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Sustainable company of the week: Halma

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We want to connect investors and consumers with fast growth, highly innovative sustainable companies.

In this second instalment in a new series profiling some of the most promising ones from an investment perspective, Ketan Patel, senior socially responsible investment analyst from Ecclesiastical Investment Management talks about Halma, a specialist in hazard detection and life protection products.

Halma history

Halma can trace its history back to 1894, beginning life as the Nahalma Tea Estate Company in Ceylon, and later switching to rubber production. Listed in 1972, by which time it had long exited commodities, Halma became focused instead on a series of mechanical and electrical engineering companies.

Today, it employs just over 4,000 people, and operates through 40 subsidiary businesses in 23 countries; its markets centre on speciality safety, health and environmental technologies. Halma operates in four discrete sectors: process safety, infrastructure safety, medical, and environmental and analysis.

Ethical investment ethos and why it is an attractive investment for sustainable investors

Halma is a good example of a company where the ethical positives and the investment proposition go hand-in-hand. A leader in many of its chosen markets, Halma has achieved five-year average organic growth of 8%+. It has retained record profit growth through the economic cycle with return on sales averaging 16% for more than 25 years. Halma also has a record of sustained dividend growth of around 5% for over 30 years. Demand is underpinned by long-term resilient growth drivers in each of its specialist markets, with Asia especially strong.

The company has a very strong balance sheet allowing active portfolio management and carefully targeted acquisitions. Total shareholder return (TSR) over five years was 203% compared to 114% for the FTSE 250, and 180% for the FTSE 350 electronic and electrical equipment sector.

The company scores positively across seven of our nine Amity pillars, particularly healthcare and environmental performance and management; this makes it an attractive investment choice for sustainable investors. Ecclesiastical Investment Management has supported all recent governance proposals. 

Performance in investment terms

The company achieved revenues of £619m in 2013 across its four divisions: process safety (20%), infrastructure safety (33%), medical (22%) and environmental and analysis (25%). The company’s portfolio of businesses all lend themselves as being seen as strong ethical positives.

The process safety division is concerned with safety diagnostics in the area of flammable and hazardous gases as well as explosion protection devices. Infrastructure safety manufactures sensors for lifts and automatic doors in transportation and buildings. It also supplies fire and smoke detectors, security devices and audible/visual warning activators. In medical, Halma manufactures devices used principally in eye health and eye surgery. It also supplies instrumentation such as pumps, probes valves and compressors used in medical diagnostics. Finally, environmental and analysis is a market leader in opto-electronic technology used in monitoring water networks, UV disinfecting and water quality testing.

Outlook

Halma continues to be well-positioned to take advantage of longer-term trends – climate change, regulatory demands, health and safety and a growing and ageing population – by developing its market leading positions. This augurs well for shareholders who are focused on investing in companies that deliver sustainable long-term returns. 

Key products

Halma is one of the world’s leading manufacturers of fire detectors, protecting people in large buildings such as schools, hospitals and offices. Over 3m are sold annually in more than 100 countries. Halma gas detectors include portable products to protect entire industrial sites from gas leaks and flammable or toxic gases. A particular application is detectors used in confined spaces such as tunnels.

Halma manufactures non-chemical water treatment systems based on UV technology for disinfecting drinking and waste water, swimming pools, and industrial water supplies, such as food processing and electronics manufacture. The company is a leading maker of leak detection instrumentation in underground water pipes, sold to utilities worldwide. The company’s medical specialism is ophthalmic instrumentation used by eye surgeons and optometrists to test vision and diagnose disease. Principal products include examination lenses, ophthalmoscopes, and pressure testing instrumentation.

Halma has developed a specialist portfolio of businesses which contribute towards resource efficiency, monitoring changes in the environment, reducing energy, saving water, minimising waste and checking emissions and leaks. The company’s own footprint is relatively modest, and is subject to reduction targets in the areas of energy, waste and water. Approximately 22% of group revenues are currently ISO14001 accredited, and this is being further developed. Despite strong growth, the group has managed to reduce carbon emissions by 9% over two years.

For more about Ecclesiastical, its Amity fund range and other sustainable companies it invests in, visit its website.

Further reading:

The Guide to Sustainable Investment 2013

The Guide to Ethical & Sustainable Financial Advice 2013

The Guide to Sustainable Funds 2013

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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