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Do ethical funds and fossil fuels mix?

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A piece in The Guardian last week posed the question, “Where can investors who worry about climate change put their pension?” and claimed that many ethical funds invest in fossil fuels. Alex Blackburne attempts to unravel a dilemma that many ethical investors face.

For ethical investors in the UK, there are now more funds than ever that offer a responsible, sustainable place for their money. There are almost 90 ethical funds in the retail market now registered with the Financial Services Authority (FSA), and whether your strategy is to avoid certain sectors – such as alcohol, tobacco or weapons – or specifically focus on areas that are making a positive difference – such as in the environment, human rights or equal opportunities – there’s clearly something for everyone.

But when it comes to climate change – one of the biggest drivers for individuals who opt for ethical investment – there’s a bit of a dilemma.

In a piece for The Guardian last week, business and sustainability commentator Marc Gunther wrote about environmental campaigner Bill McKibben’s Do the Math tour, in which McKibben and his team call for divestment from the fossil fuel industry. Gunther asks, “Where can investors who worry about climate change put their pension?” It’s an interesting question that raises a number of issues, not least the fact that some of the largest and most well-known environmental or socially responsible investment (SRI) funds apparently hold stocks in fossil fuel companies.

Much has been written about the so-called ‘sextet of sin’ – six sectors that many claim typify the nature of an unethical investment: alcohol, tobacco, gambling, pornography, arms production and trade and nuclear power. It’s by no means an exclusive list. There are other popular areas of exclusion (or negative screening) like companies that use animal testing or operate in countries with oppressive regimes.

Given the stringent criteria implemented by ethical investors, in excluding many of the above sectors, it seems strange that fossil fuels – oil, gas and coal – do not suffer the same disdain, especially when you factor in their harmful effect on the environment. A quick look at a cross-section of retail ethical funds on YourEthicalMoney.org for example, shows that many (but not all) have fossil fuel companies in their top ten holdings.

But is it unethical to hold oil and gas stocks? If you’re clued up on the science behind climate change – the notion that greenhouse gases, produced by the burning of fossil fuels, form a layer around the Earth’s atmosphere, causing it to warm – you’ll know that the role oil, gas and coal companies play is an irrefutably negative one. And while these sectors provide lucrative returns (oil and gas firms make up 20% of the FTSE 100 and three of biggest 10 companies) we know that for ethical investors, high returns aren’t their primary motivation.

UK SRI [socially responsible investment] funds adopt of variety of different approaches to investing in oil and gas companies”, says Mark Robertson, head of communications at responsible investment research firm EIRIS and editor of YourEthicalMoney.org.

Some refuse to invest in the sector, or seek out those oil companies that have better environmental, social and corporate governance (ESG) performance. Others engage with oil and gas companies to encourage them to increase investment in renewables or to reduce the emissions associated with energy production.

Views on investing in oil gas tend to be mixed but the sector is clearly off limits for some investors.

For this reason we always encourage investors to check to see what a fund’s investment policy and also to take a look at its top ten holdings.

And engagement is a big issue for many ethical funds. Speaking to Blue & Green Tomorrow in February this year, Hugh Cuthbert, co-fund manager of the SVM All Europe SRI Fund, explained how one of his fund’s main goals is to “use our clout as shareholders to effect change”. And with that, Valiant Petroleum and Premier Oil both appear in its top ten holdings. But not everyone in the ethical investment industry is fully behind this philosophy.

I’m a great believer in the role of engagement but even I’m a bit sceptical of the ability of relatively small funds to influence major oil companies”, says Julian Parrott, an Edinburgh-based financial adviser.

That said; it is notable that the worst offenders in the sectors – Shell, BP, Texaco, Exxon – are rarely held in UK ethical funds and it much more likely to be the likes of BG, Tullow and Norwegian Statoil that are invested in.”

However John Ditchfield, a financial adviser at Barchester Green and chair of the Ethical Investment Association (EIA), provides a conflicting view.

There is an argument that without ethical funds pushing the oil and gas industry towards better standards on labour practises and safety issues, the sector would be more damaging”, he says.

I have certainly seen evidence that the best of the ethical funds engage with companies to try and improve practises in these areas.”

Ditchfield adds that many ethical funds base their investment criteria on the exclusion of industries that are directly harmful to human welfare, such as arms manufacturing, tobacco and alcohol, which is one of the reasons why oil and gas stocks are not ruled out.

And whilst this is true to some extent, it becomes contestable when you factor in the health effects of air pollution. In an interview with Blue & Green Tomorrow in May, Jonathan Grigg, a professor of pediatric respiratory and environmental medicine at Queen Mary University London, said, “In terms of children’s health, and it’s true to some extent in adults, fossil fuel derived particles certainly make asthma worse. In other words, if you have asthma, you are more liable to have deterioration of your symptoms in days of high pollution.”

He went on to say that there was also strong evidence to associate fossil fuel particles with heart attacks. So to this end, there appears to be a strong case mounting up for creating a dedicated negative screen for fossil fuels, instead of simply addressing them through other screens such as environmental damage, human rights and business transparency.

Indeed, Parrott, who set up Ethical Futures in 2005, added that the fossil fuels dilemma was common among many of his clients.

Funds managers look to manage risk by diversification though market sectors and it takes a bold manager to exclude such an important investment sector from its holdings if criteria permit”, he says.

Over the past couple of years, excluding this sector if permitted to hold would have left a fund financially exposed due to the rise in oil price and rise of importance of gas.

Many put an emphasis on holding gas as a cleaner transitional fuel – but probably are just attracted by the returns. Other managers will lay claim to a best of sector approach and the power of engagement to improve reporting standards.”

But these are by no means wholesale approaches. There has to be perspective when it comes to ethical investment, insofar that while many funds do indeed hold relatively large stocks in the oil and gas companies, many are also investing heavily in cutting-edge renewable technologies, for instance.

The Cheviot Climate Assets Fund and the WHEB Sustainability Fund focus on investing into businesses providing solutions to problems arising from climate change, environmental degradation, existing patterns of resource consumption or waste and population growth”, explains Ditchfield.

Both funds invest into businesses which promote more efficient use of energy and natural resources as well as renewable energy generation and supply.”

The WHEB fund for example, only invests in companies that derive at least 30% of their revenue from one of three key sustainability themes: climate change and the energy challenge, global water resource shortages, and demographic shifts; in particular the move towards an ageing population.

It comes down to a clear choice for ethical investors: whether you want to do the most good with your money (positive screening), or the least bad (negative screening or exclusion). While stocks in fossil fuels might appear in many of the options available to you, it’s important to look at the whole picture and determine what you want to achieve with your investments.

Parrott, and indeed many of his clients, is pragmatic about the dilemma: “We live in the 21st century and use cars, fly and a myriad of oil by-products so perhaps we have to acknowledge the role that oil plays in our lives.

Whilst some will feel uncomfortable about it – many will accept the merits of investing in the best of breed who are responsible – I’ve even had clients who say that they would feel hypocritical if they were to specifically exclude oil because the run their heating on it and drive a car to come and see me!

Blue & Green Tomorrow has interviewed a number of specialist ethical financial advisers in the past, and they’re located all across the country. Have a look here to find the one nearest to you.

Further reading:

The sextet of sin: investing in war and death (cheerful headline or what?)

Five saintly areas of sustainable investment for All Saints’ Day

Sustainable investment flourishes amongst European high net-worth individuals

What kind of investor are you?

Talk of high returns amongst ethical investors detracts from the point 

The Guide to Sustainable Investment (NEIW edition)

Economy

How Going Green Can Save A Company Money

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going green can save company money
Shutterstock Licensed Photot - By GOLFX

What is going green?

Going green means to live life in a way that is environmentally friendly for an entire population. It is the conservation of energy, water, and air. Going green means using products and resources that will not contaminate or pollute the air. It means being educated and well informed about the surroundings, and how to best protect them. It means recycling products that may not be biodegradable. Companies, as well as people, that adhere to going green can help to ensure a safer life for humanity.

The first step in going green

There are actually no step by step instructions for going green. The only requirement needed is making the decision to become environmentally conscious. It takes a caring attitude, and a willingness to make the change. It has been found that companies have improved their profit margins by going green. They have saved money on many of the frivolous things they they thought were a necessity. Besides saving money, companies are operating more efficiently than before going green. Companies have become aware of their ecological responsibility by pursuing the knowledge needed to make decisions that would change lifestyles and help sustain the earth’s natural resources for present and future generations.

Making needed changes within the company

After making the decision to go green, there are several things that can be changed in the workplace. A good place to start would be conserving energy used by electrical appliances. First, turning off the computer will save over the long run. Just letting it sleep still uses energy overnight. Turn off all other appliances like coffee maker, or anything that plugs in. Pull the socket from the outlet to stop unnecessary energy loss. Appliances continue to use electricity although they are switched off, and not unplugged. Get in the habit of turning off the lights whenever you leave a room. Change to fluorescent light bulbs, and lighting throughout the building. Have any leaks sealed on the premises to avoid the escape of heat or air.

Reducing the common paper waste

paper waste

Shutterstock Licensed Photo – By Yury Zap

Modern technologies and state of the art equipment, and tools have almost eliminated the use of paper in the office. Instead of sending out newsletters, brochures, written memos and reminders, you can now do all of these and more by technology while saving on the use of paper. Send out digital documents and emails to communicate with staff and other employees. By using this virtual bookkeeping technique, you will save a bundle on paper. When it is necessary to use paper for printing purposes or other services, choose the already recycled paper. It is smartly labeled and easy to find in any office supply store. It is called the Post Consumer Waste paper, or PCW paper. This will show that your company is dedicated to the preservation of natural resources. By using PCW paper, everyone helps to save the trees which provides and emits many important nutrients into the atmosphere.

Make money by spreading the word

Companies realize that consumers like to buy, or invest in whatever the latest trend may be. They also cater to companies that are doing great things for the quality of life of all people. People want to know that the companies that they cater to are doing their part for the environment and ecology. By going green, you can tell consumers of your experiences with helping them and communities be eco-friendly. This is a sound public relations technique to bring revenue to your brand. Boost the impact that your company makes on the environment. Go green, save and make money while essentially preserving what is normally taken for granted. The benefits of having a green company are enormous for consumers as well as the companies that engage in the process.

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Energy

5 Easy Things You Can Do to Make Your Home More Sustainable

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sustainable homes
Shutterstock Licensed Photot - By Diyana Dimitrova

Increasing your home’s energy efficiency is one of the smartest moves you can make as a homeowner. It will lower your bills, increase the resale value of your property, and help minimize our planet’s fast-approaching climate crisis. While major home retrofits can seem daunting, there are plenty of quick and cost-effective ways to start reducing your carbon footprint today. Here are five easy projects to make your home more sustainable.

1. Weather stripping

If you’re looking to make your home more energy efficient, an energy audit is a highly recommended first step. This will reveal where your home is lacking in regards to sustainability suggests the best plan of attack.

Some form of weather stripping is nearly always advised because it is so easy and inexpensive yet can yield such transformative results. The audit will provide information about air leaks which you can couple with your own knowledge of your home’s ventilation needs to develop a strategic plan.

Make sure you choose the appropriate type of weather stripping for each location in your home. Areas that receive a lot of wear and tear, like popular doorways, are best served by slightly more expensive vinyl or metal options. Immobile cracks or infrequently opened windows can be treated with inexpensive foams or caulking. Depending on the age and quality of your home, the resulting energy savings can be as much as 20 percent.

2. Programmable thermostats

Programmable thermostats

Shutterstock Licensed Photo – By Olivier Le Moal

Programmable thermostats have tremendous potential to save money and minimize unnecessary energy usage. About 45 percent of a home’s energy is earmarked for heating and cooling needs with a large fraction of that wasted on unoccupied spaces. Programmable thermostats can automatically lower the heat overnight or shut off the air conditioning when you go to work.

Every degree Fahrenheit you lower the thermostat equates to 1 percent less energy use, which amounts to considerable savings over the course of a year. When used correctly, programmable thermostats reduce heating and cooling bills by 10 to 30 percent. Of course, the same result can be achieved by manually adjusting your thermostats to coincide with your activities, just make sure you remember to do it!

3. Low-flow water hardware

With the current focus on carbon emissions and climate change, we typically equate environmental stability to lower energy use, but fresh water shortage is an equal threat. Installing low-flow hardware for toilets and showers, particularly in drought prone areas, is an inexpensive and easy way to cut water consumption by 50 percent and save as much as $145 per year.

Older toilets use up to 6 gallons of water per flush, the equivalent of an astounding 20.1 gallons per person each day. This makes them the biggest consumer of indoor water. New low-flow toilets are standardized at 1.6 gallons per flush and can save more than 20,000 gallons a year in a 4-member household.

Similarly, low-flow shower heads can decrease water consumption by 40 percent or more while also lowering water heating bills and reducing CO2 emissions. Unlike early versions, new low-flow models are equipped with excellent pressure technology so your shower will be no less satisfying.

4. Energy efficient light bulbs

An average household dedicates about 5 percent of its energy use to lighting, but this value is dropping thanks to new lighting technology. Incandescent bulbs are quickly becoming a thing of the past. These inefficient light sources give off 90 percent of their energy as heat which is not only impractical from a lighting standpoint, but also raises energy bills even further during hot weather.

New LED and compact fluorescent options are far more efficient and longer lasting. Though the upfront costs are higher, the long term environmental and financial benefits are well worth it. Energy efficient light bulbs use as much as 80 percent less energy than traditional incandescent and last 3 to 25 times longer producing savings of about $6 per year per bulb.

5. Installing solar panels

Adding solar panels may not be the easiest, or least expensive, sustainability upgrade for your home, but it will certainly have the greatest impact on both your energy bills and your environmental footprint. Installing solar panels can run about $15,000 – $20,000 upfront, though a number of government incentives are bringing these numbers down. Alternatively, panels can also be leased for a much lower initial investment.

Once operational, a solar system saves about $600 per year over the course of its 25 to 30-year lifespan, and this figure will grow as energy prices rise. Solar installations require little to no maintenance and increase the value of your home.

From an environmental standpoint, the average five-kilowatt residential system can reduce household CO2 emissions by 15,000 pounds every year. Using your solar system to power an electric vehicle is the ultimate sustainable solution serving to reduce total CO2 emissions by as much as 70%!

These days, being environmentally responsible is the hallmark of a good global citizen and it need not require major sacrifices in regards to your lifestyle or your wallet. In fact, increasing your home’s sustainability is apt to make your residence more livable and save you money in the long run. The five projects listed here are just a few of the easy ways to reduce both your environmental footprint and your energy bills. So, give one or more of them a try; with a small budget and a little know-how, there is no reason you can’t start today.

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