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Tapping into the all-powerful financial system to influence investor behaviour

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In the mid-90s, City analyst and fund manager Michael Gill came up with an idea to score companies based on their environmental performance – an environmental tracking index to mimic the FTSE 100.

The result – the Environmental Investment Organisation (EIO) – was launched in 1996, but the environmental tracking project was dormant until 2010, when his son Sam (pictured), a French graduate who had just completed an internship at Google, came on board.

By this time, organisations like the Carbon Disclosure Project had already brought the issue of transparency into the mainstream agenda, and with that, had created an EIO-like gap in the market.

The EIO’s market mechanism, environmental tracking, is designed to incentivise the world’s largest companies to improve their transparency and lower their emissions. It compiles this data into a set of carbon rankings.

The organisation plans to translate these rankings into a series of financial indices, mimicking the FTSE 100 or the S&P 500 – the difference being is that it is reweighting companies, allocating them more or less capital depending on their performance in the carbon ranking.

Ahead of the release of the EIO’s rankings for the UK, Europe, North America and the world tomorrow, Alex Blackburne caught up with chief executive Sam Gill.

What are your main drivers for doing this? What is the problem that you’re trying to solve?

I think there are a few problems. The primary one would be climate change. Quite a few people out there – including some of the world’s leading scientists – would argue that this is potentially the greatest threat that our civilisation faces.

Personally, the idea of a weather system that is just completely inhospitable and uninhabitable genuinely frightens me. So I think doing something about climate change is very much a key driver.

The problem that we’re witnessing now with the various international governmental negotiations is that countries are all trying to defend their own interests, and we’re not perhaps getting the kind of agreement that we’d like to see.

So juxtaposed with the science which is saying that we need to take action right now, we’re left wondering where can we exert the most pressure the fastest in order to tackle this problem.

There’s no other organisation that I’ve come across that does a global, all-encompassing, fully transparent carbon ranking – let alone one that is actually designed to try and encourage companies to do better

And that, for me, really leads to the financial system as an all-powerful, global network that actually can influence people’s behaviour. The question is how can we tap into that power? This is precisely the question the EIO seeks to address.

Describe what the EIO does.

We basically categorise a company by asking firstly whether there is any public and freely available greenhouse gas emissions data. If there is some data, is it complete or incomplete?

The idea is to give all these companies a reason to be constantly doing better each year, so they move up or down relative to their peers. Hopefully, the better known the ranking becomes, the more likely the ranking will create a PR pressure.

If it becomes as well-known as the Forbes list, then perhaps the company at the bottom doesn’t want to be there anymore, and the company at the top wants to celebrate it. We’ve had quite a few companies already start to use the publicity in their annual reports and on their websites, so we are starting to see its influence grow.

What is environmental tracking?

In the rankings, our selection process takes the largest companies within a particular region based on their market value. And fairly simply, we’re reweighting these companies – half of them positively, and half of them negatively, according to where they feature in the carbon ranking.

So just by way of example, if you’ve got a 100 company ranking, the company that comes top of our carbon ranking is going to get a 50% positive reweight relative to the weighting it would have had in a normal index like the FTSE 100, and the second company would get a 49% reweight, and so on.

At the other end of the scale, it would be minus 50%, minus 49% and so on. The idea is that by doing this, you’re more or less mimicking the performance of the conventional index, but still giving all these companies a big enough incentive to change their behaviour.

Who else does what do you? And how do you differ from the likes of the Carbon Disclosure Project?

I think it’s fair to say that there is nobody in the industry as far as I know that is doing exactly what we do. There’s no other organisation that I’ve come across that does a global, all-encompassing, fully transparent carbon ranking – let alone one that is actually designed to try and encourage companies to do better.

Certainly, the Carbon Disclosure Project has really pushed the disclosure agenda over the last 10 years, and a lot of the disclosure that goes on can probably be attributed to their efforts.

If the EIO becomes as well-known as the Forbes list, then perhaps the company at the bottom doesn’t want to be there anymore, and the company at the top wants to celebrate it

Each year it sends out questionnaires to thousands of the world’s biggest companies, asking them to answer questions on their carbon emissions and their strategy in terms of addressing climate change. Rather than sending a questionnaire, we base our information exclusively on what is in the public domain, and that is freely available.

One of the issues with an organisation like the Carbon Disclosure Project is that once companies disclose their information to it, that database is then its property, and not everybody can access it without gaining permission or paying a fee. We are very much trying to encourage companies to just put this information in the public domain in a clear and transparent way.

Should an ethical investor have holdings in polluting companies, as opposed to just investing in companies that don’t pollute?

In many ways, the EIO idea of this mainstream index has kind of been born out of the socially responsible investment landscape over the last 20 years.

Going back to my father’s original conception of the idea, back in the 90s, the main sustainable and responsible investment (SRI) funds were very much of the mindset, “OK, here’s a bunch of good stocks that you can go and invest in”. Or they were going to exclude the bad guys from your portfolios.

And the problem is that they haven’t been able to appeal to enough people to actually bring about significant change as a result.

If you think about UK pension funds for example, which is arguably where all the money is in terms of money that can move in unison and therefore pack a real punch, there’s incredible exposure to big oil companies like BP or Shell.

So the question that we’ve asked ourselves in coming up with this mechanism is: how do you get those guys on board that’s as close to what they’re doing already, but that still has an environmental upside to it? That’s why including all the companies is the way to go for us.

What’s the overall aim of the EIO and how far do you think it can go?

The overall aim would be to have a sufficient amount of money tracking one or more of our environmental tracking indexes, such that it translates into a pressure for companies to change their behaviour.

That can either be that we end up with 1% of the index market, or we end up with 0.1%. Equally, it could be that just one or two big investors following our index is enough to demonstrate the concept’s potential, and in turn create enough pressure to influence behaviour. Only time will tell.

Further reading:

CDP to question 5,000 firms on carbon and climate commitments

Investors call for carbon transparency and reduction

FTSE 100 firms unprepared for climate change

Investor report highlights gap between climate change and action

Report warns investors to consider financial impact of climate change

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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