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Economy

How you pay for the City: episode one review

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The investment industry is a maze of complexity. Somewhere in the process – which is governed to a large degree by computers and algorithms – are companies, people and money. But how does this drawn out activity actually impact returns? 

In a recent programme for BBC Radio 4, David Grossman attempted to answer this very question. It was the first of a four-part series titled How you pay for the City, and looked at the implications of a complex process by which investors can actually use their money to have an effect on the real economy, while seeing their funds grow.

Grossman was quick to tell the audience how the money being thrown around the markets is actually real money, created in the real economy by hard-working individuals.

The first issue is the complexity of the investment management industry. Investors often can’t simply head straight for the market to pick and choose investments for themselves; instead they use fund managers. These intermediaries are only the first in a long and complex line down which funds are passed, consisting of banks, traders and finally the companies doing the groundwork.

Gina Miller, an ex-employee in mainstream investment, highlights a case where a traditional individual savings account (ISA) sees a net profit of £547, when in actual fact, the investment returned a gross profit of £1,115. So where are all the profits being swallowed up?

Miller left the industry after feeling uncomfortable about all the hidden charges that are tacked onto the bill for investors. She has since set up her own investment company, which she says is “clear on fees” and aims for transparency.

The achievement of transparency can be somewhat difficult in an industry that is so complex. The most rational minded among us would be troubled by the processes and there are calls from within the industry itself to improve practices.

Daniel Godfrey, CEO of the Investment Management Association (IMA), acknowledges the issue of complexity and says the IMA is “working with its investors […] to develop a proposal for an inclusive single pounds and pence figure of historic costs, looking back over a year to tell an investor exactly how a fund has performed.” 

Measures such as this would possibly have some indication on just how much is being taken out of investors profits, increasing transparency but also making the whole system easier to understand.

Then of course, is the somewhat misleading marketing strategies deployed by fund management companies, often claiming the great success of their services for consecutive years.

“If you toss a coin one million times”, says Dr Brian Bell of Oxford University, “it will come up heads ten consecutive times. That does not mean it’s a brilliant coin – it means there’s randomness in the process […] you’ll always get some funds that do well for consecutive years.”

The great deception is that fund managers do not sing about the funds that have failed and subsequently closed down. Either way, the financial burden is with the investor; it’s their pension fund.

Then there’s the short-term versus long-term debate: which is better?

As Godfrey points out, economic wellbeing is dependent on the success of the companies being invested in. The economy props up government spending on education, health and the welfare state through taxation. A quick buck can therefore not only be detrimental to the economic success of companies, but also has a direct impact on the quality of services provided by the government.

Short-term investments are what drive up the frequency of the fees hiding around the corner from investors. If a fund manager creates movement, whether this is for better or for worse, they want rewarding for it. That reward comes in the form of a fee, and the investor is left with the tab.

To conclude, the system needs to become much more open and transparent. The reason investors often see measly returns is that sometimes, there are simply too many fingers in the one pie. As Grossman says, “Forget the middle man, we’re talking about a whole rugby team now.” 

The team is, unfortunately, motivated by money before anything else, increasing the volume of transactions, and ultimately making it even more complex. But it’s investors that are paying the price.

Listen to episode one here.

Further reading: 

A dark magic: looking at the impact of high frequency trading on financial markets 

We need investment to return to its patient evolutionary path

There is a disconnect between investment and the real world

Transparency, simplicity and honesty is urgently needed in investment

The Guide to Sustainable Investment 2013

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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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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