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Breaking the eight myths of sustainable and responsible investment

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There are eight myths about sustainable and responsible investment (SRI) that Richard Essex says must be broken; eight myths that, he adds, are currently being broken by the genuine SRI industry that is happening right now.

This article is an extract from Richard Essex’s 2014 book, Invest, Feel Good and Make a Difference, which is available now on Amazon.

Myth one: my money won’t make a difference

Your money is already making a difference. Alongside government intervention, we are already making dents in some of the world’s most pressing challenges. For example, according to a United Nations report in 2012, investment in renewable power and fuels experienced a 17% increase from the previous year. In addition, this investment has spread to far more countries, meaning more countries are now focusing on clean energy targets. As the economy is becoming more constrained by environmental and social pressure those that are meeting these challenges head on are creating far more investment opportunities for you the investor.

Myth two: I can’t get a healthy return investing this way

This just doesn’t stand up. SRI funds, that you can access, will be investing in those companies that are meeting these challenges and these companies have a better chance of succeeding financially in the future. These could be companies tackling issues directly, such as Scottish and Southern, who are now one of the leading renewables producers in the UK. Because of their innovative approach they are now able to offer a dividend of around 6%, which is helping to support a sustainable share price.

Equally, they could be companies like Marks & Spencer who are successfully moulding environmental and social sustainability into their operations, thereby benefitting financially. By achieving results such as cutting down food packaging by 20% they have helped to reduce their bottom line costs and improve profitability. This is being reflected in a share, which is paying a healthy dividend, well above the market average. SRI fund managers will be investing in a mixture of companies that understand and care about their responsibilities. The kind of evidence above is showing that this offers a more financially sustainable return for you, the investor.

Myth three: the market is not mature enough

The SRI sector is no longer a fledgling industry. As far as individual investors are concerned, the size of funds under management has increased significantly. To be specific, SRI funds under management in the UK have grown from £312m to around £10 billion over the last 20 years. This growth ignores the large increase in SRI exposure within the institutional sector. This includes occupational pension schemes, which are paying far more attention to this area.

Equally, the range of fund styles have developed dramatically. In order to meet investor’s differing preferences towards SRI there are a variety of styles available. Additionally, there are a number of underlying factors that support a far more mature industry. For example, environmental technology is far more advanced creating many more cost effective processes. The National Renewable Energy Laboratory in the US issued a report in 2012 saying that costs could be reduced by as much as 30-40% over the next decade. Finally we, as consumers, are far more educated and attracted to supporting the environment than we were a decade or so ago.

Myth four: I can’t see where I’m investing, therefore I don’t feel engaged

This fear is perfectly understandable given recent events in the financial sector. One of the spill-outs of the financial meltdown in 2008 was the realisation that so many market assets suffered from a complete lack of transparency. Extremely dangerous, as it turned out, as so much of this so-called wealth had no real underlying value.

In total contrast, SRI funds depend on transparency for their success. In fact, the origins of these funds derive from an investor’s need to recognise that they are making a positive contribution. As a result, there is a greater commitment by fund managers in this sector to communicate with you, the investor.

Myth five: I have no trust in how my investments are managed

A survey carried out by Lloyds TSB in 2012 showed that confidence in the UK stock market was hovering at 29%. People’s trust in investing is at an all-time low and there is good reason for this. A series of financial mishaps over the last decade has severely dampened the performance of the stock market over this period. However, just as financial mismanagement and poor transparency has created this lack of trust then more responsible and open activity will have the opposite effect.

The building of trust with investors is integral to the SRI industry. As a result, SRI fund managers will carry out a more in-depth research process, including analysis of environmental, social, and governance (ESG) factors. Evidence is now showing that when this is combined with financial analysis a shareholding is more likely to achieve long term sustained performance. Additionally behavioural finance research supports the view that investors, on the whole, are more concerned with longer term sustained performance.

Myth six: I can’t spread investment risk investing this way

Other than just considering specific risk that applies to an individual company or stock, risk needs to be considered in a wider context when planning an investment portfolio. In particular, research has suggested that a spread of asset class and investment style is important in providing a well balanced portfolio.

A criticism of the SRI sector in the past was that it did not offer this diversification. This is no longer the case. SRI filtered funds now can include a number of different asset classes, including shares, corporate bonds and property. In addition the range of funds includes a wide array of styles. These different styles mean that, as a SRI investor, you can invest in larger, more established, sustainable companies, as well as emerging companies who are making a more direct contribution to a more sustainable future.

Myth seven: I’m worried about moving 100% in this direction

It’s still very rare for existing SRI investors to place all of their wealth in funds within this space. This is partly because this area is still developing and can’t currently satisfy every investment requirement. For that reason you should not feel guilty if you only invest a proportion of your money in this area.

The real challenge for the SRI industry is to move from the margins to the mainstream so that greater impact can be made on the social and environmental challenges that face us. There will be more effective change if broader exposure is obtained from the wider market rather than just concentrate on the existing, traditional, ethical investor.

Myth eight: I want to leave a positive legacy with my investments but feel helpless on my own

You don’t have to feel you are on your own; on the contrary, you can become part of a movement. This is a movement that I believe is currently moving SRI from the margins to the mainstream. The evidence suggests that SRI has now gone through the early development stages and a recognised movement has now been formed.

Indications of the importance of supporting a sustainable economy can be seen in the way government policy is being framed. In the UK, for example, we have seen government initiatives like the green deal and Green Investment Bank both supporting the importance of a sustainable environment. When you consider how much SRI investing has increased over the last 20 years (see myth three above) then you will realise that you are far from an extreme, far out, treehugger but in fact part of a growing, established, responsible movement.

Richard Essex is an independent financial adviser with Grayside Financial Services, where he is a specialist for green and SRI advice. He is also on the steering committee with the Ethical Investment Association, a member of the UK Sustainable Investment and Finance Association (UKSIF) and the author of the 2014 book, Invest, Feel Good and Make a Difference.

Photo: David Ritter via freeimages

Further reading:

Alternative Wall Street Journal: the financial advantage of socially responsible investing

Four in five investors consider sustainability issues – PwC survey

Sustainable investment: what are you investing for?

Invest, Feel Good, And Make a Difference: an interview with the author

The Guide to Sustainable Investment 2014

Richard Essex is an independent financial adviser with Grayside Financial Services, where he is a specialist for green and SRI advice. He is also on the steering committee with the Ethical Investment Association, a member of the UK Sustainable Investment and Finance Association (UKSIF) and the author of the 2014 book, Invest, Feel Good and Make a Difference.

Economy

Will Self-Driving Cars Be Better for the Environment?

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self-driving cars for green environment
Shutterstock Licensed Photo - By Zapp2Photo | https://www.shutterstock.com/g/zapp2photo

Technologists, engineers, lawmakers, and the general public have been excitedly debating about the merits of self-driving cars for the past several years, as companies like Waymo and Uber race to get the first fully autonomous vehicles on the market. Largely, the concerns have been about safety and ethics; is a self-driving car really capable of eliminating the human errors responsible for the majority of vehicular accidents? And if so, who’s responsible for programming life-or-death decisions, and who’s held liable in the event of an accident?

But while these questions continue being debated, protecting people on an individual level, it’s worth posing a different question: how will self-driving cars impact the environment?

The Big Picture

The Department of Energy attempted to answer this question in clear terms, using scientific research and existing data sets to project the short-term and long-term environmental impact that self-driving vehicles could have. Its findings? The emergence of self-driving vehicles could essentially go either way; it could reduce energy consumption in transportation by as much as 90 percent, or increase it by more than 200 percent.

That’s a margin of error so wide it might as well be a total guess, but there are too many unknown variables to form a solid conclusion. There are many ways autonomous vehicles could influence our energy consumption and environmental impact, and they could go well or poorly, depending on how they’re adopted.

Driver Reduction?

One of the big selling points of autonomous vehicles is their capacity to reduce the total number of vehicles—and human drivers—on the road. If you’re able to carpool to work in a self-driving vehicle, or rely on autonomous public transportation, you’ll spend far less time, money, and energy on your own car. The convenience and efficiency of autonomous vehicles would therefore reduce the total miles driven, and significantly reduce carbon emissions.

There’s a flip side to this argument, however. If autonomous vehicles are far more convenient and less expensive than previous means of travel, it could be an incentive for people to travel more frequently, or drive to more destinations they’d otherwise avoid. In this case, the total miles driven could actually increase with the rise of self-driving cars.

As an added consideration, the increase or decrease in drivers on the road could result in more or fewer vehicle collisions, respectively—especially in the early days of autonomous vehicle adoption, when so many human drivers are still on the road. Car accident injury cases, therefore, would become far more complicated, and the roads could be temporarily less safe.

Deadheading

Deadheading is a term used in trucking and ridesharing to refer to miles driven with an empty load. Assume for a moment that there’s a fleet of self-driving vehicles available to pick people up and carry them to their destinations. It’s a convenient service, but by necessity, these vehicles will spend at least some of their time driving without passengers, whether it’s spent waiting to pick someone up or en route to their location. The increase in miles from deadheading could nullify the potential benefits of people driving fewer total miles, or add to the damage done by their increased mileage.

Make and Model of Car

Much will also depend on the types of cars equipped to be self-driving. For example, Waymo recently launched a wave of self-driving hybrid minivans, capable of getting far better mileage than a gas-only vehicle. If the majority of self-driving cars are electric or hybrids, the environmental impact will be much lower than if they’re converted from existing vehicles. Good emissions ratings are also important here.

On the other hand, the increased demand for autonomous vehicles could put more pressure on factory production, and make older cars obsolete. In that case, the gas mileage savings could be counteracted by the increased environmental impact of factory production.

The Bottom Line

Right now, there are too many unanswered questions to make a confident determination whether self-driving vehicles will help or harm the environment. Will we start driving more, or less? How will they handle dead time? What kind of models are going to be on the road?

Engineers and the general public are in complete control of how this develops in the near future. Hopefully, we’ll be able to see all the safety benefits of having autonomous vehicles on the road, but without any of the extra environmental impact to deal with.

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Economy

New Zealand to Switch to Fully Renewable Energy by 2035

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renewable energy policy
Shutterstock Licensed Photo - By Eviart / https://www.shutterstock.com/g/adrian825

New Zealand’s prime minister-elect Jacinda Ardern is already taking steps towards reducing the country’s carbon footprint. She signed a coalition deal with NZ First in October, aiming to generate 100% of the country’s energy from renewable sources by 2035.

New Zealand is already one of the greenest countries in the world, sourcing over 80% of its energy for its 4.7 million people from renewable resources like hydroelectric, geothermal and wind. The majority of its electricity comes from hydro-power, which generated 60% of the country’s energy in 2016. Last winter, renewable generation peaked at 93%.

Now, Ardern is taking on the challenge of eliminating New Zealand’s remaining use of fossil fuels. One of the biggest obstacles will be filling in the gap left by hydropower sources during dry conditions. When lake levels drop, the country relies on gas and coal to provide energy. Eliminating fossil fuels will require finding an alternative source to avoid spikes in energy costs during droughts.

Business NZ’s executive director John Carnegie told Bloomberg he believes Ardern needs to balance her goals with affordability, stating, “It’s completely appropriate to have a focus on reducing carbon emissions, but there needs to be an open and transparent public conversation about the policies and how they are delivered.”

The coalition deal outlined a few steps towards achieving this, including investing more in solar, which currently only provides 0.1% of the country’s energy. Ardern’s plans also include switching the electricity grid to renewable energy, investing more funds into rail transport, and switching all government vehicles to green fuel within a decade.

Zero net emissions by 2050

Beyond powering the country’s electricity grid with 100% green energy, Ardern also wants to reach zero net emissions by 2050. This ambitious goal is very much in line with her focus on climate change throughout the course of her campaign. Environmental issues were one of her top priorities from the start, which increased her appeal with young voters and helped her become one of the youngest world leaders at only 37.

Reaching zero net emissions would require overcoming challenging issues like eliminating fossil fuels in vehicles. Ardern hasn’t outlined a plan for reaching this goal, but has suggested creating an independent commission to aid in the transition to a lower carbon economy.

She also set a goal of doubling the number of trees the country plants per year to 100 million, a goal she says is “absolutely achievable” using land that is marginal for farming animals.

Greenpeace New Zealand climate and energy campaigner Amanda Larsson believes that phasing out fossil fuels should be a priority for the new prime minister. She says that in order to reach zero net emissions, Ardern “must prioritize closing down coal, putting a moratorium on new fossil fuel plants, building more wind infrastructure, and opening the playing field for household and community solar.”

A worldwide shift to renewable energy

Addressing climate change is becoming more of a priority around the world and many governments are assessing how they can reduce their reliance on fossil fuels and switch to environmentally-friendly energy sources. Sustainable energy is becoming an increasingly profitable industry, giving companies more of an incentive to invest.

Ardern isn’t alone in her climate concerns, as other prominent world leaders like Justin Trudeau and Emmanuel Macron have made renewable energy a focus of their campaigns. She isn’t the first to set ambitious goals, either. Sweden and Norway share New Zealand’s goal of net zero emissions by 2045 and 2030, respectively.

Scotland already sources more than half of its electricity from renewable sources and aims to fully transition by 2020, while France announced plans in September to stop fossil fuel production by 2040. This would make it the first country to do so, and the first to end the sale of gasoline and diesel vehicles.

Many parts of the world still rely heavily on coal, but if these countries are successful in phasing out fossil fuels and transitioning to renewable resources, it could serve as a turning point. As other world leaders see that switching to sustainable energy is possible – and profitable – it could be the start of a worldwide shift towards environmentally-friendly energy.

Sources: https://www.bloomberg.com/news/articles/2017-11-06/green-dream-risks-energy-security-as-kiwis-aim-for-zero-carbon

https://www.reuters.com/article/us-france-hydrocarbons/france-plans-to-end-oil-and-gas-production-by-2040-idUSKCN1BH1AQ

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