales.

Interface is no bit player. It has 40 showrooms around the world and factories in Australia, China, Ireland, the Netherlands, Thailand, the U.S. and the U.K. Sales topped US$1 billion in the first nine months of 2019.

“What started out as the right thing to do quickly became the smart thing,” Anderson told a business conference in 2005. Which raises the question: if a company of Interface’s size can clean up its act, why aren’t many more following in its footsteps?

Zero: The Blackstone Group

With healthcare costs and income inequality among the top issues in this year’s U.S. election campaign, it’s hard to imagine a more tempting target than a Wall Street fund accused of ambushing working-class Americans with surprise medical bills.
That is precisely the allegation levelled by the House of Representatives’ energy and commerce committee against physician staffing and ambulance companies owned by The Blackstone Group and two other private-equity firms. Announcing an investigation into the three firms last fall, the committee asserted that “surprise billing has devastated the finances of households across America . . . Every day we hear stories about families who have endured financial and emotional devastation.” According to the committee, one in five emergency-department visits and 9% of elective inpatient care at in-network facilities end in a financial shock to the patient.

The extra costs typically arise when patients receive treatment at a hospital linked to their health insurer but are unaware that the hospital has contracted some services to out-of-network providers. In addition, doctors and hospitals sometimes refuse to accept the fees set by a patient’s health insurer. They then opt out of the insurance network and bill patients directly for the extra amount.

Blackstone and the other Wall Street funds have been called out because of their sizeable investments in medical-service contractors. Blackstone bought TeamHealth, America’s largest physician staffing company, in late 2016 for US$6.1 billion.

After the acquisition, “low-income patients faced far more aggressive debt collection lawsuits,” wrote non-profit newsroom ProPublica in late 2019, though TeamHealth denied a change in legal strategies.

Blackstone defends itself by noting that less than 0.16% of all TeamHealth claims result in surprise bills. According to a letter obtained by The Hill, Blackstone opposes any move to cap bills on the grounds that it would lead to damaging cuts in payments to doctors and hospitals. Instead, the private-equity firms have proposed independent arbitration.

After the ProPublica exposé, the company shifted tactics and issued a statement saying it would no longer sue patients and would drop any existing lawsuits.

Blackstone, led by hard-driving and flamboyant Stephen Schwarzman, manages more than half a trillion U.S. dollars. Its prime goal, obviously, is to produce the highest possible returns for its investors. But doing so on the backs of Americans’ medical bills tarnished its reputation at a time when pension funds and other institutional investors are under mounting pressure to demonstrate social responsibility. Other private-equity firms profiting off essential social services – and, for that matter, every other company – might wish to take note.

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Over the past 10 years, vice was virtuous for returns if you invested in guns, sex, meat, gambling and booze, all of which outperformed the stock market on average.

That guns are smoking stocks is not surprising, given that military spending, led by the U.S., has been on the rise for the past decade, and given the tragic frequency of mass shootings, which tend to boost sales as gun owners rush to stock up in fear that their right to bear arms will be curtailed.

MindGeek, based in Montreal, has cornered a huge chunk of the pornography market, but it is privately held, so no peeking for public investors. What is left over for public investors are a few piddly stocks that make up 0.02% of the total stock market, but they are grinding out above-market returns.

Owning gambling stocks has been a good bet for the past 10 years, thanks to a booming economy and casino operators expanding in Asia, but it may not pay to “own the house” when the economy hits a downturn.

Plant protein options like Beyond Meat are bursting onto the scene but have yet to take a bite out of surging demand for meat as Asia’s middle class grows. There could be some indigestion for the meat industry as animal welfare and health concerns propel a growing wave of flexitarianism and veganism around the world (which there is now an ETF for, by the way: VEGN is now listed on the NYSE).

Vice was not so nice for returns if you got stuck holding a bag full of companies on the wrong side of the law, human rights or the low-carbon economic transition.

While he is not a tobacco investor himself anymore, Warren Buffett once famously said, “I’ll tell you why I like the cigarette business. It costs a penny to make. Sell it for a dollar. It’s addictive. And there’s fantastic brand loyalty.” But as anti-smoking regulations continue to tighten, tobacco must now share the air with pot and vaping.

Prisons are a captive market, but for-profit prison stocks are getting booked for underperformance in the wake of a backlash from pictures of kids in cages at GEO Group that have been beamed around the world.

Crime has not paid for investors in the 100 companies with the worst records for breaking the law, which have acted as a ball and chain on their returns.

What used to be known as “black gold” is increasingly the source of red in investor portfolios, as the fossil-fuel growth story comes to an end more quickly than almost anyone predicted. While short-term geopolitical events could produce a rally for this sector, the big money is writing off those without a credible plan to transition to the low-carbon economy.

Just four companies dominate the global market for genetically modified seeds and pesticides. Bayer became the biggest company in the space when it swallowed Monsanto whole in 2018. Since then it has had some growing pains, under a heap of lawsuits related to allegations that the company’s glyphosate-based herbicides cause cancer.

Nuclear reactors create energy by splitting atoms, but they have caused many stockholders to split their hairs on account of their tendency to be delivered late and over-budget. Maybe the much-hyped next generation of nuclear reactors will have better luck.

The companies with the worst records for damaging people’s health, propriety, the environment and human rights have turned out to be wronging investors a lot, too, in terms of forgone returns.

The red-flag theme that has delivered the clearest cut to returns, as the Lorax may have predicted, is severe deforestation, where the worst-offending companies have seen their value axed by over 7% a year for the past 10 years.

How would it have worked out for an investor who went all-in on red-flag stocks?

Not so good. A total red-flag portfolio consisting of stocks across all 21 themes would have generated a 10-year annualized return of 3.6%, or less than half the 9.2% posted by the MSCI ACWI, a commonly used stock market benchmark, or the 9.1% tally of the Clean200, the 200 companies that earn the most revenue from providing environmental and social solutions.

As the next 10 years will likely be different from the last 10 years, perhaps the more important takeaway is that the “baddies” as a group make up a relatively small portion (13%) of the stock market.

So investors can decide which red flags they want to keep out of their portfolios without losing much in terms of diversification.

F1. The list of product/conduct red-flag companies was created by using various reports and databases to determine the “worst-in-class” companies for various indicators. The sources for each indicator are as follows: access-to-nutrition laggards – Access to Nutrition Initiative; blocking climate policy – InfluenceMap; civilian firearms – NZ Super Fund; controversial weapons – Norges Bank Investment Management (NBIM), NZ Super Fund; conventional weapons – Stockholm International Peace Research Institute; deforestation – Chain Reaction Research; farm-animal welfare – Business Benchmark on Farm Animal Welfare; for-profit prisons – American Friends Service Committee; gross corruption violations – NBIM; illegal activity – Corporate Knights Database; severe environmental damage – NBIM; severe human rights violations – NBIM; thermal coal – NBIM; tobacco – NBIM; adult entertainment – Motley Fool, Wespath; alcohol – S&P Capital IQ Industry Classification; energy (fossil fuels) – S&P Capital IQ Industry Classification; gambling – S&P Capital IQ Industry Classification; GMO pesticides – United States Department of Agriculture; industrial meat – Corporate Knights Database; nuclear energy – MVIS Indices.

F2. Total 10-year annualized USD returns for each red-flag category were calculated using S&P Capital IQ. Securities for each red-flag category are weighted according to market capitalization and rebalanced semi-annually. The CK Global 100 Index category was calculated separately by Solactive.

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It’s a daunting number. But decision makers in business and government are slowly realizing that the cost of inaction is even greater.

The latest converts: the International Chamber of Commerce (ICC), a Paris-based institution that has spent more than a century lobbying for free trade and regulatory transparency. In a Dec. 5 letter to the world’s finance ministers, ICC Secretary General John W.H. Denton pushed for concerted policy actions “in support of sustainable development and bold climate action.”

The ICC pointed to the response to the 2008 financial crisis as an example of how tough regulatory action can create better outcomes. Unless we act now, it warned, “the collapse of biodiversity, global warming and irreversible changes to natural systems and structures that we all depend on will produce adverse economic and societal impacts around the world that are far greater than those of the 2008 financial crisis.”

Despite the recent growth of green bonds and other sustainability-indexed investment vehicles, Denton says, “sustainable finance remains a market exception at a moment in history when people and our planet require it to be the norm.” He offers 10 proposals for heading off catastrophe. Here are a sampling:

• Add sustainability-related risks and objectives to the mandates of the world’s central banks. Their focus on financial stability “can no longer be separated from sustainable-development imperatives.

• Include climate risks in the risk-management policies of financial institutions.

• Align the rules and processes being developed for environmentally and socially sustainable investment activities, to avoid putting new capital requirements on banks and insurers.

• Embed sustainability in credit ratings and credit pricing.

• Establish clear fiduciary duties for institutional investors and asset managers in relation to their sustainability considerations and investment recommendations they make to retail investors.

• Unlock the estimated US$100 billion of “dormant” assets (left behind when financial institutions lose contact with the assets’ owners). These windfalls could be invested in UN Sustainable Development Goals projects.

• Incentivize green projects by promoting sustainable-finance partnerships and public-private investments. “Public policy impediments to implementation of such initiatives should be identified and removed.”

The letter reached finance ministers just before they sat down at the UN climate conference in Madrid to finalize their own 2020 “action plan.” Compared to Denton’s letter, the ministers’ plan calls mainly for reviewing, studying and sharing.

How good to see business holding politicians’ feet to the fire.

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“I was applying for a lot of jobs and not getting anywhere,” says Skelton, a sociology undergraduate with a work internship in Washington, D.C., and teaching experience in Asia.

She decided to return to school for a graduate degree, spotting an intriguing program at the University of Calgary. A 16-month Master of Science in Sustainable Energy Development, offered jointly by Haskayne School of Business, Schulich School of Engineering and the university’s faculties of Law and Environmental Design, hit the right notes with its interdisciplinary approach to sustainable energy.

Across Canada, business schools and other faculties are joining forces to deliver new academic experiences that incorporate cross-disciplinary perspectives, hands-on projects, real-world applications and an emphasis on sustainability.

“We have huge problems in the world, and we have to get busy and all work together,” says Irene Herremans, a professor at Haskayne and Calgary’s Faculty of Environmental Design, with the Sustainable Energy Development program. “Twenty years ago, we didn’t talk much about sustainability,” she says. “Now when the students come in, they don’t know the ‘ins and outs,’ but they know we need to do something.”

The master’s program recruits from business, engineering, environmental studies and the humanities, enabling students from diverse disciplines to work on a required capstone project.
In 2017, one team worked with African non-profit groups to install a solar power system in a village in Burkina Faso, enabling local women to expand their shea butter cooperative.

The team-based, real-world focus “made me look at challenges differently,” says Lucas Barr, a geotechnical engineering consultant who joined the program at 37 for a career pivot.

After graduation, he joined Canada’s Oil Sands Innovation Alliance, an industry group working to make petroleum extraction from bitumen cleaner. As senior technical advisor for tailings, Barr works to promote innovation and research on oil sands cleanup.

Like Barr, Skelton used her master’s degree to head in a new direction.

From her 2017 thesis project, she founded a Calgary-based social enterprise to promote crowdfunding of sustainable projects. Through Budfunding, Skelton organizes a biannual “sustainability expo” for environmentally conscious vendors and promotes “conscious consumerism” education initiatives.

She says the interdisciplinary master’s program, with out-of-classroom experiential learning on sustainability and Indigenous issues, taught her to see problems differently. “Creativity is what solves problems,” she says. “If you are just coming at something from one perspective it can be a lot harder.”

Stirring sustainability into food management at Guelph

A horizon-expanding experience is also what Jordan Legeard, a commerce undergrad at the University of Guelph’s Lang School of Business and Economics, gained from a one-semester, multidisciplinary course in restaurant operations management.

Hotel and food majors in Lang’s School of Hospitality, Food and Tourism Management work with nutrition students in the College of Social and Applied Human Sciences to run a LEAF-certified “green” on-campus restaurant, with real customers at lunchtime.

Six years ago, the course made sustainability an explicit focus, including banning plastic straws, switching to cloth napkins and auditing the waste of complimentary water and bread. Students learn to measure the nutritional impact of food and analyze the life cycle of restaurant food, including the carbon footprint.

Third-year commerce student Adriana Ovalle says working with nutrition students taught her a valuable lesson for a planned career in hotel management. “You are going to end up working with people who come from totally different disciplines,” she says. “The course opened my mind to things [nutrition students] know compared to what I know.”

The experience also heightened her interest in sustainability.

That raised awareness is essential for a changing job market, says Statia Elliot, interim associate dean of external relations at the Lang School and former director of the hospitality school.

“Restaurants today are looking for big changes and hiring sustainability coordinators,” she says. “Our graduates have the knowledge and understanding to move the needle forward [on sustainable practices].”

Mixing specialities at McMaster

Elsewhere, sustainability is gaining traction through new, multidisciplinary course offerings.

In 2014, McMaster introduced an Interdisciplinary Minor in Sustainability, for which students could choose among 58 courses. It now includes 73 eligible courses, representing the fourth-largest minor by enrolment at the Hamilton university. This year, 39 students graduated with the minor, up from three in 2015, not counting those who took the minor without officially adding it to their transcripts.

No one faculty dominates the enrolment profile, ensuring students from different disciplines work together on real-life projects.

“Sustainability is a complex problem, and we need interdisciplinary learning to tackle complex problems and sustainable solutions,” says Kate Whalen, senior manager of academic sustainability programs at McMaster. “Our mission is to inspire in all students a desire for continued learning through experiential education related to sustainability.”

Some in-class projects take on lives of their own after students complete the minor.

Last fall, Sabrina Dasouki and a diverse team of students in the minor looked for ideas to promote positive behavioural change on the environment. Knowing that only 10% of plastic waste is recycled in Canada, her team developed a kit of reusable eating tools made of bamboo to replace throwaway plastic utensils.

Once classes wrapped up, Dasouki turned the kit concept into a start-up. In November 2019, the 23-year-old made her first sale of the Essential Utensils kit, to the McMaster University Campus Store.

She says the learning experience of the sustainability minor was unlike conventional discipline-based programs. In the minor, student teams with diverse academic backgrounds worked through their differences to solve a problem.

Dasouki would like to see an interdisciplinary component to all undergraduate programs. “It is the closest thing that will get you to real life.”

Jennifer Lewington is an intrepid reporter and writes regularly on many topics, including business school news.

A version of this story appeared in the Winter Issue of Corporate Knights.

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The provincially owned utility is evolving from a company that simply generates and delivers power to one that does business across the electricity supply chain.

In its strategic plan, released in December, Canada’s largest power utility pins big hopes on growth opportunities beyond its border, including convincing the world’s leading auto manufacturers to integrate Hydro-Québec’s EV powertrains into their vehicles.

The company’s focus to date has largely been on increasing its low-carbon hydropower exports to the American northeast and Ontario. The company is looking to play a leadership role as those governments adopt policies that would increase the use of electricity for transportation and buildings and decarbonize regional power grids, CEO Éric Martel said in an interview.

“We are very focused on this,” Martel said. “We have different fronts now to improve our top line and bottom line. It’s been part of the DNA of our company for a long time; we have that research centre with a lot of technology that we’re trying to leverage as much as possible.”

But Hydro-Québec is also pursuing new business opportunities: as the owner of the largest network of EV charging stations in Quebec, the manufacturer of key components for electric motors, and the developer of new solid-state batteries that could replace lithium-ion batteries.

The utility this fall launched a new subsidiary, Hilo, which will offer a range of products and services for residential and commercial customers to manage their energy use more efficiently.

Its biggest manufacturing gambit involves Dana TM4, a producer of motors for electric vehicles that was created last year when Hydro-Québec merged its wholly owned subsidiary, TM4, with the electric motors division of Ohio-based Dana Inc. The Quebec utility remains a 45% partner in the joint venture.

Dana TM4 recently increased its footprint in China, with Hydro-Québec investing $85 million to help finance a growth strategy in one of the world’s fastest growing markets for electric vehicles.
“China is the biggest market for EVs,” Martel said, noting the Chinese are putting up to 100,000 new electric buses on the road every year.

“It’s a tough market because there are a lot of Chinese competitors . . . but we’ve been growing our market share.”

Bloomberg New Energy Finance (BNEF) – which tracks low-carbon energy markets – forecast that China would add 1.5 million electric cars to its fleet this year, representing some 7% of total sales for personal vehicles.

The country is expected to account for 60% of all EV sales five years from now, BNEF says.
Financed in part by Hydro-Québec’s $85 million investment, Dana TM4 also acquired full control of Chinese company Dana Electric Motor Co., formerly Prestolite E-Propulsion Systems (PEPS). Previously 50% owned by Dana TM4, Dana Electric manufactures and markets electric powertrain systems, particularly for buses and trucks.

Success in the Chinese market will allow Dana TM4 to target other regions that are moving to speed up the adoption of electric vehicles, Martel said.

Meanwhile, Hydro-Québec – which is one of the world’s largest hydroelectric power producers – is also counting on a growing North American appetite for low-carbon electricity to fuel its growth over the next decade.

It has run into some roadblocks, however.

The company inked a 20-year deal to supply power to Massachusetts starting in 2022 that could generate $500 million a year in revenue for the utility.

But state regulators blocked an initial proposal for a transmission line through New Hampshire, and Hydro-Québec’s plan B, which includes a 233-kilometre line through Maine, is now also facing challenges.

Hydro-Québec has long eyed increasing exports to its neighbour Ontario, and upgrades to the transmission line between the two provinces has added capacity for 1,200 megawatts of base-load deliveries.

Unfortunately, Ontario is no longer entering into long-term power contracts, and Hydro-Québec will have to compete with other producers in annual auctions.

Martel said he’s confident the company can be competitive, especially given the urgent global need to dramatically reduce greenhouse gas emissions. With the ability to store water behind dams, Quebec could serve as a kind of battery to complement renewable electricity supplies that are intermittent, he said.

But he worries that states and provinces are more interested in working in isolation than in finding regional answers.

“I don’t think we’re moving fast enough” on reducing emissions, he said.

“We need to provide leadership in our region. If we are all working together in a region, we can have much more impact than we are having right now.”

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Later, Fortier demurs. “Our goal this year is to produce half a million dollars’ worth of vegetables. There needs to be pressure to produce.”

Fortier is putting that pressure on for good reason. He needs to teach his trainees how to survive – and thrive – on their own. The 41-year-old knows first-hand that farming can be profitable but that it takes years of practice.

Fortier wasn’t raised on a farm; he grew up in a Montreal suburb. But when he finished his environmental studies degree at McGill University, he and his wife and partner, Maude-Hélène Desroches, crisscrossed North America learning how to grow vegetables. They talked to older farmers, many of whom told them it was too expensive to get into farming, the labour and long hours too gruelling. But determined, they went ahead with it anyway.

In 2004, Fortier and Desroches bought a piece of land in Saint-Armand, Quebec, that they could manage alone and worked the 1.5 acre plot with tools that looked like they belonged to the last century: broadforks, rakes and hoes. A decade later, Fortier published a bestselling book about their experiences, The Market Gardener, that was translated into eight languages. Fortier became one of Quebec’s most famous agricultural exports and ushered in a new era in farming.

He positioned market gardens, and farmers’ markets, as a solution to the ills of agribusiness, a valid career, a way to build a local community, and a way to change the world. Over the last decade, inspired and inexperienced urbanites around the world have been flocking to the countryside to try their hands at working small plots using traditional farming methods.

One of those urbanites happened to be the head of a massive investment empire: André Desmarais is the 63-year-old investment titan and philanthropist behind Power Corporation, a Montreal-headquartered conglomerate. Power Corp. has $1.6 trillion in assets under administration, including holdings in Great-West Lifeco, IGM Financial, Adidas, Umicore’s parent company, and a number of sustainable and renewable energy firms. He and his brother, Paul Jr., are the eldest siblings in one of the country’s most powerful families. They just retired from running Power Corp. in December.

So what drew the high-powered billionaire to farm life?

“The impetus was my grandson,” says Desmarais, who’s married to former Prime Minister Jean Chrétien’s daughter, France. The birth of their grandchild in 2013 and the vision of a fellow philanthropist and friend, the late David Rockefeller, sparked Desmarais’s interest in organic food and agriculture. In 2003, Rockefeller put aside 80 acres that once belonged to his grandfather, John D. Rockefeller, to create the Stone Barns in Pocantico Hills, New York. Stone Barns is a working farm and non-profit centre that trains new farmers. Its restaurant, school programs and conferences are designed to engage the public in small-scale agriculture. Desmarais set out to build a similar farm in Canada.

When he approached Fortier to run La Ferme des Quatre-Temps in 2015, Fortier resisted the role, at least initially. But they both wanted to show how small-scale, low-tech farms could be profitable. Fortier made six figures on less than two acres at his farm in Saint-Armand, Les Jardins de la Grelinette, without, as he wrote in The Market Gardener, “being embedded in the globalized economy.”

Teaming up with Desmarais meant amplifying that message with a billionaire’s backing.

The globally renowned investor seeded several million dollars to set up La Ferme des Quatre-Temps, a social enterprise paving the way toward “a more ecological and nourishing food system,” according to its website. Quatre-Temps relies on local everything, uses few fossil fuels, sells directly to customers interested in supporting the farm-to-table model and trains budding farmers from countries such as Italy and New Zealand.

Desmarais’s initial goal, as he told Bloomberg in 2018, was to demonstrate to young people that having a healthy farm could be profitable and pull in $100,000 in revenue each year.

In 2018, Quatres-Temps sold $700,000 worth of vegetables from eight acres, up 40% from the year before. Its produce, pastured meat and eggs are now in 27 high-profile Montreal restaurants, as well as several farmers’ markets. But, Desmarais admits, “Our farm does not make my estimated $75,000 profit at this stage. It is a more modest $50,000 pre-tax profit.”

He explains, “I have more workers than necessary. We [want] to train as many people as possible.” Research and development, he adds, are key to this farm.

“We try many new methodologies and ideas. A normal farmer cannot do this.”
Desmarais and Fortier are now using technology to grow their impact via a virtual master class, which 1,200 people have taken to date. Desmarais calls it a “multiplier effect we did not previously appreciate or anticipate.”

How farmers work their land has never been more important. As the climate crisis escalates, the connection between soil health and the resilience of food systems has become clearer. Agriculture and forestry contribute to a quarter of all greenhouse gas emissions worldwide, according to the Intergovernmental Panel on Climate Change, and to 10% of Canada’s emissions. Conventional agriculture, defined by the use of chemical fertilizers, monoculture planting and heavy machinery, puts too much carbon in the atmosphere and not enough in the soil.

But farms can also be part of the solution, mitigating climate change by storing carbon in healthy soils. In regenerative agriculture, like the kind practised at Fortier’s farms, farmers avoid tilling to prevent soil erosion, use cover crops and tarps to protect soil or kill unwanted plant life, and plant diverse crops to make the soil more productive. These practices increase the organic matter in soil, which can lead to higher yields and reduced carbon emissions.

Not that Desmarais or Fortier are positioning their farm venture as a silver bullet for the climate crisis. “Remember, our farms are small in land mass and very efficient,” says Desmarais. But those two attributes can also help make farms more adaptive to a changing climate.

Experts say that the ideal scenario, especially in a country as geographically diverse as Canada, is a range of farming practices. “We should be maximizing support to regionally adaptive approaches,” says Stéphane McLachlan, a professor of environmental science at the University of Manitoba. But regenerative agriculture can have a big effect on a large scale. The evidence is so convincing that General Mills, one of the world’s largest packaged food companies, says it will convert one million acres of farmland in the U.S. and Canada to regenerative practices by 2030.

Some provinces are embracing ecological agriculture more rapidly than others. Quebec has the largest number of certified organic producers in the country, and it added hundreds more between 2017 and 2018, according to the Canada Organic Trade Association.

Quebec is also a leader when it comes to support for aspiring farmers. Conventional farms are expensive to own and run, which makes it challenging for young farmers to get into farming and harder for older farmers to find successors. According to Fortier, provincial grants have helped young people start more small-scale farms and have created a more sustainable farming culture. “Farms [here] are well funded,” he says, “and service, training and expertise are passed on.”

The next generation, including Natalie Childs, who co-owns Agricola Cooperative Farm in Papineauville, Quebec, and who trained under Fortier, is using that low-tech expertise to support big goals. “I wanted to do something concrete that helped to build the world I wanted to see,” Childs says. “People want to eat good food that allows them to be a part of the solution.”

Is Quatres-Temps a window into the future of the Desmarais investment empire and a bellwether move for the future of farming in Canada? Desmarais would likely tell you he’s not in this for his own financial gain. But through this tiny eight-acre farming venture, he’s determined to prove that sustainable farming can be a money-maker – if not for global holding companies, then for growers and the communities they serve.

“Regional economies are having economic difficulties because of lack of opportunities,” says Desmarais. “The art of farming in a green way is being lost. We must keep the knowledge alive, and we must push it to develop itself so that it becomes even more efficient and profitable for the farmer.”

Jordan MacInnis is a writer based in Toronto.

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We are in the early stages of a boom in energy-efficiency building retrofits that should be worth several hundred billion dollars globally, made possible by new cost-effective building technologies and faster, cheaper wireless communications, against a backdrop of escalating grid energy costs. The result is an economic business case for green building retrofits that deliver payback in just one or two years.
The magical potential in installing thousands of connected sensors, known as the Internet of Things (IoT), and other smart building technology is that, beyond the energy savings generated by synchronizing building functions with real-time needs, we can now capture meaningful data about the building and its spaces. This data can then be mined to identify trends and failure rates or to predict events or economic outcomes. Although a strong business case can be based on energy savings alone, there is an opportunity to now use data to manage your business differently – to increase productivity, enhance customer experience, reduce operating expenses, reduce risk and increase the reliability of your operating environment.

Here’s an example: Imagine a convenience store owner able to implement a smart control system using IoT sensors that will communicate over a dedicated wireless modem, remotely monitoring and controlling the HVAC, lighting and refrigeration equipment to achieve a 30% reduction in energy consumption. This will pay for the system’s implementation in less than two years and will provide more traffic-pattern data than ever before; it will also serve as a means to dispatch cleaning staff and doormat-replacement services, say, after a set number of patrons visit the location. Temperature sensors in the coolers would set off an alarm if temperatures drop below a specified level, preventing spoiled product – and unhappy customers.

The opportunities for leveraging data to improve the effectiveness of your business and, ultimately, its competitiveness, are endless. Today’s energy-efficiency solutions don’t just cut operating costs; they’re a data-gathering platform that can spur innovation.

Corporate Knights researchers and economists recently developed a model to calculate the market opportunity for energy retrofitting in Canada. In addition to the energy-saving and business-innovation opportunities, there are significant societal benefits that would accrue, in the form of GDP growth and job creation.

We are in the early stages of a boom in energy efficiency- retrofits that could be worth several hundred billion globally.

 

Based on Statistics Canada data, in a business-as-usual scenario, Corporate Knights projects investment in new residential ($419 billion) and commercial building ($376 billion) construction to total $795 billion from 2020 through 2025. In an ambitious policy scenario – more stringent green building codes leading to 50% of new construction built to a zero-carbon-ready standard, financing facilities for basic flood-protection measures, energy retrofitting 3% of the building stock, and electrifying 1.5% of the building stock annually – an additional investment of $44.7 billion in the residential sector and $33.7 billion in the commercial building sector would be required for a total incremental investment of $78.4 billion.
At these levels, we could retrofit 1.67 million houses, roughly 700,000 multiunit residential buildings (MURBs) and 96,000 commercial buildings (for a total incremental investment of $23.4 billion). We could also electrify 831,500 houses, 353,000 MURBs and 48,000 commercial buildings (for a total incremental investment of $22.5 billion) over six years.
In addition to the retrofitting and electrification, the $78 billion would cover flood-proofing for more than 200,000 homes, energy-efficiency audits for commercial and residential buildings, and incremental costs associated with “greening” the new buildings.

GDP Impact

Over the six-year period, this green building stimulus plan would boost GDP by between $46.4 and $179.0 billion for residential and $34.9 and $134.8 billion for the commercial sector.

Job Impact

Using the range of GDP computed, there is potential to create between 155,000 and 183,000 jobs in the green-building, retrofit and renovation sector over the six-year period.

Savings

By Corporate Knights’ calculations, direct savings primarily from retrofitting commercial and residential buildings would add up to nearly $21.5 billion in the residential and $14.3 billion in the commercial sector over the six-year period.

Incentives and Funding Mechanisms

The economic benefits from building owners and landlords investing in energy efficiency are impressive. For this reason, the Building Energy Innovators Council, a Canadian not-for-profit advocacy group, has been encouraging governments to offer incentives for improving energy efficiency and reducing carbon emissions, along with low-interest retrofit loans repaid through a property tax regime. The low-interest, long-term financing model of property assessed clean energy (PACE) loans is a good model for Canada. The first PACE program was started in the U.S. in 2008 to fund improvements that create environmentally sustainable and resilient properties. Now owners and developers are using PACE loans to create more energy-efficient buildings, meet tougher environmental standards, enhance the value of their assets, and attract environmentally conscious tenants to buildings with lower carbon footprints.

The PACE model was used to finance $660 million of sustainable building improvements from 2016 through 2018. One $205 million mixed-use entertainment development project in Omaha tapped a PACE program to pay for LED lighting, heat pumps, low-flow water fixtures, and other materials and equipment to enhance energy and water efficiency.

Promoters say a PACE loan is better than conventional debt used for similar upgrades because it is typically cheaper, it has a fixed interest rate, and terms are 20 to 30 years instead of three to five. Shamrock Development’s $24.9 million PACE loan, for example, is a 22-year term at just below 6%. Unlike conventional loans, a PACE loan becomes an assessment on the property. It’s paid as a component of the real estate tax bill, and it transfers with the sale of the asset to the new owner.

Here’s how PACE can work: A local government raises money by selling a green bond to investors and then uses that money to provide loans to building owners to fund retrofits that meet the energy efficiency criteria, with the necessary certification provided on the application. The local government is repaid via a charge on the property tax bill (generally less than the energy savings), which is then used to cover administrative costs and to pay bond holders their return.

In his new book, The Green New Deal, Jeremy Rifkin writes that there is more than $41 trillion of capital in pension funds around the world, giving the people whose deferred wages sit in those funds tremendous power. Their fund managers understand that international oil companies are at risk of being devalued over the next few years and are keen to shift to cleaner and more efficient sources of energy. This large pool of capital could finance the building-energy-efficiency boom through PACE bond purchases, and ultimately the transformation to a low-carbon economy.

During the last federal election, it became clear that many Canadians are serious about the climate crisis and want to see meaningful progress on reducing carbon emissions. It was also clear that Canadians want responsible government to create a prosperous economic environment that will create sustainable job growth across the country. The “building energy efficiency sector” provides a unique opportunity to accomplish both of these objectives while offering a stable investment for pension funds and other potential lenders and creating a market to promote and showcase Canadian clean-building technologies.

Gord Hicks is the CEO of BGIS real estate management services.
Andrew Hicks is the sustainability manager at BGIS.

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Nevertheless, sustainable or responsible investing (whichever term you prefer) has hit the big-time, particularly around the theme of climate change.

Michael Baldinger, head of impact investing at UBS wealth management, which manages more than US$4 trillion in assets, claims that sustainable investing is now the fastest-growing asset class at scale in the world.

It’s hard to argue with the numbers. The Global Sustainable Investment Alliance says there is a US$30 trillion pot of sustainable investments across various themes as of 2018, growing at about 12% per year. A lot of that growth is coming from pension funds and other institutional investors signed up to the UN-backed Principles for Responsible Investment, whose members control US$86 trillion.

Financial markets are driven by two powerful emotions: greed and fear.
As the outgoing governor of the Bank of England, Mark Carney, puts it, “Companies that don’t adapt [to the low-carbon economy] – including companies in the financial system – will go bankrupt without question. [But] there will be great fortunes made along this path aligned with what society wants.”

To wit: the top five coal companies in the U.S. have all declared bankruptcy since 2016, and Apple is now bigger than all the oil and gas companies on the S&P 500 combined, in large part because they have earned negative returns over the last decade, even after accounting for dividends.

Carbon-intensive companies are suffering because the alternatives are not just cleaner but cheaper. Renewables are now cheaper than coal in two-thirds of the world’s countries, according to Bloomberg New Energy Finance. BNP Paribas estimates that oil needs to come down to US$10 a barrel to be competitive with electricity-driven transport. This does not mean fossil fuels are going away tomorrow, but it does kill the growth story. For oil investors, the market’s realization of this inevitable decline could make the coal horror show look like Bambi.

This increasing speed of the energy transition is part of the reason why investors representing US$11 trillion in assets have made public their plans to divest from fossil fuels.

Perhaps more telling is that beyond these public declarations, many of the biggest investors in the world are selling off their fossil fuel holdings and loading up on green assets. For example, without any fanfare the $200 billion Ontario Teachers’ Pension Plan has dialed down its fossil-fuel equity holdings to just 1%. On the upside, the $306 billion Caisse de dépôt et placement du Québec (CDPQ) has grown its green investment book to $30 billion, earning commercial returns along the way, according to outgoing chief executive Michael Sabia.

Just in case anyone was in doubt whether sustainable investing is really about making money, the vampire squid of investment banking, Goldman Sachs, showed up this December pledging US$750 billion in financing over the next decade to profit from the climate transition and inclusive growth.

While economics are shifting in favour of sustainable investing, so is public sentiment. Call it the Greta effect if you like, but most people are no longer comfortable with the idea that their retirement investments may be helping to set the world on fire.

Andreas Utermann, chief executive of Allianz Global Investors, which manages US$600 billion, says, “Clients have changed their tune. They have said we need to take this more seriously, and that has sharpened the minds of asset managers.”

Despite all this action among big investors, it appears small investors are getting left behind. If you add up the assets of the 130 funds on offer in Canada that declare sustainability intentions in their official documents, it is less than 1% ($12 billion) of total fund investments ($1.6 trillion). That’s an even smaller fraction than they were at in 2003, when Corporate Knights published its first guide for responsible investors. What gives?

It boils down to a belief many people still hold that sustainable investing is about sacrificing returns. The theory is that investing to make a return is hard enough, and if you add social and environmental considerations into the mix you are at a disadvantage. The trouble with this theory is that investing is like hitting a curveball, which is a pretty good metaphor for the world we live in. Putting on a sustainability lens gives the batter a better sense of the ball’s trajectory and increases the chance of making solid contact.

To make things easier, Corporate Knights scores all the equity mutual funds and ETFs available in Canada according to how well their holdings line up with established sustainability criteria and, where available, their three-year financial performance record. While we’re not promising any home runs, the 36 funds listed below were deemed the worthiest for taking a swing at.

Eco-Fund Methodology

Funds are scored according to (1) three-year net return percentile rank (50%), (2) weighted sustainability rating percentile rank based on analysis of their holdings* (40%), and (3) fund manager intention to manage the fund according to responsible guidelines (10%). If the fund is less than three years old, its final score is based on #2 and #3, which are grossed up proportionately to 100%. Funds that score in the highest or second-highest quintile among category peers receive a five-tree or four-tree rating respectively.

* Holdings that are red-flagged automatically receive a 0% CK Sustainability Rating Score. Red-flag holdings include companies that are classified in the Corporate Knights database for one or more of the following criteria: companies blocking climate policy, farm animal welfare laggards, companies causing severe environmental damage, companies causing deforestation, forced and/or child labour, severe human rights violations, illegal activity, controversial and conventional weapons, civilian firearms, tobacco, thermal coal, for-profit prisons, access to nutrition laggards, access to medicine laggards, digital rights laggards, investor climate laggards and gross corruption violations.

Sources: Corporate Knights Research, Fundata, Responsible Investment Association, Refinitiv, InfluenceMap, Business Benchmark on Farm Animal Welfare (BBFAW), Norges Bank Investment Management (NBIM), Chain Reaction, Know the Chain, NZ Super Fund, Stockholm International Peace Research Institute, American Friends Service Committee, Access to Nutrition Initiative, Access to Medicine Initiative and Ranking Digital Rights.

The post Eco-Fund Ranking 2020: The ultimate guide to responsible investing appeared first on Corporate Knights.

What would it look like if the restrictions applied to lessen tobacco use were applied to GHG-emitting products, to reduce our carbon emissions? Think restrictions on advertising, promotion and lobbying, as well as public education, warning labels and restrictions on use.

In December, ClientEarth, a non-profit UK-based environmental law group, started calling for a ban on advertisements from fossil fuel companies. As we’ve seen with cigarettes, effective public policy can help to reduce demand for harmful products, with minimal cost or interference with the rights of individual Canadians. In a world awash with fossil fuels, not encouraging demand could be one key to effective climate action.

The Tobacco Epidemic

While researchers knew in the 1940s and ’50s that smoking causes lung cancer, smoking remained ubiquitous for decades, including in aircraft, restaurants, workplaces and bars. Even after public knowledge of smoking’s deadly health impacts became widespread, tobacco advertising was effective in recruiting new generations of young smokers and in normalizing smoking as a central part of North American society, with the result that tens of millions of North Americans have died of smoking-related illnesses since the release of the U.S. surgeon general’s 1964 report definitively connecting smoking with lung cancer.

In recent decades, increasingly strict tobacco regulation has been effective in reducing the prevalence of smoking and saving tens of millions of lives. Today, Canada regulates every aspect of the manufacture, sale, labelling and promotion of tobacco products and taxes them heavily, as part of the federal and provincial governments’ strategies to protect the health of Canadians from tobacco-related harm. As a result, smoking rates in Canadians aged 15 and older have fallen from roughly 50% in 1965 to 15% in 2017.

Lessons for Climate Policy

A number of industries currently spend tens of billions of dollars each year directly or indirectly promoting ever-greater consumption of GHG-emitting goods and services. The auto industry spent $35.5 billion in 2018 across 14 key markets, with $18 billion in the U.S. alone. The fact that Canadians drive the dirtiest, highest-GHG-emitting fleet of vehicles on the planet, according to the International Energy Agency, is a testament to the effectiveness of the auto industry’s promotion of SUVs and pickup trucks. (Ford’s F-Series pickup truck has been Canada’s top-selling vehicle 11 years in a row.) Similarly, the growth in GHG emissions from commercial air travel, up 32% from 2013 to 2018, is fuelled by massive travel industry advertising – worth more than $20 billion in the U.S. alone in 2019.

If we’re to learn anything from tobacco regulation and if governments are serious about curbing the worst impacts of climate change, they should restrict the advertising, promotion and sponsorship of GHG-heavy goods and services. While we’re tackling the issue, consumers should also be warned about the emissions impacts of their purchases through notices and warning labels on gas pumps, gas bills, airline tickets, automobile and appliance stickers, and other communications (similar to how the state of California posts warnings about the presence of carcinogens). We give consumers access to nutrition labels so they can make informed choices about the foods they purchase; the same consumer right-to-know should apply to embedded GHG emissions, as well as those that would arise when using a potential purchase.

The WHO Framework Convention on Tobacco Control, to which 181 countries (including Canada and the U.S.) are parties or signatories, provides an excellent model for new domestic and international rules to reduce demand, and also to reduce the political influence of industries that profit from increasing GHG emissions.

The climate crisis poses a clear existential threat to human civilization. The UN Environmental Programme’s 2019 Emissions Gap Report states that we need to reduce GHG emissions by 7.6% per year, starting in 2020, and we need to achieve net-zero GHG emissions by 2050 if we are to avoid ever more dangerous forms of climate disruption. Despite knowing of this problem for decades, our past and current policies have proven largely ineffective at reducing GHG emissions.

Greta Thunberg is correct: we have failed her generation. The rules, as she has said, have to be changed to achieve the dramatic reductions in GHG emissions mandated by the world’s leading climate scientists. Repurposed tobacco regulations might just help to lead the way.

Richard Corley’s interest in climate policy is informed by his background and work in engineering, law and clean technologies.

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