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3D Investing’s Fund Update

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scotland by Moyann Brenn via flickr

The fund universe has been very significantly expanded to £84.7 billion in assets under management, of which £50.3 billion relates to infrastructure funds. This is partly due to investment performance, but more to the addition of funds to the universe. The total universe now comprises 193, of which 24 are infrastructure funds. These are all registered for sale in the UK and have some form of ethical screening, or else have an environmental or social purpose.

Many of the additions are SICAVs run by European based managers and employ a ‘best of sector’ approach using Environmental and Social Governance data. There is a pattern of such funds investing in stocks that undermine our confidence in the way that sustainability criteria are applied. Yet, we have identified a number of additional funds that qualify for the 3D Portfolio and widen the range of options for socially motivated investors.

New Funds

Over 30 funds have been added to the 3D sustainable investment fund universe. There have been a few new launches, including two UK income funds. This is to be welcomed as there is a dearth of such funds, but the two funds, namely the Unicorn UK Ethical Income and Troy Trojan Ethical Income funds, are run on a negative screening basis and invest in companies with little clear positive social impact. Nevertheless, income is important for many investors and it is encouraging to see a widening in the choice available for investors.

Kames Capital has added a global fund to its ethical range and the evidence so far is encouraging (see below).

Perhaps controversially, we have added the Funding Circle Income Fund to our universe. This is an investment company that invests in loans to small and medium sized companies in the UK, US and Europe. There is no ethical screening but unlike the other listed P2P funds, this one makes no loans to consumers and helps to meet a crucial funding need in the wake of small businesses being unable to access bank finance. Most loans are made in the fields of property, manufacturing, retail and professional services.

We have also added a few infrastructure and property funds to the universe. These include two general property investments in the form of the Legal & General UK Property Fund and Real Estate Investment Trust, British Land. These are distinguished by their outstanding sustainability management and reporting.

As mentioned above, most of the fund additions relate to European managers including Allianz, BNP Paribas (Parvest), Mirova and Sarasin. Many of these funds are only directly available to professional or ‘sophisticated’ investors.The majority do not make it into the 3D Portfolio as there are better alternatives and the funds often include stocks that raise significant ethical concerns. This undermines our confidence in the ability of the manager to assess ethical issues and to meet the concerns of socially motivated investors. For example, Irish fund, the Davy Ethical Fund, invests in climate change denier and oil major, Exxon, and Amazon which uses very aggressive tax policies and stands accused of poor employment practice.

Risers & Fallers

Thirty funds have been upgraded on the basis of detailed analysis and a normalising of ratings. Six funds have seen their star ratings fall, largely due to a re-assessment of fund holdings and normalising funds to ensure consistency:

3d-investing-5-stars

No further funds have been awarded a five star rating. This is a premium rating that we reserve for the best so we are keen to preserve its status as a ‘best of the best’ ranking.

3d-investing-4-starsThe most notable fund to be awarded a four star rating for the first time is the AXA WF Planet Bond Fund. This is distinctive as it invests in Green bonds issued by large companies and international institutions, with the proceeds of the bonds being wholly used to fund positive environmental action. The fund has a very high environmental impact and a clear process for delivering change. It only fails to achieve a five star ranking because of a lack of impact reporting and a short financial track record.

Two BNP Paribas funds have also been awarded a four star rating. One is a water fund and the other an environmental fund, both run by Impax asset Management, with the environmental fund following a similar mandate to Impax’s own environmental funds. BNP Paribas’ exhibits a high level of transparency and understanding of sustainability issues.

The Pictet Environmental Megatrend Fund has been renamed and repurposed as the Pictet Global Environmental Opportunities Fund. This has led to a significant increase in the positive environmental impact of the fund and also wider suitability. We have therefore upgraded the fund to four stars.

Pattern Energy is the only infrastructure fund ever to be awarded a four star rating for the first time. This invests in 18 operational wind farms in the United States.

3d-investing-3-starsThere are now 61 funds out of a total of 169 non infrastructure funds that have a star rating of three or more. A three star rating therefore means that a fund is in the top 36% of all non-infrastructure funds in our sustainable universe.

We have been able to assess the Threadneedle Ethical UK Equity Fund which has the highest level of social impact of any UK Equity Fund. It’s still early days for the fund so we await further evidence of financial performance and of social impact reporting before being able to award a higher star rating, but this looks to be a promising fund.

The Kames Global Sustainability Fund largely lives up to its name with a decent ethical screen as well as making a positive environmental and social impact.

Other funds that have been awarded a three star ranking for the first time include a sustainable food fund from BNP Paribas (Parvest). This is run by Impax in a very similar manner to their own sustainable food fund. Other funds include environmental thematic funds offered by Mirova, VAM, Allianz and BNP Paribas. The clean energy funds have a high impact but are marked down in terms of overall star rating because of their poor and volatile absolute performance.

Despite a lack of direct environmental or social purpose, the Legal & General UK Property Fund and British Land gain a three star rating on the back of the excellence of their sustainability management and reporting. Similarly, the Sarasin Sustainable equity Real Estate Fund is awarded three stars because of the quality of the sustainability management evidenced by stock selection and its consistent financial track record.

3d-investing-2-starsThere have been many additions to the universe that have been awarded two stars. The two star ranking reflects our concerns over the quality of the sustainability management, highlighted by stocks in the portfolios that undermine our confidence in the application of sustainability principles. They also include funds that have a very limited positive social impact including the Troy Trojan Ethical Income and Unicorn UK Ethical Income funds.

3d-investing-1-starOne star funds either have a very poor track record or else invest in stocks that fundamentally undermine the sustainability theme. There are four newly added funds that we’ve awarded the lowest rating, but we would like to highlight one fund in particular – the BSF Impact World Equity Fund. To our mind this is a prime example of the misuse of the word ’impact’, which was originally used to describe investments that were made primarily for social impact. In this case, the fund invests in tobacco, mining, oil and agro chemicals, hardly investments that one would associate with sustainable investing.

3D Portfolio Universe

The 3D Portfolio has expanded to 43 funds, not including the infrastructure funds. This represents around 25% of the whole non infrastructure universe and is a selection of funds within different sectors that best meet our investment philosophy of doing good, minimising harm and delivering decent financial return.

The Sarasin Sustainable Equity Real Estate Fund has been added back following further research that shows above average sustainability for the vast majority of the holdings. We have also upgraded the Pictet Global Environmental opportunities Fund as described above and added it to the Portfolio on the basis of its much improved environmental impact and suitability.

The Funding Circle Income Fund has been added despite only being awarded two stars as it meets a real funding need as a core purpose. British Land and the Legal & General UK Property Fund have also made it on to the shortlist by virtue of their outstanding sustainability management. The Threadneedle Ethical UK Equity Fund is a welcome addition to a limited selection of UK equity funds, showing clear leadership in the sector in respect of financing companies with a positive social impact. One more fixed interest fund makes it on to the shortlist – the AXA WF Planet Bonds Fund – by virtue of its distinctive approach and high impact. This is a high quality bond fund with a correspondingly low yield.

The BNP Paribas Aqua Fund is very similar to other water funds run by Pictet and Sarasin and qualifies for the focus on water solutions, a decent financial performance and good sustainability management and reporting.

Finally, we have added the Mirova Europe Environmental Equity fund which exhibits a high social impact compared to other European equity funds.

By John Fleetwood, 3D Investing

This article first appeared in our latest Guide to Sustainable Investing

Editors Choice

2017 Was the Most Expensive Year Ever for U.S. Natural Disaster Damage

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Natural Disaster Damage
Shutterstock / By Droidworker | https://www.shutterstock.com/g/droidworker

Devastating natural disasters dominated last year’s headlines and made many wonder how the affected areas could ever recover. According to data from the U.S. National Oceanic and Atmospheric Administration (NOAA), the storms and other weather events that caused the destruction were extremely costly.

Specifically, the natural disasters recorded last year caused so much damage that the associated losses made 2017 the most expensive year on record in the 38-year history of keeping such data. The following are several reasons that 2017 made headlines for this notorious distinction.

Over a Dozen Events With Losses Totalling More Than $1 Billion Each

The NOAA reports that in total, the recorded losses equaled $306 billion, which is $90 billion more than the amount associated with 2005, the previous record holder. One of the primary reasons the dollar amount climbed so high last year is that 16 individual events cost more than $1 billion each.

Global Warming Contributed to Hurricane Harvey

Hurricane Harvey, one of two Category-4 hurricanes that made landfall in 2017, was a particularly expensive natural disaster. Nearly 800,000 people needed assistance after the storm. Hurricane Harvey alone cost $125 billion, with some estimates even higher than that. So far, the only hurricane more expensive than Harvey was Katrina.

Before Hurricane Harvey hit, scientists speculated climate change could make it worse. They discussed how rising ocean temperatures make hurricanes more intense, and warmer atmospheres have higher amounts of water vapor, causing larger rainfall totals.

Since then, a new study published in “Environmental Research Letters” confirmed climate change was indeed a factor that gave Hurricane Harvey more power. It found environmental conditions associated with global warming made the storm more severe and increase the likelihood of similar events.

That same study also compared today’s storms with ones from 1900. It found that compared to those earlier weather phenomena, Hurricane Harvey’s rainfall was 15 percent more intense and three times as likely to happen now versus in 1900.

Warming oceans are one of the contributing factors. Specifically, the ocean’s surface temperature associated with the region where Hurricane Harvey quickly transformed from a tropical storm into a Category 4 hurricane has become about 1 degree Fahrenheit warmer over the past few decades.

Michael Mann, a climatologist from Penn State University, believes that due to a relationship known as the Clausius-Clapeyron equation, there was about 3-5 percent more moisture in the air, which caused more rain. To complicate matters even more, global warming made sea levels rise by more than 6 inches in the Houston area over the past few decades. Mann also believes global warming caused the stationery summer weather patterns that made Hurricane Harvey stop moving and saturate the area with rain. Mann clarifies although global warming didn’t cause Hurricane Harvey as a whole, it exacerbated several factors of the storm.

Also, statistics collected by the Environmental Protection Agency (EPA) from 1901-2015 found the precipitation levels in the contiguous 48 states had gone up by 0.17 inches per decade. The EPA notes the increase is expected because rainfall totals tend to go up as the Earth’s surface temperatures rise and additional evaporation occurs.

The EPA’s measurements about surface temperature indicate for the same timespan mentioned above for precipitation, the temperatures have gotten 0.14 Fahrenheit hotter per decade. Also, although the global surface temperature went up by 0.15 Fahrenheit during the same period, the temperature rise has been faster in the United States compared to the rest of the world since the 1970s.

Severe Storms Cause a Loss of Productivity

Many people don’t immediately think of one important factor when discussing the aftermath of natural disasters: the adverse impact on productivity. Businesses and members of the workforce in Houston, Miami and other cities hit by Hurricanes Harvey and Irma suffered losses that may total between $150-200 billion when both damage and sacrificed productivity are accounted for, according to estimates from Moody’s Analytics.

Some workers who decide to leave their homes before storms arrive delay returning after the immediate danger has passed. As a result of their absences, a labor-force shortage may occur. News sources posted stories highlighting that the Houston area might not have enough construction workers to handle necessary rebuilding efforts after Hurricane Harvey.

It’s not hard to imagine the impact heavy storms could have on business operations. However, companies that offer goods to help people prepare for hurricanes and similar disasters often find the market wants what they provide. While watching the paths of current storms, people tend to recall storms that took place years ago and see them as reminders to get prepared for what could happen.

Longer and More Disastrous Wildfires Require More Resources to Fight

The wildfires that ripped through millions of acres in the western region of the United States this year also made substantial contributions to the 2017 disaster-related expenses. The U.S. Forest Service, which is within the U.S. Department of Agriculture, reported 2017 as its costliest year ever and saw total expenditures exceeding $2 billion.

The agency anticipates the costs will grow, especially when they take past data into account. In 1995, the U.S. Forest Service spent 16 percent of its annual budget for wildfire-fighting costs, but in 2015, the amount ballooned to 52 percent. The sheer number of wildfires last year didn’t help matters either. Between January 1 and November 24 last year, 54,858 fires broke out.

2017: Among the Three Hottest Years Recorded

People cause the majority of wildfires, but climate change acts as another notable contributor. In addition to affecting hurricane intensity, rising temperatures help fires spread and make them harder to extinguish.

Data collected by the National Interagency Fire Center and published by the EPA highlighted a correlation between the largest wildfires and the warmest years on record. The extent of damage caused by wildfires has gotten worse since the 1980s, but became particularly severe starting in 2000 during a period characterized by some of the warmest years the U.S. ever recorded.

Things haven’t changed for the better, either. In mid-December of 2017, the World Meteorological Organization released a statement announcing the year would likely end as one of the three warmest years ever recorded. A notable finding since the group looks at global land and ocean temperature, not just statistics associated with the United States.

Not all the most financially impactful weather events in 2017 were hurricanes and wildfires. Some of the other issues that cost over $1 billion included a hailstorm in Colorado, tornados in several regions of the U.S. and substantial flooding throughout Missouri and Arkansas.

Although numerous factors gave these natural disasters momentum, scientists know climate change was a defining force — a reality that should worry just about everyone.

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Environment

How to be More eco-Responsible in 2018

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eco-responsible
Shutterstock / By KENG MERRY Paper Art | https://www.shutterstock.com/g/kengmerrymikeymelody

Nowadays, more and more people are talking about being more eco-responsible. There is a constant growth of information regarding the importance of being aware of ecological issues and the methods of using eco-friendly necessities on daily basis.

Have you been considering becoming more eco-responsible after the New Year? If so, here are some useful tips that could help you make the difference in the following year:

1. Energy – produce it, save it

If you’re building a house or planning to expand your living space, think before deciding on the final square footage. Maybe you don’t really need that much space. Unnecessary square footage will force you to spend more building materials, but it will also result in having to use extra heating, air-conditioning, and electricity in it.

It’s even better if you seek professional help to reduce energy consumption. An energy audit can provide you some great piece of advice on how to save on your energy bills.

While buying appliances such as a refrigerator or a dishwasher, make sure they have “Energy Star” label on, as it means they are energy-efficient.

energy efficient

Shutterstock Licensed Photo – By My Life Graphic

Regarding the production of energy, you can power your home with renewable energy. The most common way is to install rooftop solar panels. They can be used for producing electricity, as well as heat for the house. If powering the whole home is a big step for you, try with solar oven then – they trap the sunlight in order to heat food! Solar air conditioning is another interesting thing to try out – instead of providing you with heat, it cools your house!

2. Don’t be just another tourist

Think about the environment, as well your own enjoyment – try not to travel too far, as most forms of transport contribute to the climate change. Choose the most environmentally friendly means of transport that you can, as well as environmentally friendly accommodation. If you can go to a destination that is being recommended as an eco-travel destination – even better! Interesting countries such as Zambia, Vietnam or Nicaragua are among these destinations that are famous for its sustainability efforts.

3. Let your beauty be also eco-friendly

eco-friendly

Shutterstock / By Khakimullin Aleksandr

We all want to look beautiful. Unfortunately, sometimes (or very often) it comes with a price. Cruelty-free cosmetics are making its way on the world market but be careful with the labels – just because it says a product hasn’t been tested on animals, it doesn’t  mean that some of the product’s ingredients haven’t been tested on some poor animal.

To be sure which companies definitely stay away from the cruel testing on animals, check PETA Bunny list of cosmetic companies just to make sure which ones are truly and completely cruelty-free.

It’s also important if a brand uses toxic ingredients. Brands such as Tata Harper Skincare or Dr Bronner’s use only organic ingredients and biodegradable packaging, as well as being cruelty-free. Of course, this list is longer, so you’ll have to do some online research.

4. Know thy recycling

People often make mistakes while wanting to do something good for the environment. For example, plastic grocery bags, take-out containers, paper coffee cups and shredded paper cannot be recycled in your curb for many reasons, so don’t throw them into recycling bins. The same applies to pizza boxes, household glass, ceramics, and pottery – whether they are contaminated by grease or difficult to recycle, they just can’t go through the usual recycling process.

People usually forget to do is to rinse plastic and metal containers – they always have some residue, so be thorough. Also, bottle caps are allowed, too, so don’t separate them from the bottles. However, yard waste isn’t recyclable, so any yard waste or junk you are unsure of – just contact rubbish removal services instead of piling it up in public containers or in your own yard.

5. Fashion can be both eco-friendly and cool

Believe it or not, there are actually places where you can buy clothes that are eco-friendly, sustainable, as well as ethical. And they look cool, too! Companies like Everlane are very transparent about where their clothes are manufactured and how the price is set. PACT is another great company that uses non-GMO, organic cotton and non-toxic dyes for their clothing, while simultaneously using renewable energy factories. Soko is a company that uses natural and recycled materials in making their clothes and jewelry.

All in all

The truth is – being eco-responsible can be done in many ways. There are tons of small things we could change when it comes to our habits that would make a positive influence on the environment. The point is to start doing research on things that can be done by every person and it can start with the only thing that person has the control of – their own household.

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