Simon Ellis, managing director of Legal & General Investments, spoke with Alex Blackburne about the Global Environmental Enterprises Fund, which looks to reap the benefits of the ever-increasing need to adapt to climate change.
Some climate scientists believe that we’re past the point of mitigation. In other words, we can’t stop climate change.
It is very clear that we must adapt. Investing in areas like energy efficiency, recycling and water control will help the world avoid the potentially catastrophic consequences that are currently heading our way.
And one fund is doing just that.
The Legal & General Global Environmental Enterprises Fund looks to invest in sectors that it thinks will benefit from the adaption to climate change, focusing on three key areas: energy efficiency and energy management, low-carbon energy production, and waste, water and pollution control.
“Each company we invest in must be generating at least 50% of its turnover from one of these three core themes”, explains Simon Ellis, managing director of Legal & General Investments.
“Someone like Siemens or GE may be involved in solar panels or wind turbines, but if less than 50% of their turnover come from this, we don’t believe their business is driven by one of these three sectors – they just happen to be involved in it.”
Using positive screening, the L&G fund works with Osmosis Investment Management, to highlight appropriate companies to invest in.
HSBC Quantitative Techniques provides the initial global stock screens, whilst Osmosis checks the companies for relevancy against the three themes that the L&G fund focuses on.
“The portfolio is invested on an equal basis across 100 stocks, those stocks are then divided across each of those three themes and rebalanced on a six-monthly basis”, says Ellis.
“Osmosis is basically taking the refined universe from HSBC and then applying more of a qualitative screen to work out exactly which activities the firms are involved in, before popping them into one of the three buckets, and trying to make sure that the portfolio is equally weighted across each of the themes.
“Within the buckets, what we’re trying to avoid for example, is a significant overweight to one particular industry. We’re trying to make sure there is a balance.”
Launched in June last year, the fund is unlike many of its competitors, in that it sets out to perform well by highlighting which areas will be the most profitable in the future, taking into account global warming.
Ellis describes how the L&G team had initially sat down and thought about what they saw as the global sustainable megatrends on a 20 to 30 year basis, and eventually came up with a list of four.
“The first is the continued adoption of technology”, he says. “We think global technology is set to continue for a sustainable period of time.
“The second is the emergence of the third/second world to first world standards, so we describe that as global emerging markets.
“The third one is the world adapting to energy shortage/climate change.
“And the fourth one, which is a lot harder to invest in, is the age of ageing.
“Both the UK and the US have just rolled over into a period in which there are more retired baby boomers than there are ones of working age.”
Since first getting involved with ethical and environmental investment in 1990, Ellis has worked for some of the UK’s biggest investment firms, including Fidelity, AXA and Henderson, which was recently in the news for closing its SRI team.
Ellis recalls the difference between the sector from when he first entered it, to the modern day.
“Back then, the majority of funds in this area were essentially screening out companies involved in unethical activities”, he says.
“One of the challenges has been that many investors have felt that actually you’re screening out things that might make some money.
“Whilst they’re happy to invest their principles, they would like to make some money in time.
“The way we see it is that you should be looking to find companies that are going to benefit from the change, which is why we go for positive screening rather than negative screening.
“So instead of choosing the cleanest oil company, we’re actually interested in companies that are involved in replacing oil.”
The ethical investment sector, by its own accord, is an emerging market. Conventional investing is still the overwhelming majority, and it’s very rare that an investment management company would offer solely ethical or sustainable assets.
L&G is one of the most well-known investment firms in the UK, and like the majority of its competitors, offers a range of investment vehicles for both private and institutional investors.
Ellis highlights three reasons why an individual should consider the Global Environmental Enterprises Fund over another option.
“The first is that our approach to positive screening across these three themes is unusual.
“The second is the way in which we guarantee the diversity of the portfolio across the three key sub-themes, and refresh that diversity every six months to make sure that we’re always exposed to the totalities of theme.
“And the third thing that I think makes it stand out is that there is genuine global exposure, and it’s driven by the market, rather than the opinion or experiences of an individual manager.”
The benefit of being a broad-ranging investment company, Ellis adds, is that it is approaching each investment – regardless whether it’s ethical or not – with the intention of making money for investors.
On top of this, L&G was recently placed 25th in the Sunday Times Best Companies to Work For list of big companies.
With regards to the Global Environmental Enterprises Fund, Ellis believes that L&G’s investment strategy is a model that will become more mainstream in coming years.
“Here is an opportunity where, regardless of where the current governments are going to incentivise companies to do things, we’ve seen major companies trying to find ways of reducing their costs, reducing their waste, and make more efficient use of energy, simply because it makes sense commercially for them. That’s where the opportunity is”, he says.
“I would say people should be investing in us on the basis that it is a long term investment, but the rates of growth in the companies involved in this sector, are going to be disproportionately high.
“In the West in particular, we’re going to be in this continued low growth environment for quite a long period of time, and in a low growth environment, high growth sectors and high growth stocks will command a premium.
“Today, most equities are not commanding a premium against each other, so these high growth companies, you could argue, actually look quite good value, given the growth rate that is implicit within their business model.”
The common misconception that you have to sacrifice performance when investing ethically is simply just not true anymore. Instead, investments of this kind often combine two important factors: good returns and good ethics.
Investment approaches exemplified by L&G’s Global Environmental Enterprises Fund will drive the shift towards a green economy.
Meanwhile, get in touch with your IFA if you’re interested in sustainable investment more generally, or fill in our online form and we’ll guide you through the process.
Previous fund profiles:
IM WHEB Sustainability Fund
Kames Capital Ethical Equity Fund
Quadris Environmental Forestry Fund
Ludgate Environmental Fund
7IM Sustainable Balance Fund
Allianz RCM Global EcoTrends Fund
Cheviot Climate Assets Fund
Skandia Ethical Fund
Premier Ethical Fund
SVM All Europe SRI Fund
SWIP Islamic Global Equity Fund
How Going Green Can Save A Company Money
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
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.
5 Easy Things You Can Do to Make Your Home More Sustainable
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 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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