B> 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”.
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.
How to be More eco-Responsible in 2018
Nowadays, more and more people are talking about being more eco-responsible. There is a constant growth of information regarding the importance of being aware of ecological issues and the methods of using eco-friendly necessities on daily basis.
Have you been considering becoming more eco-responsible after the New Year? If so, here are some useful tips that could help you make the difference in the following year:
1. Energy – produce it, save it
If you’re building a house or planning to expand your living space, think before deciding on the final square footage. Maybe you don’t really need that much space. Unnecessary square footage will force you to spend more building materials, but it will also result in having to use extra heating, air-conditioning, and electricity in it.
It’s even better if you seek professional help to reduce energy consumption. An energy audit can provide you some great piece of advice on how to save on your energy bills.
While buying appliances such as a refrigerator or a dishwasher, make sure they have “Energy Star” label on, as it means they are energy-efficient.
Regarding the production of energy, you can power your home with renewable energy. The most common way is to install rooftop solar panels. They can be used for producing electricity, as well as heat for the house. If powering the whole home is a big step for you, try with solar oven then – they trap the sunlight in order to heat food! Solar air conditioning is another interesting thing to try out – instead of providing you with heat, it cools your house!
2. Don’t be just another tourist
Think about the environment, as well your own enjoyment – try not to travel too far, as most forms of transport contribute to the climate change. Choose the most environmentally friendly means of transport that you can, as well as environmentally friendly accommodation. If you can go to a destination that is being recommended as an eco-travel destination – even better! Interesting countries such as Zambia, Vietnam or Nicaragua are among these destinations that are famous for its sustainability efforts.
3. Let your beauty be also eco-friendly
We all want to look beautiful. Unfortunately, sometimes (or very often) it comes with a price. Cruelty-free cosmetics are making its way on the world market but be careful with the labels – just because it says a product hasn’t been tested on animals, it doesn’t mean that some of the product’s ingredients haven’t been tested on some poor animal.
To be sure which companies definitely stay away from the cruel testing on animals, check PETA Bunny list of cosmetic companies just to make sure which ones are truly and completely cruelty-free.
It’s also important if a brand uses toxic ingredients. Brands such as Tata Harper Skincare or Dr Bronner’s use only organic ingredients and biodegradable packaging, as well as being cruelty-free. Of course, this list is longer, so you’ll have to do some online research.
4. Know thy recycling
People often make mistakes while wanting to do something good for the environment. For example, plastic grocery bags, take-out containers, paper coffee cups and shredded paper cannot be recycled in your curb for many reasons, so don’t throw them into recycling bins. The same applies to pizza boxes, household glass, ceramics, and pottery – whether they are contaminated by grease or difficult to recycle, they just can’t go through the usual recycling process.
People usually forget to do is to rinse plastic and metal containers – they always have some residue, so be thorough. Also, bottle caps are allowed, too, so don’t separate them from the bottles. However, yard waste isn’t recyclable, so any yard waste or junk you are unsure of – just contact rubbish removal services instead of piling it up in public containers or in your own yard.
5. Fashion can be both eco-friendly and cool
Believe it or not, there are actually places where you can buy clothes that are eco-friendly, sustainable, as well as ethical. And they look cool, too! Companies like Everlane are very transparent about where their clothes are manufactured and how the price is set. PACT is another great company that uses non-GMO, organic cotton and non-toxic dyes for their clothing, while simultaneously using renewable energy factories. Soko is a company that uses natural and recycled materials in making their clothes and jewelry.
All in all
The truth is – being eco-responsible can be done in many ways. There are tons of small things we could change when it comes to our habits that would make a positive influence on the environment. The point is to start doing research on things that can be done by every person and it can start with the only thing that person has the control of – their own household.
Top 5 Changes You can Make in Your Life to Reduce Your Carbon Footprint
In a world, where war rages and global warming threatens our very existence, the inhabitants of earth need to be extra vigilant in their efforts to go green. This includes reducing your carbon footprint on the earth and leading a more sustainable life.
Many homeowners feel perplexed by all of the options available to reduce their carbon footprint. They may even feel (falsely) that making their household more green will fail to make that much of a difference in the fight to save our planet.
Even a single home going green has a massive impact on the environment. We can win this battle on home at a time. If you’re interested in accepting the challenge of making your household a green home, read on below for a few of the top changes you can make in your life to reduce your carbon footprint. We all stand to benefit from making the earth safer for future generations – and your wallet won’t complain when you start to see the savings in annual energy costs.
Switch From Dirty Energy to Clean Solar
The ION Solar reviews tell it all–solar is the best way to go. Whether your goal is to slash your energy bills, or to reduce your carbon footprint, the sun is a fantastic source of renewable energy.
It’s important to get past the hype from solar installers. Instead, listen to the plethora of impartial customer reviews that mention everything from a $20 energy bill, to the incredible feeling of knowing that you are doing your part by going green and minimizing harmful emissions in to our atmosphere.
The average investment is $15,000 to $30,000 for installation and purchase of solar panels. Optional battery power packs can help provide consistent power during both night and day. And many government agencies provide federal, state or local grants to help offset upfront investments in clean energy.
Depending on which installed you choose, your household may qualify for low-interest or zero interest loans to cover the up-front cost of your installation. And the loan payments are usually less than your current monthly power bill.
It really is a win-win, as home buyers are looking for homes that feature this technology – meaning solar power installation improves the resale value of your property.
And there are a number of additional home modifications that can help improve the energy efficiency of your home. A programmable thermostat can better manage energy consumption from home cooling and heating systems while you’re away from home. And weather stripping your doors can help keep cool air in during the summer, and warm air in during the winter.
Of course, energy conservation starts at home. And this includes setting a powerful example for your kids. Teach your children how to close windows, strategically keep doors open or closed based on airflow, and encourage them to leave the thermostat alone – opting for adding or removing layers of clothing instead.
Unplug Appliances and Shut Off Electronics
Unplugging your appliances when they aren’t in use, such as the toaster and the coffee maker, has more of an impact than you might think. Set your TVs and stereos on sleep timers, instead of letting them run around the clock. The cumulative impact of wasteful electronic device usage is horrible for our environment – putting unnecessary strain on our electrical grid.
One of the simplest and easiest ways to reduce your carbon footprint is by recycling. You are already throwing this stuff away anyway, right? It doesn’t take much more effort to just put recyclables in a separate container to be recycled, now does it?
Oh, and did I mention that you can earn money for recycling? Yes! Many cities and towns have recycling centers that will purchase your clean plastic and glass bottles for reuse.
Minimize Your Water Usage
Water is one of the easiest things to forget about when it comes to reducing your carbon footprint. Preserve water by turning off the faucet while brushing your teeth. Shorten your shower by a few minutes and turn down the heat on that water heater. You’ll be surprised at how much lower your water bill and your energy bill will be.
Saving money and reducing your carbon footprint? What isn’t to love?
These are just a few of the top ways that you can reduce your carbon footprint and start living a greener lifestyle. And we aren’t factoring in all of the advantages that we’ll reap from public investments in a smarter energy grid.
From decreasing your water usage, to switching to solar for your home’s energy needs, you will feel good at the end of the day knowing you are doing your part to save the future of this planet for generations to come!
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