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Investing to Move the Date: Earth Overshoot Day 2021

Derek Ip, Vice President, Responsible Investment at BMO Global Asset Management, says investors should rise to the challenges represented by Earth Overshoot Day.

July 29 is Earth Overshoot Day 2021. Unlike other international days of recognition, this isn’t one to celebrate: it marks the day we have used up our annual quota for the world’s natural resources. That means that just over halfway into 2021, our demand for ecological resources and services this year now exceeds what Earth can regenerate.

Impact of Covid-19

Since the 1970s, Earth Overshoot Day has fallen earlier every year, signalling the increasingly unsustainable strain we are placing on the planet. But in 2020, the day was pushed back three weeks to August 22 – a date not seen for around 15 years – owing to a smaller global ecological footprint during the pandemic as business and leisure activities were put on pause during national lockdowns. Similarly, greenhouse gas emissions fell 6.4% in the first half of 2020 as a result of the pandemic-induced global economic slowdown.

However, the overall effect lockdowns had on our global ecological footprint was very much momentary; we have already witnessed the rapid emission bounce-back in the second half of 2020. The date change also came at the tragic cost of many human lives, and although the pandemic may well have taught us some important sustainability lessons, we should not be relying on a global disaster to move the date of Earth Overshoot Day. Instead, we must consider how to ensure the recovery from the pandemic is as green as possible – one that will help restore our planet as well as our economies.

Is population a problem? 

Estimates that our global population will reach just shy of 10 billion people by 2050 can sound serious alarm bells and cause many jump to the conclusion that this is where the problem lies – there are simply too many people on our planet using up its resources. This is a problematic view that has in the past been expressed by the UK’s favourite naturalist and broadcaster David Attenborough – but not without considerable criticism because of its links to eco-fascism and racism.

Population growth is largely concentrated among the world’s poorest people, whose resource use and greenhouse gas emissions are far lower than those from more affluent communities. Meanwhile, many developing countries such as India are seeing a growth in the middle class, who understandably have consumption aspirations of their own which may not be particularly sustainable. As the beneficiaries of unsustainable economic growth ourselves, how can we deny them the same opportunities, without reflecting on our own consumption behaviour and use of resources?

This may seem daunting, but there are actually a lot of investment opportunities here – for example, an investor could consider how to invest sustainably in Asia’s growing dairy industry to mitigate negative environmental impacts, or seek out companies driving the transition out of plastic packaging to more sustainable materials, or focus on sustainable infrastructure as more and more people move to built-up urban environments.

A wake-up call for climate change

The biggest driver of Earth Overshoot Day this year was the 6.6% increase in our carbon footprint over the past year. Meanwhile, some of the physical impacts of climate change witnessed over the past few weeks, including wildfires and deadly flooding, are emerging far sooner than many scientists predicted. All these, coupled with the news that the Amazon rainforest now emits more CO2 than it absorbs. Not only is this a result of deforestation, but global warming itself also has knock-on effect to the rainforest’s ability to absorb carbon.

It’s clear that to solve the climate crisis and push back the date of Earth Overshoot Day, we need to urgently reduce the greenhouse gas emissions warming our planet. With less than 100 days until the rescheduled COP26 climate negotiations – hailed by US Climate Envoy John Kerry as the world’s “last best chance” – momentum is building behind the ambition to achieve net zero emissions globally by 2050 in a bid to limit global warming to below 1.5 degrees Celsius. But as we’re currently on a trajectory closer to 3 degrees, it’s crucial that those attending this year’s COP conference agree to far more ambitious short-term targets to alter our course of direction – and fast.

The investment industry is absolutely key here – to create meaningful change, we must ensure our investment decisions align with a net zero world. There are many different routes to net zero investing, such as the Net Zero Investment Framework, or the Science-based Targets Initiative, reflecting the innovation taking place in the industry. At the portfolio level, there are also lots of thematic opportunities to get excited about too, from investing in the energy transition to focusing on sustainable transport.

Alongside making sustainable investment decisions, we must use our shareholder influence to drive companies to adapt their business models and operations in line with a net zero world, by engaging them to be more ambitious about their targets and better demonstrate their plans for achieving them. Sometimes one-to-one dialogue isn’t successful – but instead of just divesting from a company unwilling to cooperate on ESG issues, we can adopt a stronger stance to trigger a corporate reaction by using various escalation techniques. We can collaborate with other investors to increase pressure on a company; we can use our voice at the ballot box to vote against management on key resolutions and thereby send a clear signal to the company; and we can attend AGMs for the chance to have direct, public dialogue with boards and top executives.

Recent examples of what happened to oil companies unwilling to address climate change concerns demonstrate the increasingly serious attention being paid to the matter. Many investors recently put pressure on Royal Dutch Shell by voting against its energy transition targets at its recent AGM to push the company to adopt more ambitious targets. And then in a landmark court ruling, the company was ordered to cut its CO2 emissions by 45% by 2030. ExxonMobil and Chevron have also faced intense shareholder pressure over their failures to set proper strategies for a low-carbon future.

It’s about biodiversity loss too

After our increasing global carbon footprint, the next big driver of Earth Overshoot Day 2021 was the 0.5% decrease in global forest biocapacity over the past year. Nature is essential for human life, and more than half of our global economic output depends on it. And yet, we are destroying it at an unprecedented rate.

Back to the Amazon rainforest, where deforestation continues to rise: in Brazil alone, over one million hectares were lost in 2020 and estimates for 2021 point towards a 43% year-over-year increase. Figures elsewhere are just as concerning: the Living Planet Report 2020 shows an average 68% decrease in populations of mammals, birds, amphibians, reptiles and fish between 1970 and 2016 – a bleak figure that doesn’t even tell the story of millions of other animals, plants and soils currently threatened.

Clearly, addressing biodiversity loss must urgently rise up investment agendas. Currently, there are significant gaps around the science behind biodiversity, how business operations and investment decisions affect or depend on nature, and what the associated risks are. This is ultimately hindering investment in nature-positive outcomes but is something the new global initiative Taskforce on Nature-related Disclosures (TFND) is aiming to achieve, by supporting organisations to report and act on nature related risks, to ultimately drive financial flows into nature-positive business models.

There are also huge investment opportunities available: transitioning to a nature-positive economy could generate up to US$10.1 trillion and create just shy of 400 million jobs by 2030. There has already been an explosion of creative tech solutions, from tree-planting drones to satellites monitoring animal species. Meanwhile, regenerative agriculture practices are improving soils, protecting the environment and enhancing ecosystem services. Our role as investors is to identify the companies leading the charge for investment opportunities, and engage with any laggards.

Final thoughts

Earth Overshoot Day may feel like the latest piece of bad news in a long line of stories being broadcasted about our planet. But instead of reacting with fear or denial, we must rise to the challenge and not only mitigate it but create something better from it – a more sustainable future for human life on Earth.

As investors considering the Covid-19 recovery, we have an immense opportunity to create lasting, positive change by seeking out sustainable solutions that will restore our economies while also restoring our planet; going back to what ‘normal’ looked like before simply isn’t an option. We must use this point in time to further drive responsible investment agendas, by identifying sustainable investment opportunities, and continuing to engage for positive change.

We need to use this moment to we need to further drive responsible investment agendas, by identifying sustainable investment opportunities, and continuing to engage for positive change. More broadly, we actually need to stop bucketing these opportunities under the umbrella of ‘responsible investment’ and view them as simply as good, long-term investment opportunities. As the world wakes up to the need for solutions to challenges such as depleting natural resources and climate change, the line between specifically sustainable investment decisions and simply good decisions will continue to blur – because it’s becoming ever clearer that good decisions are sustainable decisions.

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