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Keeping investment clean: the Virgin Money Climate Change Fund

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Jason Mitchell worked for the UK Government for two years in 2008-2010 on water and renewable energy development projects across sub-Saharan Africa for the Commonwealth. Now, as a GLG fund manager, he runs the Virgin Money Climate Change Fund (CCF) and balances cleaner business practices with financial returns.

Before his experience in Africa, Mitchell was focused on the telecoms and media space but, because of what he experienced there, on his return to GLG, he began managing not only Virgin’s CCF but also a number of other funds with a sustainable agenda. “I had the chance to speak at Copenhagen Climate Change and do a number of environment related projects with multi-laterals like the UN and the African Development Bank and that really drove my interest in environment development and theory”.

So, the big question: why should investors consider sustainable investment? “Sustainability is the investment required to address demographic, environmental and social change. It is about effectively managing for growth—and that might be demographic growth, population growth, or growth in the provision of basic services, such as water and healthcare”.

What Virgin’s fund tries to do is cover the carbon part of the story”, says Mitchell.

Sustainability is the investment required to address demographic, environmental and social change.

The big emitting companies effectively carry a liability, which is basically carbon emissions multiplied by the price per metric tonne (roughly around €6.5, today). That liability would be crystallised on the company’s balance sheet and reflected in some part in the valuation of the company”. Therefore, companies that are able to more efficiently address those negative externalities are less burdened by that carbon liability.

For Virgin’s CCF, which began in 2007, Mitchell cherry picks companies using carbon emission data from the main GLG Euro Equity Fund to fill 75% of the portfolio. The remaining 25% gives Mitchell the latitude to invest in companies that dwell in more naturally emissions intensive industries but have extenuating circumstances, or more specifically, are either solution providers or solution adopters in the carbon space.

The main aim of the Virgin CCF is to be 30–50% cleaner than the European market. “Quite frankly, we’ve tended to trend more towards 40–50%. In fact, now we are at about 60% cleaner”, says Mitchell.

Carbon is at the very centre of the Virgin CCF, and stocks are considered either red, to indicate that a company is carbon intensive in relation to its sector, or green, which is acceptable. The fund uses a carbon assessment and scoring company called Trucost to provide its carbon data.

However, Mitchell says, “The idea of carbon markets is, even in Europe, controversial; Chris Huhne had always pushed the green agenda, but you’ve seen the Tories really try to minimise the ambition of higher than EU average carbon targets. It’s a function of a poor economy and limited resources to reinvest and force companies to pay carbon taxes.

But what has been interesting in this whole process is that carbon is not one sole externality that can be disaggregated from a whole bunch of others. What we have found is some correlation between companies reinvesting in lower emissions and companies that carry better governance scores, better scores around transparency, better reinvestment around social criteria”.

Mitchell gives Novo Nordisk as a good example. It screens as green stock within the pharmaceutical sector, and has a negligible carbon footprint of 0.52%. Notably, it also reinvests heavily in local markets and demonstrates the correlation perfectly. Indeed, healthcare is generally well represented in the fund.

The carbon footprints are important because it is the aggregate of all company footprints that is used to calculate if the fund is 30–50% cleaner than the market.

Sustainability for me is about solving problems. Pornography doesn’t solve problems, but neither does a bubble-gum factory. So my sustainability fund wouldn’t invest in either of those.

The fund also owns Pearson, a publishing company. It screens as red but has a negligible footprint. Pearson slots into the flexible 25% of the fund as a low carbon solution adopter because of a general move in publishing from paper to online. Solution providers include a chemical company called Wacker Chemie that, among other things, produces silicon for solar panel production, a process that is emissions intensive but arguably necessary for advancing renewable energy.

Mitchell says while for the first couple of years, the fund underperformed, the last two years have seen the fund deliver significant outperformance.

Mitchell attributes the earlier underperformance on filling the solution provider/adopter 25% of the fund with cleantech companies. “Cleantech or green companies aren’t necessarily great stocks. In fact, they’ve been problematic. We’re talking about companies in many cases that were illiquid and whose funding or cash flow was tied to regulatory regimes, which have been very volatile”. The Virgin CCF has tried to holistically reassess that 25% and broaden the remit to improve performance.

Mitchell describes it as a “souped-up” more carbon efficient version of the GLG Euro Equity Fund, and offers a “light green” alternative to more cleantech-focused offerings. “If you want a cleantech fund, the better way to play it is through venture capital or private equity but not public market”.

Virgin CCF tries to de-risk the market by choosing liquid, medium to large cap companies that are carbon efficient, a factor that Mitchell sees correlating with their performance in other environmental, social and governance (ESG) areas.

Mitchell also points out quite candidly to ethically concerned investors, “This is not an ethical fund. Ethical funds have very different, contradictory perspectives around a number of topics. Nuclear, for instance, is ethical, and a lot of SRI funds in France view it that way because it safely generates 80% of power, but in Germany it’s the complete opposite.”

[Virgin CCF] does not take an ethical worldview. It is solely based around environmental factors”. Indeed, it is not for everyone. Mitchell goes on to say that Virgin CCF has held stocks in Imperial Tobacco for instance, because it is green relative to its industry and it is a holding within the GLG Euro Equity Fund, “so, for the mandate, I have to own that. If people want to express their opinions through some ethical worldview, then there are different funds for that […] It’s a very complicated space”.

Mitchell offers some very sound advice around ethical and sustainable investing: “Investors who want to invest in the space need to do a lot of due diligence and at least be comfortable with the mandate. And as a portfolio manager of one of these funds it is incumbent upon you not to stray from that mandate”.

Mitchell also manages a sustainability fund and says, “Sustainability for me is about solving problems. Pornography doesn’t solve problems, but neither does a bubble-gum factory. So my sustainability fund wouldn’t invest in either of those”.

Getting back to the Virgin CCF, Mitchell concludes “This is a European general equities fund that believe that being 30-50% cleaner than the market will drive alpha”. To achieve good performance, Mitchell says it’s important not to exclude big areas of the market, such as oil. “I own Tullow Oil in the Virgin fund. That is a function of the fact that it is green and it is owned by the Euro Equity Fund”.

Andrew Stead, commercial director for investment ISAs at Virgin Money, says, “From our perspective, the Virgin Climate Change Fund is very much inline with our overall corporate ethos, which is about trying to make everybody we do business with better off.

It’s about us making a fair profit. It’s about giving back to the community, which we are trying to do with the Climate Change fund, in that we are trying to protect the planet by investing in those companies with better environmental footprints and also looking at those at the forefront of innovation in the marketplace”.

To look at the concepts of sustainable and ethical investments in more detail and to find out where to begin, download our Guide to Sustainable Investment for free.

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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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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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