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‘There is no long term performance penalty for investing ethically’

Audrey Ryan and Ryan Smith, of investment managers Kames Capital, inform Alex Blackburne about the ins and outs of the company’s Ethical Equity Fund.

Blue & Green Tomorrow’s mantra is simple, ‘We want the world to be as blue and green tomorrow as it was yesterday’. Arguably the most effective way of achieving this entirely realistic dream is for everyone to invest in ethical funds.

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Audrey Ryan and Ryan Smith, of investment managers Kames Capital, inform Alex Blackburne about the ins and outs of the company’s Ethical Equity Fund.

Blue & Green Tomorrow’s mantra is simple, ‘We want the world to be as blue and green tomorrow as it was yesterday’. Arguably the most effective way of achieving this entirely realistic dream is for everyone to invest in ethical funds.

Kames Capital’s Ethical Equity Fund, an Open-Ended Investment Company (OEIC), was one of the first investments to offer ethical criteria when it was founded in April 1989.

Under the company name of AEGON Asset Management UK, which it had worked under until relatively recently before changing to Kames Capital, the fund is negatively screened. This means it screens out companies based on various ‘negative’ activities, as opposed to screening in ones that have positive aspects.

The criteria that we apply are quite diverse”, explains Ryan Smith, head of corporate governance at Kames Capital.

They cover a range of traditional ethical screening factors that you would expect to see – alcohol, tobacco, weapons, human rights, pornography, and animal welfare.

Those criteria have been set out to be as clear and explicit as we think that we can make them, so that advisers, IFAs and their clients can hopefully understand straight away the types of companies that the fund will and won’t invest in.”

Already, it’s clear that although Kames Capital’s fund is most certainly an ethical one, its philosophy is on the other side of the spectrum to our previous focus, WHEB AM’s Sustainability Fund, which actively seeks out investment in companies from three specific sectors.

In terms of the ethos of the fund”, Smith continues, “It’s a traditional ethical fund that avoids investment in quite specific areas that ethical investors are generally interested in.

It doesn’t have any positive remit, it doesn’t have a weighting towards renewables, and we’re not looking to change the world.

It’s just a fund that is fairly traditional and screens out certain activities.”

The fund is rated ‘dark green’ because of its rigid investment guidelines. These kinds of funds are often considered the greenest kind of investments, because they are completely ruling out investment into any kind of unethical company.

The fund is benchmarked against the FTSE All-Share and the UK All Companies sector – “a standard against which the performance of a security, mutual fund or investment manager can be measured”, according to Investopedia.

Audrey Ryan, fund manager at Kames Capital since 1999, explains why they don’t benchmark the fund against the FTSE for good index.

Given we’re about dark green screening funds, then actually the FTSE for good index is not that much more representative for us than the FTSE All-Share.

When we’re speaking to investors, existing and potential, people understand what the FTSE All-Share benchmark is, and we can explain to them what our criteria are.

For us, that’s the right thing to do.”

At the end of November this year, the fund was worth £236m. Its top long positions vary greatly; with the top ten including such companies as Vodafone, Prudential, BG Group, Tullow Oil and Aggreko.

The starting point is to apply the ethical screen, and that creates an initial investable universe”, explains Smith, who also leads the socially responsible investment aspect of Kames Capital.

That’s basically handed over to Audrey and her colleagues, and from that, they will create a portfolio which matches as closely as they can, the UK equity strategy.

We don’t try to put a positive ethical spin on the companies that we invest in. The companies that are there are there because they don’t breach the ethical criteria.”

Fund manager Ryan adds to Smith’s comments, stating that the selection process and criteria that they had at Kames Capital was a winning formula.

In terms of the investability of the fund, clearly there are certain sectors of the marketplace that we cannot invest in, but we have a proven track record of thinking outside the box.

We’ve got a UK equity team of 12, and within that 12 we’ve got three individuals who specialise in looking at UK and small cap stocks, and that’s vital for managing the ethical equity fund, because once Ryan has done his screening, a large proportion of what the stocks that I can buy are in the small and mid cap space.”

The winning formula is proven by the fund’s performance over the last five years, as Ryan notes, before dispelling a common myth in the ethical investment field.

In terms of cumulative performance”, she says, “the median fund has returned 5.91% and this fund has returned 8.12%, so it’s beaten the benchmark”.

There is no long term performance penalty for investing ethically, based on our criteria and numbers. Having said that, you will get the odd year whereby it’s difficult for a fund like this to outperform against the market place.”

Ryan offered a final thought, or a prediction, to Blue & Green Tomorrow readers, about the near-term future of ethical funds.

We think stock selection will be increasingly important looking into next year, because we do think we will see companies disappoint on earnings, so it’s very much focusing on the fundamental research that we can do as a house to identify stocks that we believe are going to outperform.

I get slightly cautious in terms of outlook overall for next year, in the sense that we will all appreciate the fact that we will see fiscal tightening, not just in the UK and Europe, but also starting to take effect in the US as well.

We do think it’s going to be a difficult environment.”

Difficult, maybe, but this difficultness is widespread across the whole economy, and certainly isn’t exclusive to ethical funds. Bearing this in mind, the most obvious choice if you want to help make a difference to the environment, is to choose to invest ethically.

Like Clare Brook before her, Ryan emphasised the point that ethical funds are a relatively long term commitment. Some people do manage to play a short term game, but if you really want to do your bit making the world as blue and green tomorrow as it was yesterday, then you’ll stick with it for the long run – not just for the planet’s gain, but for your own, too.

If you would like to know more about Kames Capital’s Ethical Equity Fund, visit their website. Otherwise, if you would like more information about investing ethically more generally, ask your financial adviser, if you have one, or complete our online form and we’ll connect you with a specialist ethical adviser.

Economy

How Going Green Can Save A Company Money

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going green can save company money
Shutterstock Licensed Photot - By GOLFX

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

paper waste

Shutterstock Licensed Photo – By Yury Zap

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.

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Energy

5 Easy Things You Can Do to Make Your Home More Sustainable

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sustainable homes
Shutterstock Licensed Photot - By Diyana Dimitrova

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

Shutterstock Licensed Photo – By Olivier Le Moal

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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