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Bringing social investment into the mainstream

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Will the launch of Threadneedle’s Social Bond fund bring social investment into the mainstream?

Getting acceptable financial returns while creating tangible social outcomes is arguably the holy grail for socially-minded investors. Surveys suggest demand for products that balance financial and social returns, the so-called ‘double bottom line’, is high. Sustainable bank Triodos reported last year that nearly 3 million investors could consider social investment in 2014.

The challenge for some social investment products is that their rates of return are simply not that compelling for the mainstream. For investors motivated by the core social aspect of this type of investment, this may not be a major problem; they’re happy making a smaller return if they know their money is actively doing some good. Many bond-style products also lack liquidity – meaning investors’ money is locked up for fixed terms, and they can’t convert their investments into cash very easily.

But there is a new fund on the market that aims to address both of these potential barriers. Threadneedle Investments – which has nearly £90 billion in funds under management – says its UK Social Bond fund is the first social investment fund with daily liquidity, allowing investors to take out their returns anytime they want.

Launched with an initial investment of £10m from social investment bank Big Society Capital, the fund has been developed in partnership with Big Issue Invest – the Big Issue magazine’s investment arm which now acts as social adviser to the fund.

Part of the fund’s earnings goes towards helping Big Issue Invest in its work financing social enterprises, adding more social value to any potential investment. Meanwhile, Threadneedle will contribute a portion of its fee to the Threadneedle Foundation, a dedicated entity through which the company provides support for charitable activities.

The fund has a strong emphasis on social housing, which makes up a quarter of its holdings, while healthcare and education are also represented well. There are sectors that it invests in – for example financial services and utilities – which may not be, on the face of it, ‘social’ investments. However, fund manager Simon Bond justifies this by saying the fund’s impact on the economy is social and its geographical focus is firmly on the regions – and not on areas already faring well economically.

Speaking at a launch event for the fund at Southwark Cathedral last week, Bond addressed the misconception that investing with social, ethical or sustainability factors in mind automatically brought about lower returns.

We don’t believe that you do have to give up financial return to achieve social aims. We didn’t believe it when we put the model for the portfolio together and we don’t believe it two months in”, he said.

We think there are examples out there whereby you can have both – you can have your cake and eat it.”

He was also asked whether he had taken any lessons from the socially responsible investment (SRI) world, which the mainstream investment community often looks at with some cynicism.

He said, “Cynicism does exist. That is a concept we have come across, funnily enough. And it’s something that we have to deal with every day. I think the way that you deal with cynicism is you deal with it in a very calm, measured manner, and you quietly sit down and explain exactly what it is you’re trying to do.”

Meanwhile, Sarah Forster of Big Issue Invest, who was heavily involved in creating the UK Social Bond fund, added that mainstream institutions were generally not interested in social ventures. To get their attention, she said that there was clearly a need for “a product that had credible social value creation but also would meet the liquidity and yield demands from the market”.

This lack of products is hampering the market’s growth. In a panel discussion at the Threadneedle event, Alexander Hoare – a partner at the private bank C Hoare & Co – said he had written to 10,000 wealthy customers inviting them to express an interesting in social investment. Just four replied. That said, he explained that it was very much a “chicken and egg” scenario, in that as more products are introduced, this would be met with increased demand.

Bond agreed, adding, “Partly, we’re launching this fund in order to prove that demand is out there. Build it and they will come.”

Hoare added that part of the problem – and indeed, much of the sector’s growth – rested on the shoulders of financial advisers who were advising interested clients.

He recalled a conversation with people from a discretionary portfolio management firm, in which he asked whether social investment could be included in their clients’ portfolios. They responded by reeling off concerns to do with risk, returns, liquidity and regulation. A similar meeting with a group of independent financial planners was also unsuccessful.

These two communities, plus a range of others, still need convincing about what social investment offers. In theory, investors may want their money to do good, but if their advisers are preventing them from doing so, the sector’s growth is stunted. This is exactly the reason why Blue & Green Tomorrow is doing a series of sustainable investment bootcamps in 2014, specifically educating financial advisers about the benefits of investing this way.

While the launch of the Threadneedle UK Social Bond fund is by no means the sole answer to mainstreaming social investment, it could be the catalyst the industry needs – but only if it performs how its managers suggest it will perform, both financially and socially. A failure on either of these aspects could damage the sector’s reputation.

Ultimately, we need a whole host of similar products to truly make the sector a viable investment for the mainstream. Speaking at the Southwark Cathedral event last week, Big Issue Invest chief executive Nigel Kershaw (pictured) described social investment as “finance to transform society”. This may sound grandiose, but in actual fact it is an accurate and exciting tagline for a sector whose time in the spotlight appears very close indeed.

In accordance with the Financial Services and Markets Act 2000, Blue & Green Communications Limited does not provide regulated investment services of any kind, and is not authorised to do so. Nothing in this article and all parts herein constitute or should be deemed to constitute advice, recommendation, or invitation or inducement to buy, sell, subscribe for or underwrite any investment of any kind. Any specific investment-related queries or concerns should be directed to a fully qualified financial adviser.

Further reading:

Threadneedle and Big Issue Invest join forces for UK Social Bond fund

Investors to be given opportunity to invest in Big Society

Fiona Woolf: London must lead in social impact investment

Sir Ronald Cohen: measuring of social investment outcomes a ‘breakthrough’

Cameron: ‘social investment can be a great force for social change on the planet’

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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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