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Ethical investment: from lentil-chewing lefties to hard-headed pragmatists

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In 2008, financial adviser Filip Slipaczek made the headlines. Ethical investment, he said, “is no longer within the domain of the lentil-chewing sandal-wearing lefties of the 1960s. Within a decade, people’s attitude towards ethical investing will be of equal importance as their attitude to risk.”

Five years on, the value of assets owned and managed by socially responsible investment funds in the UK has reached £12 billion, according to research firm EIRIS. Whilst this may ‘only’ represent 1.7% of all funds under management, the sector is growing and increasingly demonstrating that it can meet mainstream investor requirements better than ‘non-ethical’ options.

Not only do ethical companies perform better, but many ethical investments are less risky, and represent better long-term choices too. According to Simon Howard of the UK Sustainable Investment and Finance Association (UKSIF), “ethical investment is no longer just a moral issue. It’s a hard headed decision about the best way to manage your savings and plan for the future in a changing world.

Ethical companies perform better

The evidence that it makes commercial sense for businesses to act according to ethical principals has become more robust in just the last few years. Academics at Harvard Business School recently compared the financial performance of different US companies since 1993 and found that the most sustainable significantly outperformed the least sustainable.

The reasons for this include a more engaged workforce, a ‘social license to operate’, better relationships, greater transparency and more innovation. To take one specific example of this phenomena in the UK, Marks & Spencer’s Plan A saved the company £135m last year, contributing to around half of the total amount paid out to shareholders through dividends.

Ethical investments are less risky

The traditional perspective on investment risk sees diversification as king and anything subject to a more limited range of options (like ethical investment) as subordinate. This conventional wisdom is being turned on its head however, as mainstream investment institutions prove themselves either unable or unwilling to adjust to new risks such as climate change.

Pension funds, for example, continue to invest at scale in fossil fuel assets through tracker funds. Yet they are failing to properly price the risk of a collapse in value of these assets in the event of stronger future policies to tackle carbon emissions, or alternatively, a downward revaluation in most other assets should such policies fail to materialise.

The latest warning on this front was sounded by James Cameron of Climate Change Capital: “Are they providing decent funds to safeguard our future, or are they doing exactly the opposite? Where is the fiduciary responsibility in the creation of risk and the potential destruction of value across the whole portfolio? How does the ‘beneficiary’ actually benefit in a world warmed beyond 2C?

In contrast, the best ethical funds are already screening for these risks. In doing so they are choosing companies which are both contributing towards a more sustainable world, and reducing their own (and their investors’) financial exposure to the impacts of climate change and resource depletion.

Ethical investments are attractive long-term options

Focused as they often are on financing the infrastructure of the 21st century (like renewable energy), many ethical investments are also good long-term options. They are based on tangible assets providing benefits to the real economy, and in turn provide low-risk and sometimes inflation-linked returns over many years – attributes many of us look for when saving for the future.

The importance of investments capable of providing secure long-term incomes is revealed by data showing the dominance of income over capital appreciation in terms of respective contributions to investor returns. Since 1970 in Europe, for example, at least 80% of returns from investments in shares have resulted from dividend payments.

And whilst distinctly ethical investments may not be the only way to achieve such long-term incomes, they are often an effective and reliable way of doing so.

Of course none of this means that ethical investment has reached its zenith. Indeed some big issues remain. The higher management fees that can come with ethical screening can undermine the advantage ethical funds might otherwise have, and the growth of options to directly connect investors to specific investment opportunities is still in its infancy.

But it is clear that the benefits of investing ethically now stretch well beyond providing “lentil chewing lefties” with a clear conscience, towards addressing the fundamental investment requirements of hard headed pragmatists.

Sam Friggens is a writer for renewable energy funding platform Abundance Generation. You can follow him on Twitter: @Sam_Friggens. This article originally appeared on Abundance’s blog.

Further reading:

‘Saints or sinners’ of ethical investing is out of date thinking

Ethical investment: better a diamond with a flaw, than a pebble without

‘There are no moral or ethical considerations when investing’

Ethical investors are not tree huggers, but air breathers (and responsible global citizens)

The Guide to Sustainable Investment 2013

Sam Friggens is a writer for renewable energy funding platform Abundance Generation. You can follow him on Twitter: @Sam_Friggens.

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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