As we reported on Saturday, the responsible investment campaign group FairPensions has released a challenging report on the state of ethical funds. The critical but welcome study demands more transparency, more aligned screening and greater investor engagement on the part of ethical funds.
The FairPensions report could make uncomfortable reading for many of the 20 ethical funds it ranked, especially those languishing at the bottom of the table.
This 20 is a small sample of an admittedly small market of between 90 and 137 ‘ethical’ funds. However, any risk of being unrepresentative could cut both ways, in that these could be a better or worse than average sample. That said, the 20 are an even tinier sample of the wider sustainable fund market and the 3,000 or so funds available to investors.
The survey behind the report found that many of the ranked funds were failing to engage fully with investors (one of the key tenets of responsible investing). Some were excluding companies known colloquially as sin stocks (tobacco, alcohol, gambling, arms, pornography and nuclear energy) but including those that raise investors’ environmental and human rights concerns, such as fossil fuels and child labour respectively.
While 18 of the 20 funds report some of their company holdings, the study finds only nine report all of them. This finding is false as all UK-domiciled funds must report all their holdings every six months, but they are not required to publish them online, which is what we assume the survey uncovered.
When looking at the companies in the highest-ranking fund – HSBC (money laundering), Vodafone (tax avoidance), BG (fossil fuels), GSK (Bad Pharma), Standard Chartered (sanctions breaker) – one is left with a slightly uncomfortable feeling. Only 11% exclude stocks linked to child labour, while a quarter exclude fossil fuels.
What the papers say
The Guardian (and What Investment) led with the perspective that ethical funds were outdated or stagnating, which is an interesting perspective considering the phenomenal rise of the sector amongst high net-worth investors. Financial adviser magazine FT Adviser ran with the charge that ethical funds were failing their investors, which is a charge that could equally levelled at the magazine’s readership and a large portion of unethical funds. The Independent raised the perennial question, “Is ethical, really ethical?” while our friends at Move Your Money republished FairPensions’ own blog on the report.
The most egregious example was from the Investors Chronicle which found “angry” ethical investors all over the shop (well, two anyway).
We know that there are thousands of investors genuinely angry at the high rewards for executives during a decade of appalling share performance. Obviously, there are legions of investors who are legitimately angry at the role irresponsible financial players had in crashing the global economy, and the subsequent taxpayer-funded, economy-crippling bailouts. Many are profoundly annoyed by the payment protection mis-sellers and the unsolicited phone calls and texts, which that particular scandal unleashed. Those interested in more arcane things, such as central banks and regulators, are punishing the banks that rigged Libor.
But according to the Investors Chronicle, the richest vein of investor anger is the imperfection of ethical funds and their ‘poor performance’ during one of the world’s longest and deepest recessions.
The ethical investment expert
The article quoted Seb Beloe of WHEB Asset Management as saying the deterioration in funds’ ethics is to be expected if providers are scrimping on staff. “Major providers don’t see ethical investment as a long-term money maker but they continue to run them cheaply because working with such large funds, it is still lucrative”, he said.
We contacted Beloe for a more general analysis. He explained four recent trends in the socially responsible investment (SRI) industry:
– “The past 12 months have seen a rapid divergence in the SRI industry between those who see it as (at best) a profitable niche and those who see it as their core market.
– “The large multi-boutique incumbent asset managers that had SRI businesses have undertaken strategic reviews of their SRI businesses that have led to decisions to sell (Aviva), to significantly cut back on resource (Henderson) or leave major unanswered questions (F&C).
– “Meanwhile, the market is broadening beyond the original ethical investor core to encompass investors who are more interested in investing in positive themes rather than just negative screens.
– “Smaller more focused (and typically unlisted) businesses that see this market as their core market are attacking this opportunity by investing in more sophisticated sustainable investing strategies – this includes engagement and transparency as core features of the investment approach.”
He went on, “We believe it is very difficult, if not impossible, to satisfy all investors’ ethical concerns in a limited number of pooled funds. By defining a fund by what it won’t invest in does make this problem even more challenging. This is because the screens are not seen as having any relevance to financial performance (in fact often quite the opposite!).
It is very difficult, if not impossible, to satisfy all investors’ ethical concerns in a limited number of pooled funds – Seb Beloe
“By defining a fund strategy by what you want to invest in, you align the ‘ethical’ rationale with the investment rationale. We want to invest in our themes because we believe they will lead to financial outperformance and we think they will lead to outperformance because they are offering solutions to pressing sustainability challenges.
“I believe that the individual investors quoted in the [Investors Chronicle] article may have responded differently if they had been introduced to positively themed sustainability funds. Investors who are concerned about the future of the planet and of their pension should look at these sustainability funds. We are not tempted to shortcut the values because it is the values that underpin the investments that ultimately drive the financial value of the fund.”
Setting up an argument just so you can knock it down is a simple headline-grabbing and journalistic trick. What both the FairPensions and Investors Chronicle article have failed to recognise in challenging the “large multi-boutique incumbent asset managers” is the significant evolution of sustainable investment from a core of negatively screened ethical funds to a wide variety of “positively themed sustainability funds”.
A sector problem, a whole of market problem or simply a question of online publishing?
It is of course true that funds are generally opaque about their holdings, often only publishing online their investment by sector and their top ten holdings. There is almost always little or no investor engagement once you have invested, unless things go particularly badly or well. However, this charge can be easily, if not more assertively, levelled at the whole industry rather than just ethical funds.
FE Trustnet published an article in September entitled, Lack of transparency rights in UK funds “a disgrace”. The article stresses that “All US-domiciled funds have to report 100% of their holdings every three months and the information is published on the website of Finra, the US equivalent of the FSA. UK funds need only report all their holdings every six months, however, and there is no requirement for them to be published online.”
The internet is ‘catching on’; so much so that 84.1% of the population now has access. Publishing all holdings online every three months would be a leap forward for all funds and massive benefit to investors.
Should ethical funds be held to a higher standard? Probably. Could they do more in being transparent about what they invest in? Certainly. Should they engage with investors more readily? Of course. Do some funds use ethical (or related terms) as a marketing ploy? Sadly, yes.
All ‘ethical’ funds must do better. A lot, lot better, if confidence, prices and funds under management in the sector are to rise.
A clear and present danger
But real investor anger and media scrutiny should be directed at those 3,000 funds that do not open themselves up for this kind of scrutiny and wilfully invest in companies that profiteer in the short-term at humanity’s and the planet’s not so long-term expense. Screwing people and the planet for a fraction of a percentage should be the real source of anger amongst enlightened investors, serious commentators and the population as a whole.
Yesterday, Brad Werner, a complex system researcher from UC San Diego, colourfully described the prospects for the planet. He directly blamed our planet’s state on consumer culture, which prioritises short-term profits over long-term stability, saying, “What happens is not too surprising. The economy very fast chews up the environmental resource, depletes those reservoirs, resulting in significant economic damage.”
In a recent excellent article in Guernica, Indian author Amitav Ghosh said that, “At this point I feel quite despondent, as I think everyone does. I have friends who are scientists and climate scientists and, even though they won’t say so publicly, they all recognise the game is over.”
B>, in conversation with many climate scientists, hears the same story again and again.
It is a useful contribution to an important debate to be constructively critical of less than ideal behaviour from ethical funds. It is far more legitimate to be critical of the wilful profiteering and the destruction of the commons for personal gain by most funds.
Blue & Green Tomorrow has interviewed a number of specialist ethical financial advisers in the past, and they’re located all across the country. Have a look here to find the one nearest to you.
Will Self-Driving Cars Be Better for the Environment?
Technologists, engineers, lawmakers, and the general public have been excitedly debating about the merits of self-driving cars for the past several years, as companies like Waymo and Uber race to get the first fully autonomous vehicles on the market. Largely, the concerns have been about safety and ethics; is a self-driving car really capable of eliminating the human errors responsible for the majority of vehicular accidents? And if so, who’s responsible for programming life-or-death decisions, and who’s held liable in the event of an accident?
But while these questions continue being debated, protecting people on an individual level, it’s worth posing a different question: how will self-driving cars impact the environment?
The Big Picture
The Department of Energy attempted to answer this question in clear terms, using scientific research and existing data sets to project the short-term and long-term environmental impact that self-driving vehicles could have. Its findings? The emergence of self-driving vehicles could essentially go either way; it could reduce energy consumption in transportation by as much as 90 percent, or increase it by more than 200 percent.
That’s a margin of error so wide it might as well be a total guess, but there are too many unknown variables to form a solid conclusion. There are many ways autonomous vehicles could influence our energy consumption and environmental impact, and they could go well or poorly, depending on how they’re adopted.
One of the big selling points of autonomous vehicles is their capacity to reduce the total number of vehicles—and human drivers—on the road. If you’re able to carpool to work in a self-driving vehicle, or rely on autonomous public transportation, you’ll spend far less time, money, and energy on your own car. The convenience and efficiency of autonomous vehicles would therefore reduce the total miles driven, and significantly reduce carbon emissions.
There’s a flip side to this argument, however. If autonomous vehicles are far more convenient and less expensive than previous means of travel, it could be an incentive for people to travel more frequently, or drive to more destinations they’d otherwise avoid. In this case, the total miles driven could actually increase with the rise of self-driving cars.
As an added consideration, the increase or decrease in drivers on the road could result in more or fewer vehicle collisions, respectively—especially in the early days of autonomous vehicle adoption, when so many human drivers are still on the road. Car accident injury cases, therefore, would become far more complicated, and the roads could be temporarily less safe.
Deadheading is a term used in trucking and ridesharing to refer to miles driven with an empty load. Assume for a moment that there’s a fleet of self-driving vehicles available to pick people up and carry them to their destinations. It’s a convenient service, but by necessity, these vehicles will spend at least some of their time driving without passengers, whether it’s spent waiting to pick someone up or en route to their location. The increase in miles from deadheading could nullify the potential benefits of people driving fewer total miles, or add to the damage done by their increased mileage.
Make and Model of Car
Much will also depend on the types of cars equipped to be self-driving. For example, Waymo recently launched a wave of self-driving hybrid minivans, capable of getting far better mileage than a gas-only vehicle. If the majority of self-driving cars are electric or hybrids, the environmental impact will be much lower than if they’re converted from existing vehicles. Good emissions ratings are also important here.
On the other hand, the increased demand for autonomous vehicles could put more pressure on factory production, and make older cars obsolete. In that case, the gas mileage savings could be counteracted by the increased environmental impact of factory production.
The Bottom Line
Right now, there are too many unanswered questions to make a confident determination whether self-driving vehicles will help or harm the environment. Will we start driving more, or less? How will they handle dead time? What kind of models are going to be on the road?
Engineers and the general public are in complete control of how this develops in the near future. Hopefully, we’ll be able to see all the safety benefits of having autonomous vehicles on the road, but without any of the extra environmental impact to deal with.
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.