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Calls for greater investment transparency applies to more than ethical funds

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At the start of National Ethical Investment Week, the sustainable investment industry was left reeling from the shock revelation that some funds would actually be banned (from labelling themselves ethical)… in France and Belgium, according to the Investors Chronicle.

Eurosif, the voluntary pan-European trade body for individual country’s sustainable investment forums (SIFs), has a code on transparency, which allows funds to use a transparency logo if they meet certain standards on behaviour and reporting.

The article’s central charge was that a majority of funds that identify themselves in the UK as ethical or socially responsible had not yet signed up to just one of these voluntary codes, the Eurosif transparency one. They may have signed up others, but this single omission renders them unfit to carry the ethical label.

This is surprising, as this code is mandatory in only a few Eurosif countries, and not yet in the UK. Belgium and France have made the code mandatory and take-up has inevitably soared, as these things do when they become compulsory. While we support and collaborate with our European cousins, the UK investment sector is not known for its Europhilia and slavish adoption of other countries’ standards.

But this is not the only scheme that has greater transparency at its heart.

The UK’s national trade body, UKSIF, has its own statement of principles; there is the UN-backed Principles of Responsible Investment; we have the UK Stewardship Code; EIRIS rates most ethically-badged funds on their mandate and investment approach. All of these overlapping schemes have elements of transparency, engagement, reporting and ethical standards.

With all the rankings, ratings and benchmarks, a smaller fund could spend its entire back office resource signing up to multiple codes (some leading lights do), with no discernible benefit to their investors. Transparency is essential but a multitude of tick box schemes do not equal transparency.

A fund’s primary duty is to obey applicable law and deliver income and growth for its investors, not sign up to lots of codes and standards, especially voluntary ones. Exceeding standards is desirable but uncommon in many industries.

What is more interesting to us, is that it is only ethical funds in the UK that have signed up to a voluntary European code on transparency. Of the 80 UK domiciled ethical funds, 11% have already signed up to the code. Of the 3,000 or so conventional funds, many of them run by far larger institutions and with the back office capacity to administer such schemes, none of them have.

Far from this being an example of the UK socially responsible investment (SRI) industry failing or fund providers being unfit, the sector is adapting to new rules and new standards and gradually implementing them. There is enormous amount of overlap and duplication, so UK-based organisations sign up to those commonly accepted and widely used in the UK. This would be UKSIF membership, the Stewardship code, the PRI, EIRIS and then Eurosif.

We thought we’d looked at who had signed up to which organisations and codes.

UKSIF has 53 investment manager members who agree to support the aims and work of the organisation.

The Stewardship Code has 207 signatories. It says, “Activities may include monitoring and engaging with companies on matters such as strategy, performance, risk, capital structure, and corporate governance, including culture and remuneration. Engagement is purposeful dialogue with companies on these matters as well as on issues that are the immediate subject of votes at general meetings.”

The PRI has 102 investment manager signatories. The third of six principles is about disclosure or transparency, and says, “We will seek appropriate disclosure on ESG (Environment, social and corporate governance) issues by the entities in which we invest. This includes: asking for standardised reporting on ESG issues (using tools such as the Global Reporting Initiative), ESG issues to be integrated within annual financial reports, information from companies regarding adoption of/adherence to relevant norms, standards, codes of conduct or international initiatives (such as the UN Global Compact) and supporting shareholder initiatives and resolutions promoting ESG disclosure.”

EIRIS, an independent rater of funds’ ethical position, has assessed 40 investment management firms with 78 funds. Itsmission is to “empower responsible investors with independent assessments of companies and advice on integrating them with investment decisions.”

Eurosif’s transparency code has three signatories with nine funds. While it explicitly uses the word ‘transparency’, simple semantics does not make a story.

It is true that the leading lights and early adopters of the sector have been weighed, measured and signed up to all five options: UKSIF, The Stewardship Code, UNPRI, EIRIS and Eurosif.

Ecclesiastical, F&C and WHEB should be applauded for their initiative and lead in this. Clare Brook of WHEB told us, “We think it’s shocking and paradoxical that in a sector which is supposedly guided by ethics, so few are fulfilling these transparency requirements. Fund managers and researchers should be entirely confident about the investments in their fund and happy for those to be scrutinised. If they are hiding them because they are worried that investors wouldn’t like what they see in a fund, they shouldn’t be holding those investments.”

Brook added, “The overwhelming message to come out of the [NEIW] coverage is that this is a complicated sector and that potential investors are put off by a lack of knowledge about who is doing what. Clarity of information and high standards of transparency are vital if the sector is going to move from currently 1.5% of investors in the UK to far higher than that.”

Meanwhile, a spokesperson from another investment house told us, “We are signatories of the PRI [and] members of UKSIF but not Eurosif. I think it is important to draw the distinction here – we have never [described] ourselves as an ethical fund manager. We are a specialist boutique. Our funds tend to appeal to ethical investors and we do run two ethical funds.”

The second investment house makes a valid point that many others have signed up to three or four of the available schemes, if not the Eurosif one.

The UK has the largest, most diverse and dynamic investment sectors in Europe.

We have a thriving SRI sector and multiple levels of oversight and standards. Far from seeing the take-up of a voluntary European standard as a failure of an industry, we should applaud those who have and work to increase take up and make the codes common across countries.

The original Investors Chronicle article makes the point that “because the Investment Management Association (IMA), the trade body that looks after investments in the UK, does not acknowledge Eurosif or its guidelines, it means most ethical funds marketed to UK investors do not disclose this level of information, and can get away with keeping most of the companies they are investing in a secret.”

The truth is that the vast majority of funds marketed to UK investors do not disclose this level of information. More often than not it is the ethical ones that do. Singling out the sustainable and responsible investment (SRI) sector for not signing up to a voluntary European code when it represents less than 2% of funds under management in the UK and does not have the blessing of the investment management industry body, albeit it they have signed up to others, suggests something less than objectivity.

Transparency across all investment is key

The whole investment sector should be working for greater transparency on engagement, reporting standards, voting records, full lists of holdings, stock turnover and fees. An article on that topic would be useful in the debate.

Some will argue we should hold ethical funds to a higher standard of transparency. This argument has considerable merit, but could be a distraction against the bigger challenges the industry, society and environment face – the sheer scale of conventional investment’s recklessness and opaqueness.

Clare Brook of WHEB added, “I think the French and the Belgians are quite right to take a firm stance on this because otherwise if ‘all comers’ are allowed there is a danger that standards will be lowered in the industry and potential investors will be put off.”

Earlier this year, we argued that transparency, simplicity and honesty was urgently needed in the investment industry. The issue of transparency is not new or limited to the SRI industry. Rather, it is a whole of market issue, which needs to be urgently addressed by trade bodies, regulators and the government.

We’d like to know from our readers if the investment industry should adopt mandatory transparency standards, and whether this should apply to all funds, regardless of their ethical or unethical badge.

National Ethical Investment Week 2013 runs from October 13-19. Join the debate on Twitter using the hashtag #moneydoinggood.

Further reading:

There is a disconnect between investment and the real world

We need investment to return to its ‘patient evolutionary path’

Transparency, simplicity and honesty is urgently needed in investment

Ethical funds ‘exposed’ or the lesser of 3,000 evils?

The Guide to National Ethical Investment Week 2013

Simon Leadbetter is the founder and publisher of Blue & Green Tomorrow. He has held senior roles at Northcliffe, The Daily Telegraph, Santander, Barclaycard, AXA, Prudential and Fidelity. In 2004, he founded a marketing agency that worked amongst others with The Guardian, Vodafone, E.On and Liverpool Victoria. He sold this agency in 2006 and as Chief Marketing Officer for two VC-backed start-ups launched the online platform Cleantech Intelligence (which underpinned the The Guardian’s Cleantech 100) and StrategyEye Cleantech. Most recently, he was Marketing Director of Emap, the UK’s largest B2B publisher, and the founder of Blue & Green Communications Limited.

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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