Four leading investment houses discuss the compelling case for sustainable investment and the barriers that are currently stopping it from becoming truly mainstream.
This article originally appeared in Blue & Green Tomorrow’s Guide to Sustainable Investment 2014.
Name: Peter Michaelis
Company: Alliance Trust Investments
Career history: Has been managing money in sustainable and responsible investment (SRI) for over 12 years. Prior to joining Alliance Trust Investments in August 2012, he was head of SRI at Aviva Investors. Also has a PhD in environmental economics.
Name: Claudia Quiroz
Company: Quilter Cheviot
Career history: Joined Cheviot from Henderson Global Investors in 2009, prior to its merger with Quilter in 2013. Lead fund manager of the Climate Assets fund. Has 15 years’ experience in sustainability and responsible investment.
Name: Alice Evans
Company: F&C Asset Management
Career history: Associate director and fund manager in F&C’s Global Thematic Equities team. Lead manager of the F&C Global Thematic Opportunities fund. Previously at Henderson Global Investors and JP Morgan Asset Management.
Name: Ketan Patel
Company: Ecclesiastical Investment Management
Career history: Joined Ecclesiastical in 2003 from Insight Investment Management. Now specialises in integrating financial and environmental, social and governance (ESG) analysis into investment. At Ecclesiastical, he leads on several ethical issues such as pharmaceuticals, energy and agriculture.
Why should people consider sustainable investment?
Peter Michaelis: To get strong investment returns. We believe that sustainable companies have better growth prospects and better quality management – two very strong investment attributes. Over the coming decade there will be growth in demand for companies involved in energy efficiency, innovative healthcare, education services, pollution control, healthy eating and clean energy. Sustainable investing targets these areas of future growth. Surely this is a strategy ideally suited for long-term savings and pensions.
Claudia Quiroz: Sustainable investment gives the opportunity to invest in long-term economic growth. Growth is the key reason for investors’ interest in sustainability and environmental themes. Most end markets in this space are expected to grow annually at double-digit rates over the next three to five years. This generates attractive investment opportunities when one understands the changes taking place with regard to consumer preferences, government spending, energy supply and security, the food supply/demand imbalance and the general need for a cleaner and more efficient economy – the new economy.
Companies meeting demand for energy efficiency, for example, are set to benefit the most going forward. Energy efficiency is one of our favourite investment themes at Quilter Cheviot. It is not only the cheapest but also the quickest way of cutting carbon emissions. We are talking about companies involved in transport infrastructure, building insulation and efficient lighting, industrial productivity gains, smart grid and energy storage, just to mention a few.
Alice Evans: As the future isn’t going to look like the past, we need to think differently about investment for the long-term. The global population tripled over the course of the last century and is forecast to increase another 50% by 2050, and huge nations are transitioning to industrial economies for the first time. The challenges of climate change and pressures on natural resources are steadily increasing. The digital age has accelerated globalisation, which creates great opportunity but also brings economic and cultural dislocations that we need to overcome.
Against this backdrop, companies that are thinking ahead, navigating these challenges, aligning their interests with society and bringing solutions will create more sustainable value. In other areas of our lives we make choices that are consistent with our values – how we save and invest for the future should be no exception.
Ketan Patel: More than 100 UK ethical and responsible investment products now provide a rich diversity of investment opportunities, covering all assets and geographies for the retail client. Investing for profits with principles is becoming a mainstream choice for many investors and the choice of products has never been broader. At Ecclesiastical Investment Management, we believe that ethical stock selection based upon financial and non-financial factors will drive better risk management and stronger performance over time.
There is also a growing recognition for companies to take a long-term approach to a wide range of issues from resource scarcity through to climate change and corporate governance, which puts ethical investing front of mind for many investors, particularly in light of recent financial scandals. Ultimately, there is no intrinsic reason why performance needs to be sacrificed in order to invest responsibly in the long-term.
What’s the biggest barrier to sustainable investment becoming mainstream?
Peter Michaelis: Education that there is a choice. We need to raise awareness that there is no compromise between investment returns and selecting sustainable companies. Sustainable investing has delivered strong investment returns without taking untoward risk.
Transparency will also help. The financial services industry is famously opaque and traditionally investors have found it hard to know what is in their funds beyond the top 10. As the industry is forced to become more transparent then people will start to question where their money is invested. It will be analogous to the food and clothing industry where provenance has become an essential attribute of any product. So too, the manner in which investment returns are generated will become an essential attribute of the investment product. Comic Relief and Church of England coming unstuck because of this opacity are early examples of the change to come.
Claudia Quiroz: I think the biggest barrier is that investors are concerned that there is a price to pay for sustainable investing. There is this belief that the performance of these funds will be worse than an unconstrained, or mainstream, fund. This is a matter of perception rather than reality, as proven by our sustainable investment strategy, Quilter Cheviot Climate Assets fund, which has returned 40.50% since launch in March 2010 to February 2014, compared to the VMA Stock Market Balanced Index rising 38.98%.
People would associate sustainable investing with the solar sector for example, which has had poor performance from 2008 through 2013 due to changes in government subsidy policy as well as an increased competitive threat to western solar companies from privately owned firms in China. However, the companies involved in solar power generation are a negligible part of our investable universe. Also, as we only invest in profitable established businesses with attractive valuations, we avoid the solar sector altogether during that period.
Alice Evans: Changing the perception that ethical and sustainable investment necessarily comes with a performance penalty. Long track records of sustainable investment funds can now show there is no systematic loss of performance compared to mainstream funds over time. If anything we would expect this to become even more obvious in the future as sustainable investment is an inherently forward looking thesis.
Ketan Patel: We believe that there is no barrier to sustainable investment becoming mainstream; it has grown steadily as an option, and the range and diversity of products available now numbers over 100 in the UK. Furthermore, 45% of UK adults with investments said that they now want at least some of their investments to take green and ethical considerations into account.
The appetite is clearly present from many investors. However, sustainable investment is essentially a long-term investment model and the City is still often driven by short-term returns. Remodelling the market to be more tuned to longer term horizons would enable the sustainable investment market to flourish.
Photo: Ben Ford via freeimages
New Zealand to Switch to Fully Renewable Energy by 2035
New Zealand’s prime minister-elect Jacinda Ardern is already taking steps towards reducing the country’s carbon footprint. She signed a coalition deal with NZ First in October, aiming to generate 100% of the country’s energy from renewable sources by 2035.
New Zealand is already one of the greenest countries in the world, sourcing over 80% of its energy for its 4.7 million people from renewable resources like hydroelectric, geothermal and wind. The majority of its electricity comes from hydro-power, which generated 60% of the country’s energy in 2016. Last winter, renewable generation peaked at 93%.
Now, Ardern is taking on the challenge of eliminating New Zealand’s remaining use of fossil fuels. One of the biggest obstacles will be filling in the gap left by hydropower sources during dry conditions. When lake levels drop, the country relies on gas and coal to provide energy. Eliminating fossil fuels will require finding an alternative source to avoid spikes in energy costs during droughts.
Business NZ’s executive director John Carnegie told Bloomberg he believes Ardern needs to balance her goals with affordability, stating, “It’s completely appropriate to have a focus on reducing carbon emissions, but there needs to be an open and transparent public conversation about the policies and how they are delivered.”
The coalition deal outlined a few steps towards achieving this, including investing more in solar, which currently only provides 0.1% of the country’s energy. Ardern’s plans also include switching the electricity grid to renewable energy, investing more funds into rail transport, and switching all government vehicles to green fuel within a decade.
Zero net emissions by 2050
Beyond powering the country’s electricity grid with 100% green energy, Ardern also wants to reach zero net emissions by 2050. This ambitious goal is very much in line with her focus on climate change throughout the course of her campaign. Environmental issues were one of her top priorities from the start, which increased her appeal with young voters and helped her become one of the youngest world leaders at only 37.
Reaching zero net emissions would require overcoming challenging issues like eliminating fossil fuels in vehicles. Ardern hasn’t outlined a plan for reaching this goal, but has suggested creating an independent commission to aid in the transition to a lower carbon economy.
She also set a goal of doubling the number of trees the country plants per year to 100 million, a goal she says is “absolutely achievable” using land that is marginal for farming animals.
Greenpeace New Zealand climate and energy campaigner Amanda Larsson believes that phasing out fossil fuels should be a priority for the new prime minister. She says that in order to reach zero net emissions, Ardern “must prioritize closing down coal, putting a moratorium on new fossil fuel plants, building more wind infrastructure, and opening the playing field for household and community solar.”
A worldwide shift to renewable energy
Addressing climate change is becoming more of a priority around the world and many governments are assessing how they can reduce their reliance on fossil fuels and switch to environmentally-friendly energy sources. Sustainable energy is becoming an increasingly profitable industry, giving companies more of an incentive to invest.
Ardern isn’t alone in her climate concerns, as other prominent world leaders like Justin Trudeau and Emmanuel Macron have made renewable energy a focus of their campaigns. She isn’t the first to set ambitious goals, either. Sweden and Norway share New Zealand’s goal of net zero emissions by 2045 and 2030, respectively.
Scotland already sources more than half of its electricity from renewable sources and aims to fully transition by 2020, while France announced plans in September to stop fossil fuel production by 2040. This would make it the first country to do so, and the first to end the sale of gasoline and diesel vehicles.
Many parts of the world still rely heavily on coal, but if these countries are successful in phasing out fossil fuels and transitioning to renewable resources, it could serve as a turning point. As other world leaders see that switching to sustainable energy is possible – and profitable – it could be the start of a worldwide shift towards environmentally-friendly energy.
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.