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Can investors help move the date of Earth Overshoot Day?

This year, Earth Overshoot Day fell on 29 July, marking the day humanity’s demand for natural resources and services in a given year exceeds what Earth can regenerate in that year. Discover what drives this date – and the role investors must play in pushing it backwards.

Impact of Covid-19

Since the 1970s, Earth Overshoot Day has fallen earlier every year. But in 2020, the day was pushed back three weeks to August 22 – similar to where it fell 15 years ago – 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. It also came at the tragic cost of many human lives. Although the pandemic has taught us some sustainability lessons, we should not rely 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 to restore our planet as well as our economies.

Is population a problem?

With estimates that our global population will reach nearly 10 billion people by 2050, many assume this to be the root cause of our resource problem. This is a view that has in the past been expressed by the UK’s national treasure David Attenborough – but not without considerable criticism: it is a problematic perspective with 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?

There are actually a lot of investment opportunities here – for example, we’ve been considering the companies pioneering in re-thinking the way we use resources such as food and water, as well as how to invest sustainably in the growing emerging market dairy industry to mitigate negative environmental impacts.

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 are emerging far sooner than scientists predicted, 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.

We must urgently reduce greenhouse gas emissions – and with less than 100 days until COP26, momentum is building to achieve net zero emissions globally by 2050. The investment industry is key: to create meaningful change, we must ensure our investment decisions align with a net zero world. Our approach at BMO Global Asset Management is based on the Net Zero Investment Framework, which we helped develop. This year, we have been working to implement this approach to managing our assets across our business in line with our net zero commitment – learn more here. At the portfolio level, there are also lots of thematic opportunities to get excited about too, such as re-thinking the way we travel.

We must also use our shareholder influence to drive companies to adapt their businesses in line with a net zero world. We have engaged banks and other financial institutions on climate risk management for over a decade. We recently targeted 30 global and regional financial institutions, asking them to implement robust climate change governance frameworks, enhance their climate risk management, and provide robust disclosure. Discover the findings from our engagement here.

When one-to-one engagement isn’t successful, divesting isn’t always the answer. Instead, we can adopt a stronger stance to trigger a corporate reaction by using various escalation techniques, such as collaborating with other investors, using our voice at the ballot box to vote against management on key resolutions, and attending AGMs for the chance to have direct, public dialogue with boards and top executives.

In 2020 we aimed to send a strong signal to some of our investee companies that inaction on climate change is not an option by voting against laggards – discover the details. Moreover, the following examples of repercussions for oil companies unwilling to address climate change concerns demonstrate the increasingly serious attention being paid to the matter. We recently put investor pressure on 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

Another 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.

Addressing biodiversity loss must urgently rise up investment agendas. Currently, there are significant gaps in investors’ understanding of this issue, which is hindering related investment in nature-positive outcomes. However, this 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 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

As investors faced with challenges such as Earth Overshoot Day and 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. 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.

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.

Risk warnings

The value of investments and any income derived from them can go down as well as up and investors may not get back the original amount invested.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

BMO Global Asset Management’s voting, engagement and public policy work is conducted independently of the wider BMO Financial Group. Positions taken by BMO Global Asset Management may not be representative of the views of the BMO Financial Group as a whole or of the other lines of business.

About the author

Derek Ip, Senior Associate, Responsible Investments, BMO Global Asset Management

Derek Ip joined BMO in 2019 as Senior Associate in the Responsible Investment team. He was previously at S&P Trucost, an ESG data provider, which he joined in 2015. He has significant experience consulting banks and investment managers on environmental risks, primarily climate change. During 2017-2018, he acted as an external policy adviser on green finance at the City of London Corporation in parallel to his role at S&P Trucost. Prior to his experience in Europe, he was with RESET Carbon in Hong Kong, providing supply chain sustainability analysis and engagement services to major international brands. Derek studied at the University of Edinburgh and has a MSc in Carbon Finance.

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