Sustainability fund expert, Clare Brook, takes a close look at the strategies being adopted by ethical fund managers.
Interest in ethical and sustainable investment has grown in lock-step with consumer interest in fair trade, organic and locally sourced food, recycling, alternative energy and other green initiatives. The movement has been further fuelled by reaction to corporate scandals, the role of large banks in the credit crunch and, most recently, the BP oil spill.
Some investors wanted to do more than just avoid companies doing things they disapproved of; they wanted to invest in companies that were actively making the world a better place. So the ‘socially responsible investment’ movement grew up in the early 1990s to enable just that.
The trouble was that, back then, not many companies were “pure plays” on environmental or social protection. Increasingly complex ratings systems and strategies were devised to justify investing in larger companies. Investors managing UK only funds, especially, found the number of genuinely environmentally or socially responsible companies available to them extremely limited.
These days the top 10 holdings of a sample of UK ethical funds nearly all contain HSBC, Tesco and Vodafone. And quite a few contain BP, Shell and BHP Billiton. While none of these companies is directly involved in nuclear power, tobacco, animal testing or pornography, it would be stretching a point to say they were solving the world’s problems. At best, they might be said to be adapting to the challenges of climate change and human rights issues by improving their environmental, social and governance (ESG) performance and employing ever larger corporate social responsibility (CSR) departments to convince investors and other stakeholders of their credentials.
Investors who are baffled by the complexity of different terms around ethical, socially responsible and sustainable investing, the Holden & Partners Guide to Climate Change and Ethical Investing is an invaluable tool. It lists the top 10 holdings of every fund in the ethical, socially responsible and climate change sector, which is by far the best way of seeing at a glance whether a fund chimes with an investor’s values.
The good news for investors is that a new phase in ethical/socially responsible investment is emerging. Called either “sustainable” or “climate change” investment, it began as the science and economics around climate change became more widely accepted. The publication of the Stern Report in 2006 was critical in convincing policy-makers and financiers that climate change is a real threat to our future existence; that it will cost the global economy a huge amount to rectify and so a significant amount must be spent on its prevention; and that a range of solutions to the problem already exist in products and services offered by well-managed, profitable companies.
This made possible a new breed of specialist investment fund focusing on investing in solutions to climate change as well as the accompanying problems of waste disposal and water resource shortages. Forestry and agriculture funds have also performed particularly well over the last year, according to Holden & Partners. Yet, the investment strategy of all these funds is global, because the UK environmental industry remains woefully small in terms of quoted companies compared with the US, China and much of Europe.
WHEB Asset Management focuses its fund on three themes that stem from the main challenges facing humanity over the next few decades: climate change and energy, global water shortages and an ageing population. It invests only in companies whose business is driven primarily by at least one of these themes. As a result, the fund invests in companies which are tackling serious global challenges head-on.
The prospects for “sustainable” funds look better than ever. Even if there is a lack of coordinated global action to tackle climate change, the pace of legislative change on a national and state level is picking up all over the world and creating a background that is more supportive for the environmental economy. Meanwhile, worldwide water shortages (and floods) underline the need for improved management of this limited resource.
Also boosting the situation worldwide are the stimulus packages aimed at kick-starting the environmental economy. Energy efficiency measures attract a substantial portion of the global stimulus package. HSBC estimated last year that the green stimulus package amounted to $521bn to be spent globally over five years. By October 2010 $194bn of this had been deployed (over half of it by China) – the majority going on energy-efficiency projects, including upgrading national grids, building efficiency, insulation and lighting.
Sectors such as water, energy efficiency and alternative energy have compelling growth outlooks over the next few years, too, though valuations, for the most part, are still way off their 2007 highs.
So the would-be ethical or sustainable investor can now choose from an interesting range of funds focused on companies that provide solutions for the world’s gravest challenges. At the same time, such funds offer investors the chance to pursue a truly ethical investment strategy because their investments will help to secure the existence of future generations.
Clare Brook is Co-Fund Manager of the IM WHEB Sustainability Fund whebam.com
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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