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The dynamic future of sustainable investment

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B&GT spoke with Penny Shepherd, chief executive of the UK Sustainable Investment and Finance Association (UKSIF), to gain insight and perspective on the current and future trends in ethical and sustainable investment from an organisation at the centre of the movement.

The world of financial services is notoriously fast paced; changes are not uncommon. In the ethical investment space this is particularly true at the current time with a number of key changes and new trends.

Penny Shepherd notes that, “One interesting development at the moment is that there is a lot of restructuring going on within the fund management industry as a whole, particularly in the area of actively managed equity funds.”

Indeed, recent announcements from Henderson Global Investors and Aviva with regards to their specialist sustainable and responsible investment (SRI) teams have caused somewhat of a stir in the industry.

Retail distribution review

However, it is the Financial Services Authority’s (FSA) consumer protection policy, the retail distribution review (RDR), that leads the discussion.

Shepherd begins, “We’ve also got the retail distribution review being implemented over the next year”, which, among other changes, will ensure adviser charge transparency. From December 31, 2012, consumers will pay advisers fees for financial advice in advance rather than using a potentially biased commission-based payment system.

This clearly makes a lot of sense from the point of view of ensuring that consumers get good and impartial advice.”

RDR also requires that financial advisers be appropriately qualified. Despite the merits of RDR, there is some concern that fewer people will be willing to accept advice on that basis. So where does that leave ethical investment in particular?

Certainly from an advice point of view, it is hugely positive, because it makes sense for advisers to understand their clients in more depth and increase their skills in advising on green and ethical investment.”

I think more support for people’s financial needs is great, but there is a danger that advisers may then have a very limited range of investment products and only look quite narrowly at what is appropriate for clients

There is a down side though, because some advisers expect a move away from investment advice to focus on consumers’ basic financial requirements.

I think more support for people’s financial needs is great, but there is a danger that advisers may then have a very limited range of investment products and only look quite narrowly at what is appropriate for clients.

If such a shift occurs, it could create an opportunity for those advisers who are incorporating green and ethical considerations into their advice process. Shepherd believes the challenge is that if consumers don’t go to those with expertise in the area “green and ethical considerations may not be fully taken into account in the advice they receive”.

Workplace savings

Another significant opportunity for increased ethical investment is through workplace savings schemes.

The opportunity is partially driven by the changes to the advice environment but also by an increase in recognition that there are other forms of savings beyond pensions that it makes sense to support in the workplace”, says Shepherd.

Because of an increased focus on encouraging people to save through their workplace, “there’s a huge opportunity for those employers who are leaders in corporate responsibility to make sure that the workplace savings support available to their employees take account of green and ethical factors”.

The announcements from Henderson and Aviva caused somewhat of a stir in the ethical investment space. Shepherd explains the rationale behind Aviva’s decision: “Aviva Investors has done a wide-ranging review and decided to shift their allocation focus, and to rationalise their support for equities. In association with that they are making some significant workforce cuts”.

In other words, these are organisation-wide developments that then have implications for the provision of responsible investment support. Shepherd says that the underlying point is that SRI is getting caught up in wider industry changes.

In fact, the first thing that Aviva did was reaffirm its commitment to engaging with companies on responsible investment issues. “On the one hand, you’ve got the commitment to integration and engagement across the business as a whole”, says Shepherd, “and then on the other hand, you have got what is clearly a disconnect between its new strategy and the sustainable future funds”.

Indeed, the new strategy involves a departure from active equities and retail distribution and most sustainable futures funds are actively managed, mainly equity-based products, with a retail-focused client base, at which point the disconnect seems obvious. “Frankly, it is more about the financial characteristics and market focus of the funds than it is about their sustainability characteristics. It’s one of these instances where you have to look through a wider industry lens to know what’s going on. It’s not an SRI specific development”.

Shepherd believes that on-going restructuring will most likely result in a greater degree of polarisation. Major investment houses may tend to focus on offering integration and engagement rather than specialist strategies. While specialist sustainability funds are more likely to be delivered through medium-sized institutions in which sustainability strategies form one of a limited range of strategies.

A good example of such a shift comes in the form of a recent announcement that a large part of the SRI team that left Henderson Global Investors last year has joined WHEB Asset Management. Shepherd says, “My understanding is that what they’re planning to focus on there is thematic investment—investing in the positive rather than avoiding the negative”.

The question is: what effect will the restructuring and shifts have on the ethical investment landscape?

It makes sense for advisers to understand their clients in more depth and increase their skills in advising on green and ethical investment

Shepherd says that one of the advantages of having more of the specialist strategies in medium sized houses is that all parts of the market will be in a position to promote what they are doing. “I think the restructuring introduces the potential for a

greater marketing focus and also potential for more innovation […] Because large investment houses inevitably have to decide which investment strategies it sees have greatest marketing potential, in recent years, sustainability funds have sometimes lost out”.

Positive or negative?

One of the current challenges “is the perception in some parts of the market that green and ethical investment must include negative screening. But in fact there is a wide range of techniques”.

Shepherd uses the analogy of excitement over innovation in mobile phone payments being equally matched by public outcry over the attempt to withdraw the cheque book.

The traditionally ethically screened funds are the cheque books of the responsible investment market. They are an option that meets the needs of a proportion of investors. But they are not where the innovation is taking place. And they are not appropriate or the preferred choice for every responsible investor.

Indeed, the debate is increasingly around the positive option. Shepherd welcomes the shift in the discussion, if only “so that we can have a conversation like this and your wrap up question isn’t ‘Penny, tell me what people really want to avoid’ […] Perhaps, in the past, the message has been too negatively biased, so now we need to look a little broader. The area of innovation is focusing on the positive”.

UKSIF’s role through the changes

UKSIF is very much continuing to support those areas where it makes sense for everybody involved in green and ethical investment to work together. In particular, we coordinate National Ethical Investment week, which is in October this year, it will be the fifth and we really feel momentum building”.

Another key area is in the increasing focus on stewardship. “Our research for National Ethical Investment Week last year found that about 25% of British adults with investments said that they were told too little by their financial advisor or pension fund about responsible ownership. So support for responsible ownership is one focus area.”

It is also an area that John Kay in his review of UK equity markets has highlighted, in particular, how one creates an environment within which there is effective stewardship by investors of UK companies.

A second area of interest for UKSIF is the rise of social impact investing, where there are an increasing range of products coming to the market. The European Commission is planning a social entrepreneurship fund label to help investors to better identify social impact funds.

Peer-to-peer lending and microfinance

Though peer-to-peer lending has the potential to lend to individuals, Shepherd thinks what is particularly interesting is peer-to-peer finance as a means to lending to small business. There is also potential for peer-to-peer finance to support green and social projects, building on initiatives like Kiva and Lend with Care, which is in association with the Co-operative.

What’s interesting is the opportunity that it introduces—connecting people more directly to how their money is generating wealth—and also the way in which it provides competition to the traditional finance sector. And that sort of competition is healthy.”

Why is peer-to-peer or microfinance proving so popular? Firstly, Shepherd says, there is greater interest in understanding and having greater control over how money is used following the financial crisis. Secondly, it’s part of a broader trend of using the Internet as an alternative to traditional services and intermediaries.

But what makes peer-to-peer funding really exciting is that it has the potential to offer a disruptive innovation challenge to traditional financial services.

The way that disruptive innovation traditionally works is that a new product or service will come along and, in the early days, the established players in an industry won’t see it as a competitor because it offers something slightly different.”

Shepherd offers another analogy, this time in technology. “When Microsoft and Apple started up, the established player in the computer industry said ‘these people are irrelevant to us’. But, because there is a different market for that service, over time it develops to a point where it can compete with existing providers.

What peer-to-peer finance can offer is a better connection with the end user of the money alongside a different approach to risk. Over time, Shepherd believes these services, by developing their track record, may start to compete with the established financial services providers.

That would be hugely exciting. It introduces an incentive for financial services to respond. And in that instance, who the winners and losers are in the long term very much depends on how both new and existing players react”.

This feature was originally published in our Guide to Sustainable Investment, which you can download for free here.

Further reading:

The Guide to Sustainable Investment

Survey reveals promising trends for sustainable investment

Features

Ways Green Preppers Are Trying to Protect their Privacy

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Environmental activists are not given the admiration that they deserve. A recent poll by Gallup found that a whopping 32% of Americans still doubt the existence of global warming. The government’s attitude is even worse.

Many global warming activists and green preppers have raised the alarm bell on climate change over the past few years. Government officials have taken notice and begun tracking their activity online. Even former National Guard officers have admitted that green preppers and climate activists are being targeted for terrorist watchlists.

Of course, the extent of their surveillance depends on the context of activism. People that make benign claims about climate change are unlikely to end up on a watchlist, although it is possible if they make allusions to their disdain of the government. However, even the most pacifistic and well intentioned environmental activists may unwittingly trigger some algorithm and be on the wrong side of a criminal investigation.

How could something like this happen? Here are some possibilities:

  • They could share a post on social media from a climate extremist group or another individual on the climate watchlist.
  • They could overly politicize their social media content, such as being highly critical of the president.
  • They could use figures of speech that may be misinterpreted as threats.
  • They might praise the goals of a climate change extremist organization that as previously resorted to violence, even if they don’t condone the actual means.

Preppers and environmental activists must do everything in their power to protect their privacy. Failing to do so could cost them their reputation, future career opportunities or even their freedom. Here are some ways that they are contacting themselves.

Living Off the Grid and Only Venturing to Civilization for Online Use

The more digital footprints you leave behind, the greater attention you draw. People that hold controversial views on environmentalism or doomsday prepping must minimize their digital paper trail.

Living off the grid is probably the best way to protect your privacy. You can make occasional trips to town to use the Wi-Fi and stock up on supplies.

Know the Surveillance Policies of Public Wi-Fi Providers

Using Wi-Fi away from your home can be a good way to protect your privacy.However, choosing the right public Wi-Fi providers is going to be very important.

Keep in mind that some corporate coffee shops such a Starbucks can store tapes for up to 60 days. Mom and pop businesses don’t have the technology nor the interest to store them that long. They generally store tips for only 24 hours and delete them afterwards. This gives you a good window of opportunity to post your thoughts on climate change without being detected.

Always use a VPN with a No Logging Policy

Using a VPN is one of the best ways to protect your online privacy. However, some of these providers do a much better job than others. What is a VPN and what should you look for when choosing one? Here are some things to look for when making a selection:

  • Make sure they are based in a country that has strict laws on protecting user privacy. VPNs that are based out of Switzerland, Panama for the British Virgin Islands are always good bets.
  • Look for VPN that has a strict no logging policy. Some VPNs will actually track the websites that you visit, which almost entirely defeats the purpose. Most obviously much better than this, but many also track Your connections and logging data. You want to use a VPN that doesn’t keep any logs at all.
  • Try to choose a VPN that has an Internet kill switch. This means that all content will stop serving if your VPN connection drops, which prevents your personal data from leaking out of the VPN tunnel.

You will be much safer if you use a high-quality VPN consistently, especially if you have controversial views on climate related issues or doomsday prepping.

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Features

How Going Green Can Save Your Business Thousands

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Running a company isn’t easy. From reporting wages in an efficient way to meeting deadlines and targets, there’s always something to think about – with green business ideas giving entrepreneurs something extra to ponder. While environmental issues may not be at the forefront of your mind right now, it could save your business thousands, so let’s delve deeper into this issue.

Small waste adds up over time

A computer left on overnight might not seem like the end of the world, right? Sure, it’s a rather minor issue compared to losing a client or being refused a loan – but small waste adds up over time. Conserving energy is an effective money saver, so to hold onto that hard-earned cash, try to:

  • Turn all electrical gadgets off at the socket rather than leaving them on standby as the latter can crank up your energy bill without you even realizing.
  • Switch all lights off when you exit a room and try switching to halogen incandescent light bulbs, compact fluorescent lamps or light emitting diodes as these can use up to 80 per cent less energy than traditional incandescent and are therefore more efficient.
  • Replace outdated appliances with their greener counterparts. Energy Star appliances have labels which help you to understand their energy requirements over time.
  • Draught-proof your premises as sealing up leaks could slash your energy bills by 30 per cent.

Going electronic has significant benefits

If you don’t want to be buried under a mountain of paperwork, why not opt for digital documents instead of printing everything out? Not only will this save a lot of money on paper and ink but it will also conserve energy and help protect the planet. You may even be entitled to one of the many tax breaks and grants issued to organizations committed to achieving their environmental goals. This is particularly good news for start-ups with limited funds as the Environment Protection Agency (EPA) is keen to support companies opening up their company in a green manner.

Of course, if you’re used to handing out brochures and leaflets at every company meeting or printing out newsletters whenever you get the chance, going electronic may be a challenge – but here are some things you can try:

  • Using PowerPoint presentations not printouts
  • Communicating via instant messenger apps or email
  • Using financial software to manage your books
  • Downloading accounting software to keep track of figures
  • Arranging digital feedback and review forms
  • Making the most of Google Docs

Going green can help you to make money too

Going green and environmental stability is big news at the moment with many companies doing their bit for the environment. While implementing eco-friendly strategies will certainly save you money, reducing your carbon footprint could also make you a few bucks too. How? Well, consumers care about what brands are doing more than ever before, with many deliberately siding with those who are implementing green policies. Essentially, doing your bit for the environment is a PR dream as it allows you to talk about what everyone wants to hear.

Going green can certainly save your money but it should also improve your reputation too and give you a platform to promote your business.

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