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Fiduciary responsibility in the context of a global emergency



Fiduciary responsibility, in investment parlance, means acting in the best interests of the person whose money is being managed.

Since we are typically talking about a person’s retirement savings, this is usually understood to mean the fiduciary doing their best to achieve a reasonable rate of return on investment. This interpretation sounds reasonable, especially considering we are normally talking about someone’s nest egg for later life. We certainly wouldn’t want our money to be invested with someone else’s best interests at heart, that’s for sure.

Let’s use an example to illustrate just why this interpretation might not be so clear cut in our current climate.

Your pension fund manager – the fiduciary in this case – can invest your money in a company manufacturing a new type of vaccination drug which, due to demand, is proving extremely profitable. The company’s financials look good and the general consensus is that the company will be around to stay for at least another 30 years. So far, so good.

There is just one small detail. There is some controversy surrounding the company’s most profitable vaccination drug. A peer reviewed report – highly contested by Big Pharma – has recently been published by an independent panel of eminent scientists claiming with 95% certainty that the vaccination is also causing premature deaths among the population.

You are due to be vaccinated in a few months…

An example such as this, however farfetched as it might sound, highlights that acting in the best interests of the person whose money is being managed does not solely mean acting in their best financial interests. Indeed, what good is money to us if we are dead?

Funnily enough, a paper was recently published by the world’s leading climate scientists on the topic of climate change. To the surprise of no one, it reaffirmed that we are currently on course for a true global emergency in the form of a climate crisis. This will see human civilisation grappling to cope with temperature rises of 4-6C by around 2080 (within the lifetime of many alive today).

Once we surpass 2C of warming, figures such as 4-6C are only likely to be interim stops on our way to far higher temperature rises as various feedback loops kick in.

Arguably, at least one of the barriers preventing the investment world from being able to see the bigger picture has been the misguided notion that fiduciary responsibility is exclusively about maximising investor returns.

If it wasn’t such a big deal, it’s unlikely the Asset Owners Disclosure Project would have gone as far as to commission Baker & McKenzie to produce a report on the topic, and ShareAction wouldn’t have produced a 140-page report entitled Protecting Our Best Interests – Rediscovering Fiduciary Obligation.

The ShareAction report establishes through previous case law that there is no hard and fast rule stating that fiduciary obligation amounts to a blanket ban on considering non-financial issues.

This is highlighted by the Cowan v Scargill court case in which the judge ruled, “’Benefit’ is a word with a very wide meaning, and there are circumstances in which arrangements which work to the financial disadvantage of a beneficiary may yet be for his benefit.”

Of particular pertinence, the Baker & McKenzie report notes that a failure to consider climate change risk would be negligent and a breach of a pension trustee’s duties.

Let’s consider this in more detail. What is the purpose of a pension? It is to provide the beneficiaries with a decent standard of living in retirement.

It is debatable if a world ravaged by climate change – where a beneficiary has to deal with more extreme weather events, rising food and energy bills exacerbated by increased resource scarcity – would be considered a decent standard of living.

The journey to arriving at such a sorry state of affairs is also likely to have damaged the financial position of the pension fund, since as universal investors, most pension funds will suffer from any problem that wreaks havoc with the global economy.

ShareAction also picks up on another barrier, whereby funds may not be large enough to influence something such as climate change on their own, and therefore struggle to justify the benefit of trying to take action to their beneficiaries.

Scale has always been an issue, and it could also be argued that thus far there hasn’t been a collective investment vehicle presented to pension funds which would allow them to pool their money to confront the climate crisis head on. Until now.

Next month the Environmental Investment Organisation (EIO) will be launching Project One Percent. Project One Percent is a global movement of people calling on the largest asset owners in the world to move 1% of their funds into a market mechanism to tackle climate change.

Environmental Tracking, as it is known, involves tracking a mainstream broad market index (as many pension funds already do) but re-weighting companies according to their position in a series of public carbon rankings.

The scheme is designed to drive lower emissions and greater transparency by shifting demand for company shares, and ultimately share price, in line with emissions and transparency.

But what about the financial implications from a fiduciary point of view?

The literature from case law involving responsible investment is clear in stressing fiduciary responsibility is about the process of assessing all available information and making informed decisions, rather than trying to second guess the eventual financial return.

A UN Environment Programme initiative commissioned report on the topic adds, “The courts accept, despite the widespread use of mathematical modelling, that investment is an art rather than a science and there is a wide spectrum of opinion.”

Examining this line of argument suggests that there is a guaranteed financial loss associated with investing ethically, which is by no means an assured outcome. Legally speaking, what if no sacrifice of financial return is involved? As the judge from Cowan v Scargill case put it, “If the investment in fact made is equally beneficial to the beneficiaries, then criticism would be difficult to sustain in practice, whatever the position in theory.”

This is precisely why the EIO has spent the last four years developing its Environmental Tracking mechanism to ensure it offers the same performance as traditional indexes, but a very difference outcome. One which could help us avoid the worst effects of catastrophic climate change.

Imagine a world in which asset owners unite to support Project One Percent, in turn resulting in the creation of a share price incentive mechanism that drives companies to shift to low-carbon business models. Surely that would be in the best interests of everyone?

Sam Gill is chief executive of the Environmental Investment Organisation, which co-ordinates Project One Percent.

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

Further reading:

Environmental tracking: a practical financial solution to climate change?

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

How to invest in energy once you’ve ditched fossil fuels

Climate change: we’ve still got time to save the world… haven’t we?

The Guide to Climate Change 2013


How Going Green Can Save A Company Money



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




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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