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Twenty-five years since Black Monday: what lessons have we learnt?

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Twenty-five years ago today, Michael Fish made his fateful on-air dismissal of rumours that there was a “hurricane on the way”. A hurricane certainly was on the way, both in the storm system sense and in financial markets. But have we learnt anything?

October 19 1987 was doomsday in financial markets. Just short of the FTSE 100’s four-year anniversary, the index of leading shares fell 11%, 12% and 6% over 3 consecutive days. The crash that began in Hong Kong spread like wildfire through Europe and into North America.

While by no means the worst hit, just over 26% had been wiped off the UK index by the end of October. The indices in New Zealand has lost 60%, Hong Kong 45.5%, Australia 41.8%, Spain 31%, the US 22.68% and Canada 22.5%.

The all-too-familiar picture of traders, bathed in red light, staring blankly at screens or simply holding their heads in their hands has become the stock photo of the age.

Looking at a chart of the FTSE 100 over the 28 years since it debuted, the sharp boom during 1987 makes a bust look inevitable, but what is most depressing is the slower cycle of rise and fall since 1999. While the falls of 2001 (dotcom bubble) and 2007 (financial crisis) were shocking at the time they represent a repeating cycle of decline and recover, which mean share prices reach and then fall below  their December 30, 1999 peak of 6950.6.

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Taking a longer view, the lost 12 years of 2000 to 2012 become more apparent.

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The clear lesson that came from 1987 to the markets was that governments would do absolutely anything to prevent a crisis. Rather than allow the market to find its price, supposed free-market thinkers in central banks propped up those markets. This in turn created the moral hazard we have seen in recent years. “In economic theory, a moral hazard is a situation where a party will have a tendency to take risks because the costs that could incur will not be felt by the party taking the risk.”

Investment banks and traders knew that, however extreme their speculation, if they were too big to fail, the government would ultimately bail them out. This has a reinforcing feedback loop. If losses will be underwritten if they are large enough, wilder speculation can take place.

One can take the view that rather than the 2007 crisis being a failure of markets, it was the inevitable outcome of a market, which has learnt that if it all goes wrong, the losses would be nationalised. If you can take a very high risk and very high return bet, where the profit is all yours and all the losses someone else’s, then why wouldn’t you.

Moral hazard on a planetary scale

Our stock markets are creating a far greater moral hazard, but with something more important than share prices.

Six of the top ten FTSE 100 constituents are involved in oil, gas and mining representing just under 25% of the total index value. More than any other, these companies are creating the pollution and resource scarcity that threatens our future prosperity.

As a resource becomes scarce and demand exceeds supply, its value rises. This creates increased short-term profits, if supply can be maintained. In turn, that creates investment for more extraction. By over exploiting resources from easy to reach places and creating a potential scarcity, these companies have delivered the rising prices that have made it economically viable to exploit harder to reach places, such as the Arctic. By their own actions, they are creating the investment environment that allows them to do ever more damage. This is a virtuous circle for investors, in the short-term, but a catastrophic one for the planet.

Companies are exploiting the moral hazard that they can take risks with our planet today, for short-term private profit, because everyone else will feel the costs tomorrow. The weakness in this thinking is that climate change and pollution do not care where you live or how wealthy you are, so ‘everyone else’ becomes you, your children and your grandchildren.

Even Friedrich Hayek, the favoured economist of free-market thinkers, had something to say about market failures in this respect in his seminal work, The Road to Serfdom.

“Nor can certain harmful effects of deforestation, or of some methods of farming, or of the smoke and noise of factories, be confined to the owner of the property in question or to those who are willing to submit to the damage for an agreed compensation. In such instances we must find some substitute for the regulation by the price mechanism. But the fact that we have to resort to the substitution of direct regulation by authority where the conditions for the proper working of competition cannot be created, does not prove that we should suppress competition where it can be made to function.”

Even the great warrior against social planning says that the government should have a regulatory role when it comes to environmental policy.

The debate in government and media is dominated by the current financial crisis. It has made environmental discussion seem like a distraction for many politicians and commentators. The reality is that a sustainable future is built on investment in non-extractive industries, clean energy and technologies. The race to keep up with relentlessly rising demand needs to become finding innovative ways to live within our means, using less, rather than more.

Markets cannot do this alone but they are very good at reacting to signals.

By choosing not to invest in mature energy-intensive, extractive industries and opting for fast-growth, innovative and clean ones, you are sending a signal to the market that this is where money should be invested. By buying from companies that behave sustainably, you create profits, which are a powerful signal that these sectors deserve more investment. As we report today, many investors are already making a sustainable choice.

Do not let politicians and the media, who have a stake in maintaining the status quo (to secure party funding and advertising respectively), get away with misinformation. They are lying to you and you are smart enough to see that.

Hurricanes really are on the way, both literally and metaphorically, unless we all act today to create a more sustainable future.

Further reading:

National Ethical Investment Week 2012 begins

Financial advisers targeted for National Ethical Investment Week

National Ethical Investment Week calls on religious groups to take action

Simon Leadbetter is the founder and publisher of Blue & Green Tomorrow. He has held senior roles at Northcliffe, The Daily Telegraph, Santander, Barclaycard, AXA, Prudential and Fidelity. In 2004, he founded a marketing agency that worked amongst others with The Guardian, Vodafone, E.On and Liverpool Victoria. He sold this agency in 2006 and as Chief Marketing Officer for two VC-backed start-ups launched the online platform Cleantech Intelligence (which underpinned the The Guardian’s Cleantech 100) and StrategyEye Cleantech. Most recently, he was Marketing Director of Emap, the UK’s largest B2B publisher, and the founder of Blue & Green Communications Limited.

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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