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Is Your Mutual Fund a Climate Change Denier or Climate Champion?

Climate

By Rob Berridge and Jackie Cook

New proxy voting data showcasing how mutual fund companies voted on climate change resolutions in 2015 reveals a major divide in their thinking on this mega issue that will have wide-ranging ripples on investment portfolios.

Among 42 mutual fund companies whose voting we analyzed, nine companies, including the world's largest mutual fund company Vanguard, failed to support a single climate-related shareholder resolution in 2015. The other eight are American Funds, American Century, Blackrock, Fidelity, ING (Voya), Lord Abbett, Pioneer and Putnam.

In stark contrast, seven fund companies supported 70 percent or more of the 73 climate-related resolutions that were included in our analysis, including AllianceBernstein, Allianz, Deutsche (formerly DWS), GMO, Oppenheimer, Schroder and WellsFargo.

The resolutions filed by investors request that companies take such actions as: set greenhouse gas (GHG) reduction goals; disclose the risk of assets such as fossil fuel reserves and coal plants being unusable—“stranded" in Wall Street parlance—due to weakening global demand for fossil fuel products; disclose political lobbying expenditures related to climate change; and issue sustainability reports describing material business risks from climate change.

These common sense requests are believed by investors to be financially material to many of the companies receiving the resolutions and to mutual fund companies who have a fiduciary duty to vote in the best interests of their clients.

For example, an electric utility that is upgrading a coal-fired power plant that lasts 40 years (rather than, say, investing in solar projects or energy efficiency programs) is taking on significant risk considering that 196 countries worldwide recently approved an historic climate agreement in Paris aimed at dramatically reducing greenhouse gas emissions. The U.S. has specifically pledged to reduce its carbon emissions by 26 - 28 percent by 2025, with a key centerpiece being the U.S. Environmental Protection Agency's Clean Power Plan aimed at reducing power plant carbon emissions. Under these scenarios, a recently upgraded coal plant will probably have to be retired well before the end of its planned life, which risks financial losses for the utility and its shareholders. Shareholders need to know how power companies are planning to avoid such losses and to adapt their business models to the transition to a low carbon economy.

Further underscoring their responsibilities on these proxy votes, some of the mutual fund companies, such as Vanguard, are members of the UN's Principles for Responsible Investment (PRI), meaning that they have publicly committed to six principles, including: Principle 2 “active ownership," which entails actions such as supporting resolutions on environmental, social and governance (ESG) issues; and Principle 3 to “seek appropriate disclosure on issues by the entities in which we invest."

Simply put, climate change is among the most critical ESG issues intended to be addressed by PRI signatories, and failing to support any climate resolutions brings into question whether some PRI members are adhering to the principles.

Some mutual fund companies are themselves publicly traded, and investors have begun to file shareholder resolutions asking mutual fund companies to disclose why they fail to support financially material climate resolutions. For example, Zevin Asset Management filed shareholder resolutions with Franklin Resources and T. Rowe Price Group during the 2016 proxy season because it appears that both firms' proxy voting records are inconsistent with proactive approaches to climate change. Walden Asset Management co-filed the T. Rowe Price resolution, which will be voted on at the company's annual meeting in May.

Sonial Kowal, president of Zevin Asset Management, explained to us:

“Proxy voting is one of the principal ways in which investors can engage in active management of portfolio risks and opportunities related to climate change, so inconsistency on climate poses a reputational risk to Franklin and T. Rowe, especially given the proactive record of many of their competitors. Given the severe threats of climate change to human societies and economies, clients may start to wonder if their investments are in good hands. We also hope that other investment companies will now become more thorough and transparent in making decisions when voting on climate related resolutions."

Adding to such reputational risks are campaigns such as a petition, launched by U.S. PIRG, asking Vanguard to vote in favor of resolutions regarding political spending disclosure. More than 65,000 people have signed the petition so far. Walden Asset Management recently sent a letter to Vanguard zeroing in on climate-related voting (some of these resolutions ask companies to disclose lobbying expenditures) and received a response that includes this defense of Vanguard's approach:

“… while we believe that some of the issues animating these proposals are worthy of attention and may have long term implications for a company, we have not been convinced that the prescriptive framing of the proposals will address the risks in a way that drives long term value. Our aim is to influence change that is clearly linked to value creation, and in some cases a simple vote "for" or "against" a proxy proposal doesn't get to the heart of an issue."

Vanguard's explanation is inadequate. For climate change alone, resolutions filed in 2015 covered approximately 20 different types of requests, with many requesting disclosure of risks and others asking for comprehensive sustainability disclosure. Vanguard failed to support even a single one of this broad variety of resolutions. Vanguard's claim that they are all too “prescriptive" is disingenuous. The U.S. Securities and Exchange Commission (SEC) has rules against filing resolutions that are “ordinary business," or that seem to micromanage a company. A number of the resolutions Vanguard failed to support have survived SEC scrutiny on this very question.

As financial, environmental and societal risks from climate change escalate, it is important for shareholders to know if their mutual funds are taking one of the simplest steps to address the risks—voting for climate resolutions.

If your fund company is failing to do so, it is time to give them call, write them a letter or sign petitions such as the one sent to Vanguard. These flawed myopic approaches, such as Vanguard's, need to change.

Rob Berridge is director of shareholder engagement at the nonprofit sustainability group Ceres. Jackie Cook is founder and curator of the Fund Votes and Climate Risk Disclosure Projects.

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In 1997, Charles Moore was sailing a catamaran from Hawaii to California when he and his crew got stuck in windless waters in the North Pacific Ocean. As they motored along, searching for a breeze to fill their sails, Moore noticed that the ocean was speckled with "odd bits and flakes," as he describes it in his book, Plastic Ocean. It was plastic: drinking bottles, fishing nets, and countless pieces of broken-down objects.

"It wasn't an eureka moment … I didn't come across a mountain of trash," Moore told Mongabay. "But there was this feeling of unease that this material had got [as] far from human civilization as it possibly could."

Captain Charles Moore looking at a piece of floating plastic in the ocean. Algalita Marine Research and Education

Moore, credited as the person who discovered what's now known as the Great Pacific Garbage Patch, returned to the same spot two years later on a citizen science mission. When he and his crew collected water samples, they found that, along with larger "macroplastics," the seawater was swirling with tiny plastic particles: microplastics, which are defined as anything smaller than 5 millimeters but bigger than 1 micron, which is 1/1000th of a millimeter. Microplastics can form when larger pieces of plastics break down into small particles, or when tiny, microscopic fibers detach from polyester clothing or synthetic fishing gear. Other microplastics are deliberately manufactured, such as the tiny plastic beads in exfoliating cleaners.

"That's when we really had the eureka moment," Moore said. "When we pulled in that first trawl, which was outside of what we thought was going to be the center [of the gyre], and found it was full of plastic. Then we realized, 'Wow, this is a serious situation.'"

Captain Charles Moore holding up a jar of plastic-filled seawater from a research expedition in 2009. Algalita Marine Research and Education

Since Moore's discovery of the plastic-swirling gyres, there's been a growing amount of research to try and understand the scale of the plastic pollution issue, including several studies from 2020. This new research shows that there's actually a larger quantity of plastic in the ocean than previously thought, and that the plastic even enters the atmosphere and blows back onto land with the sea breeze. Recent studies also indicate that plastic is infiltrating our bodies through food and drinking water. The upshot is that plastic is ubiquitous in the ocean, air, food supply, and even in our own bodies. The new picture that is emerging, scientists say, is of a biosphere permeated with plastic particles right down to the very tissues of humans and other living things, with consequences both known and unknown for the lifeforms on our planet.

How Much Is Really in the Ocean?

In the past 70 years, virgin plastic production has increased 200-fold, and has grown at a rate of 4% each year since 2000, according to a 2017 study in Science Advances. Only a small portion of plastics are recycled, and about a third of all plastic waste ends up in nature, another study suggests.

While new research indicates that plastic is leaking into every part of the natural world, the ocean has long been a focal point of the plastic pollution issue. But how much is actually in the sea?

Moore says it's "virtually impossible" to get an accurate estimate because of the ongoing production of plastic, and the tendency for plastic to break down into microplastics.

"This count is constantly increasing, and it's increasing at a very rapid rate," he said. "It's a moving target."

One commonly cited study, for which Moore acted as a co-author, estimated that there are more than 5.25 trillion plastic pieces floating in the ocean, weighing more than 250,000 tons, based on water samples and visual surveys conducted on 24 expeditions in five subtropical gyres. But even at the time of publication in 2014, Moore said he knew "that was an underestimate."

A more recent study published this year, led by researchers at Plymouth Marine Laboratory, indicates that there's a lot more microplastic in the ocean than we previously thought. When taking samples from the ocean, most researchers use nets with a mesh size of 333 microns, which is small enough to catch microplastics, but big enough to avoid clogging. But the team from Plymouth Marine Laboratory used much finer 100-micron nets to sample the surface waters in the Gulf of Mexico and the English Channel.

"Our nets clogged too, so we used shorter trawls and a specialized technique for removing all the plankton — microscopic plants and biota — from the sample to reveal the microplastics," Matthew Cole, a marine ecologist at Plymouth Marine Laboratory and author of the study, told Mongabay in an email. "This process is quite time-consuming, so it'd be challenging for all samples collected to be treated this way."

The research team at Plymouth Marine Laboratory collecting water samples. Matthew Cole

The researchers found there were 2.5 to 10 times more microplastics in their samples compared to samples that used 333-micron nets.

"If this relationship held true throughout the global ocean, we can multiply existing global microplastic concentrations ascertained using 333-micron nets, to predict that globally there are 125 trillion plastics floating in the ocean," Cole said. "However, we know these plastics keep on degrading, and these smaller plastics would be missed by our smaller 100 micron net — so the true number will be far greater."

Another team of researchers delved down to the seafloor in the Tyrrhenian Sea in the Mediterranean to take sediment samples. They found that microplastic accumulated at depths of 600 to 900 meters (about 2,000 to 3,000 feet), and that certain spots in the ocean, termed "microplastic hotspots," could hold up to 1.9 million pieces per square meter — the highest level ever to be recorded on the seafloor. The results of this study were published in Science in June 2020.

"We were shocked by the sheer number of [microplastics]," Ian Kane, the study's lead author, told Mongabay in May. "1.9 million is enormous. Previous studies have documented much smaller numbers, and … just talked about plastic fragments, but it's fibers that are really the more insidious of the microplastics. These are the things that are more readily consumed and absorbed into organisms' flesh."

A water sample containing plastic. Algalita Marine Research and Education

While these studies shine light on the fact that there's definitely more plastic in the ocean than we think, it still doesn't complete the picture, says Steve Allen, a microplastic expert and doctoral candidate at the University of Strathclyde in the U.K. Large quantities of microplastics still appear to be "missing" from the ocean, he said. For instance, one study suggested that 99.8% of oceanic plastic sinks below the ocean surface layer, making it difficult to detect, but Allen says this doesn't fully explain what's happening to all of the plastic that enters the ocean.

"We're finding some of it," Allen told Mongabay. "But we're … trying to explain where the rest of it went."

Allen and his wife, fellow scientist Deonie Allen, also from the University of Strathclyde, have been working to find their answer, or at least part of it, in an unlikely place: up in the sky.

‘Microplastics Are in Our Air’

As the ocean churns and breaks waves, air is trapped in tiny bubbles. When those bubbles break at the sea's surface, water rushes to fill the void, and this causes tiny, micro-sized particles, like flecks of sea salt or bacteria, to burst into the atmosphere. A new study, published in PLOS ONE, suggests that microplastics are entering the air in the same way.

"[Bubbles] act a little bit like velcro," Deonie Allen told Mongabay. "Rather than the bubble going through the plastic soup and coming to the surface and not bringing any of the plastics with it, it actually collects [the plastic] and hangs on to it as it comes up. And when it bursts, the energy from the creation of the jet to fill the hole that's left in the sea … is what gives it the force to eject the plastic up into the atmosphere."

A lot of previous research on plastic pollution in the ocean has assumed that plastic remains in the seawater and sediment, or gets washed ashore. But this study takes a pioneering step to suggest that ocean plastic is entering the atmosphere through the sea breeze.

"This was just the next logical step to see whether what we're putting into the ocean was actually going to stay there, or whether it would come back," Steve Allen said.

A device used to collect air and mist samples to test for microplastics. Steve Allen

To obtain the necessary data for this study, the research team collected air and sea spray samples on the French Atlantic coast, both onshore and offshore. They found that there was a high potential for ocean microplastics to be released into the air, and suggested that each year, 136,000 tons of microplastics were blowing ashore across the world, although Steve Allen said this number was "extremely conservative."

This study specifically looked at microplastics, but the much smaller nanoplastics are likely going into air by the same means, according to the Allens. But detecting nanoplastics in the water or air can be challenging.

While this is the first study to look at the ocean as a source of atmospheric plastics, other research has examined the capacity of land-based plastics to leach into the air. One study, authored by the Allens and other researchers, found that microplastics were present in the air in the Pyrenees Mountains between France and Spain, even though the testing site was at least 90 kilometers (56 miles) from any land-based source of plastic, such as a landfill. This suggests that the wind can carry microplastics over long distances.

"We know that microplastics are in our air everywhere, from the looks of it," Deonie Allen said.

More research needs to be done to understand the implications of atmospheric microplastics on human health, but according to the Allens, it can't be good for us.

A "cloud catcher" used to collect data for research on microplastics in the atmosphere. Steve Allen

"Microplastics are really good at picking up the contaminants in the surrounding environment — phthalates, flame retardants, heavy metals," Deonie Allen said. "That will get released into the body, relatively effectively."

Enrique Ortiz, a Washington, D.C.-based ecologist and journalist who writes on the plastic pollution issue, says that this evidence should be a "wake up" call to humanity.

"The oceans are picking up the plastic that we throw in it, and that's what we're breathing," Ortiz told Mongabay "And that's the part that really … amazes me."

"But it's not just happening in coastal cities," he added. "No matter where you go, [even] in the middle of the Arctic … the human imprint is already there."

We're not just inhaling microplastics through the air we breathe — we're also getting it through the water we drink and the food we eat.

‘Our Life Is Plasticized’

Plastic waste isn't just leaking into the ocean; it's also polluting freshwater systems and even raining or snowing down from the sky after getting absorbed into the atmosphere, according to another study led by Steve and Deonie Allen. With microplastics being so ubiquitous, it should come as no surprise that they are also present in the food and water we drink.

Drinking water, including tap and bottled water, is the largest source of plastic in our diet, with the average person consuming about 1,769 tiny microplastic particles each week, according to a 2019 report supported by WWF. Other primary sources of microplastics include shellfish, beer and salt.

A new study published this year in Environmental Research found that microplastics were even present in common fruits and vegetables. Apples had one of the highest microplastic counts, with an average of 195,500 plastic particles per gram, while broccoli and carrots averaged more than 100,000 particles per gram.

"The possibility of plastics in our fruit and vegetables is extremely alarming," John Hocevar, ocean campaign director for Greenpeace USA, said in a statement. "This should prompt additional studies to assess how much plastic we are consuming through our produce each day and examine how it is impacting our health."

"Decades of plastic use have contaminated our air, water, and soil," Hocevar added. "Eating just a bite of an apple could now mean eating hundreds of thousands of bits of plastic at the same time."

Through normal water and food consumption, it's estimated that the average person consumes about 5 grams of plastic each week, equivalent to the size of a credit card, according to the WWF report.

"Plastic is everywhere," Thava Palanisami, a microplastics researcher at the University of Newcastle, Australia, and contributor to the WWF report, told Mongabay. "We live with plastic and our life is plasticized — that we know. But we don't know what it does to human health. That's the biggest question mark."

While it's not entirely clear how plastic affects human health, research suggests that the inhalation of fibrous microplastics can lead to respiratory tract inflammation. And another study, referenced in the WWF report, shows that fish and other marine animals with high concentrations of microplastics in their respiratory and digestive tracts have much higher mortality rates. Another study, published in 2020, indicates that plastic accumulates in the muscle tissue of fish.

"If you look at what happens, for example, in fish — it [plastic] stays in their muscles," Ortiz said. "It's scary. If you look at the numbers, you're eating something in the order of one kilo of plastic every three years. I wonder, in our lifetime … if a percentage of our weight will be plastic that is still in our muscles."

"The problem is serious," Palanisami said. "We've got to stop using unwanted plastic and manage plastic waste properly, and … work on new plastic alternates."

Stemming the Tide  

Erin Simon, head of plastic waste and business at WWF, and leader of the organization's packaging and material science program, says the key to curbing the plastic pollution issue is making sure that plastic doesn't leak into nature in the first place.

"If you had a leaky faucet, would you bring out the mop first, or would you turn off the water?" Simon told Mongabay. "We're trying to stem that tide of plastic flowing into the ocean and into nature in general … but at the same time, trying to identify the different root causes of that leakage."

While Simon says there are various ways to try and stop plastic from entering the natural world, such as well-managed recycling and composting programs, she also said that large companies can play a critical role in helping to reduce plastic waste. WWF is currently spearheading a new program called ReSource, launched in 2019, that helps analyze companies' plastic footprints in order to work toward sustainable solutions. The program's website says 100 companies could prevent 50 million tons of plastic waste.

"We have three targets that we're looking at when we're partnering with companies," Simon said. "One, get rid of what you don't need. At the end of the day, we do need to reduce our demand for virgin nonrenewable plastic. Once you get rid of that, you think about the stuff that you do need — the things [for which] plastic is the right material choice. Where am I sourcing that from? Am I getting it from recycled content? Am I getting it from a sustainably-sourced bio base, or is it virgin non-renewable [plastic]? And then finally … how are you, as a company … making sure it comes back? Are you designing it in a way that it's technically recyclable into the places that it's ending up?"

Marine debris litters a beach on Laysan Island in the Hawaiian Islands National Wildlife Refuge, where it washed ashore. Susan White / USFWS

While recycled plastic may seem like a satisfactory alternative to virgin plastic, a new study, published in July 2020, showed that children's toys made out of recycled plastic contained high levels of toxic chemicals, comparable to levels found in hazardous waste.

Moore, who has been studying plastic pollution since his discovery of the floating debris in the North Pacific Ocean, says he doesn't believe there's an easy fix to this issue, especially when it comes to the businesses that are producing large amounts of plastic.

"There's no change that corporations can make under the current system that will successfully combat plastic pollution," Moore said. "There is no technical fix to the plastic problem. It's not in the corporate portfolio to reduce sales of your products — the corporate portfolio is about increasing sales. The idea that [corporations] can be convinced to reduce their production and sale of the products that they make is a fantasy."

However, Moore says a solution could be found in "radical change," and that this moment of time, with the Black Lives Matter movement spreading across the world, could provide the opportunity for that change.

"Now is the time when a world historical revolution would be possible, when the people of the world could unite to change the system as a whole," Moore said.

"There won't be a techno fix and science won't develop … a new product that will get us out of the problem of plastic pollution," he said. "It will only come with the world as a whole agreeing to charter a new course towards a non-polluting future."

Reposted with permission from Mongabay.

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