Geir Lode, Head of Global Equities at Hermes Investment Management, challenges the preconceptions of what many investors believe make an ESG stock.
There is a perception amongst some investors that to invest in a company with strong environmental credentials you need to compromise; that you’ll be confined to the small cap investment universe, excluded from multi-national businesses that generally offer stability and consistency of dividends.
Dong Energy is a Danish utility company that over the next decade is refocusing its business away from traditional fossils fuels to renewable energy. Its market capitalisation of over US$15bn allows large investors to take a meaningful participation in the transition to a low carbon economy.
The company was founded in 2006 when Dong, a traditional oil and gas company, merged with five smaller Danish power utilities. Today the most carbon-intensive fossils fuels are seen as a non-core business segment with legacy assets being managed to maximise cash returns.
The main focus of the company is the fast-growing offshore wind farm business which includes the world’s biggest offshore wind farm that Dong is building off the coast of North-East England. Dong has a slightly different approach to its competitors in that it typically sells fifty percent of the interest in a wind farm prior to completion to crystallise the value of the project. This strategy is proving successful as it reduces the risk for equity investors whilst simultaneously increasing the visibility of the project to infrastructure investors looking for stable yields.
Dong is the largest global developer of offshore wind farms and having already doubled their installed capacity from 2012 to 2016 they aim to double capacity again by 2020. The company is committed to reducing carbon emissions by converting existing coal and gas power plants to use sustainable biomass. By 2020, the company’s target is that at least 60% of the power and heat produced at their power stations should be from sustainable biomass. The contribution from coal, oil and gas is expected to shrink significantly.
In Hermes Global Equities we rank potential and current investments by assessing the company’s financial attractiveness and ESG risk factors. For Dong, we expect the future return on capital to be higher than that of the legacy business. The company’s financial visibility is very clear through to 2020 and we see a 15 to 20 percent upside in the share price. The company has indicated that they expect to pay a dividend this year and given the high visibility of earnings we anticipate steady dividend growth thereafter. The company is also committed to maintaining their credit rating.
Investors may be surprised to consider Dong as a viable ESG name given its historical use of coal in energy production, however, we see ESG as not just investing in the green companies of today, but also those of tomorrow. Dong Energy is investing heavily in biomass and wind production and the carbon intensity of its production is expected to decline from 638g CO2/KWh to 260g CO2/KWh by 2020. Excluding companies with hydro exposure, Dong has the highest percentage of renewables in the energy mix of any European integrated utility company. The company’s corporate governance is also strong with excellent compensation transparency, a separate CEO and chairman, high board independence, and almost forty percent female representation on the board.
To achieve their ambitious targets the company must continue to demonstrate the excellent project management skills that have propelled them into their current position. There will also be risks outside of the company’s control, for example renewable energy has long relied upon government subsidies and a favourable regulatory environment. The Paris COP21 agreement last year suggests that the world is committed to the green economy, but in the face of a global slowdown or a Brexit-induced recession this resolve may be tested.
Geir Lode is Head of Global Equities at Hermes Investment Management. Lode has been on the board of 17 companies across 4 countries and, amongst other roles, was previously Chairman of Bergen Yards.
Extra-Mile Water Conservation Efforts Amidst Shortage
While some states are literally flooding due to heavy rains and run-off, others are struggling to get the moisture they need. States like Arizona and California have faced water emergencies for the last few years; water conserving efforts from citizens help keep them out of trouble.
If your area is experiencing a water shortage, there are a few things you can do to go the extra mile.
Repair and Maintain Appliances
Leaks around the house – think showerheads, toilets, dishwashers, and more – lead to wasted water. Beyond that, the constant flow of water will cause water damage to your floors and walls. Have repairs done as soon as you spot any problems.
Sometimes, a leak won’t be evident until it gets bad. For that reason, make appointments to have your appliances inspected and maintained at least once per year. This will extend the life of each machine as well as nip water loss in the bud.
When your appliances are beyond repair, look into Energy Star rated replacements. They’re designed to use the least amount of water and energy possible, without compromising on effectiveness.
Only Run Dishwasher and Washer When Full
It might be easier to do a load of laundry a day rather than doing it once per week, but you’ll waste a lot more water this way. Save up your piles of clothes until you have enough to fully load the washing machine. You could also invest in a washing machine that senses the volume of water needed according to the volume of clothes.
The same thing goes with the dishwasher. Don’t push start until you’ve filled it to capacity. If you have to wash dishes, don’t run the water while you’re washing. Fill the sink or a small bowl a quarter of the way full and use this to wash your dishes.
Recycle Water in Your Yard
Growing a garden in your backyard is a great way to cut down on energy and water waste from food growers and manufacturers, but it will require a lot more water on your part. Gardens must be watered, and this often leads to waste.
You can reduce this waste by participating in water recycling. Using things like a rain barrel, pebble filtering system, and other tools, you can save thousands of gallons a year and still keep your landscaping and garden beautiful and healthy.
Landscape with Drought-Resistant Plants
Recycling water in your yard is a great way to reduce your usage, but you can do even more by reducing the amount of water required to keep your yard looking great. The best drought-resistant plants are those that are native to the area. In California, for example, succulents grow very well, and varieties of cactus do well in states like Arizona or Texas.
Install Water-Saving Features
The average American household uses between 80 and 100 gallons of water every single day. You obviously can’t cut out things like showering or using the toilet, but you can install a few water-saving tools to make your water use more efficient.
There are low-flow showerheads, toilets, and faucet aerators. You could also use automatic shut-off nozzles, shower timers, and grey water diverters. Any of these water saving devices can easily cut your water usage in half.
Research Laws and Ordinances for Your City
Dry states like California, Arizona, New Mexico, and Nevada must create certain laws to keep the water from running out. These laws are put into practice for the benefit of everyone, but they only work if you abide by the laws.
If you live in a state where drought is common, research your state and city’s laws. They might designate one day per week that you’re allowed to water your lawn or how full you can fill a pool. Many people are not well versed in the laws set by their states, and it would mean a lot to your community if you did your part.
Cyprus is the Forerunner for Ecotourism
When I was looking for a second citizenship, I happened to see One Visa’s offer on Cyprus Citizenship by investment program. I had heard about Cyprus being a beautiful country, but I did not know much else, so I decided to start my own research about this gem of a place.
After I did some research, I discovered that Cyprus is a popular destination for tourists. Unfortunately, heavy tourism and the associated development affected villages here and there, with some communities being slowly abandoned. To avoid this from happening any further, Cyprus went into ecotourism, and today, it is the forerunner in this arena. Let’s look in further detail at ecotourism in Cyprus here.
How was it started?
It all started in 2006 with the launch of the “Cyprus Sustainable Tourism Initiative.” This program has the sole scope of promoting ecotourism developments in the tourism industry. It concentrates on those areas which require conservation and environmental safety. At the same time, it helps develop social, as well as economic statuses in the rural parts of Cyprus. Through this program, the government was able to acknowledge that ecotourism will play an essential role in the future of Cyprus, with the concept gaining momentum among tourists from all over the globe.
How to go about it?
So, now you are interested in going for an ecotourism vacation in Cyprus. How will you go about it? I would immediately say that everyone should visit the quaint Cypriot villages spread throughout the island. These communities have a smaller population, and not many tourists visit. They make for a great relaxing spot. Enjoy seeing the bustle of village life go by where simple pleasures abound. Most hamlets are linked by specific minibus tours which ferry tourists to these havens. These trips will have a regular schedule, aimed at promoting ecotourism further. Such tours will be regulated to ensure that while the villages can benefit and develop, they do not get overpopulated or overcrowded with tourists. Therefore, you can be sure to enjoy the beautiful sceneries that nature has to offer here.
If you are wondering if there are any activities to do here, my answer would be: “Yes, plenty.” You can go for some guided walks across various regions here. Here you will be able to explore the diversified natural beauty and wildlife of the area. Several agritourism activities and services are planned to open shortly. Once launched, you will be able to engage in picking olives, milking goats, and several other such events here.
What can be learned?
Although we are aware that natural resources need to be preserved, we do not always remember it in real life. When we go on tours such as these, we can realize the significance of protecting nature. Also, when more and more people visit these places, the concept of ecotourism will become popular among more people. Awareness about ecotourism is set to grow and spread throughout the world. Subsequently, sustainable tourism will gain popularity around the globe with Cyprus being the forerunner for ecotourism .