The UK’s largest tracker funds have invested £1.7 billion into tobacco and fossil fuel companies
Tracker funds are financing activities that are damaging people and the planet and pumping hundreds of millions of pounds into tobacco and fossil fuel companies, responsible investment experts Castlefield Advisory Partners warn in a report launched today.
The rise of the tracker investor and consequences for society and the environment, released ahead of Good Money Week (30th October – 4th November 2016), reveals that six of the UK’s biggest tracker funds have £504 million invested in the tobacco industry, or 4.4% of their combined value, and eight of the biggest funds have £1.2 billion invested in fossil fuels, or 9% of their combined value.
Since 2007 “tracker” or “passive” funds have grown four times faster than actively managed funds, investing $6 trillion worldwide. They are particularly popular with younger investors, making up over 90% of the equity portfolio of those aged 18-35. Trackers offer low-cost investment without any active decision making or fund management and are the default investment option for many pension schemes. In most cases they simply invest in all companies in an index such as the FTSE All Share, using automated trading.
John Ditchfield, Partner at Castlefield, said: “Trackers might appear to be a cheap investment solution, but we are concerned that people may not be fully aware that they are financing damaging social and environmental activities and putting investors’ money at risk.”
“Automated robo-investors are pumping hundreds of millions in pension savings and other investments into businesses which individuals would not choose to support and may actively want to avoid, for example tobacco and heavily polluting fossil fuel companies.”
“More than 70 countries have ratified the Paris Climate Agreement and it is about to come into force, but a large chunk of tracker capital is invested in coal, oil and gas, exposing investors to serious risk.”
Investors have strong views about how their money should be used, reveals a new survey for Triodos Bank, released alongside the Castlefield report:
– 60% believe people should avoid investments that negatively affect people, society and the environment
– 47% would move their money if they found their investments conflicted with their values
– Nearly half (48%) think that it should be standard for banks and other financial advisors to make customers fully aware where their money is invested – but 47% have no idea which companies and industries their money is supporting.
Responsible investment is prudent financial planning
Avoiding investment in activities that harm society and the environment is not just a moral issue but also prudent financial planning. The Paris Climate Agreement becomes law in November and countries around the world are taking action to keep global warming below two degrees.
Mark Carney, Governor of the Bank of England, has warned that action to limit climate change could turn huge reserves of oil, coal and gas into un-burnable “stranded assets” leaving investors with huge losses.
Flaws in the tracker approach were exposed in the dot.com boom and subsequent crash when funds automatically bought company shares at the point where they entered an index irrespective of the company’s business model or level of profitability.
A research report from Alliance Bernstein, The Silent Road to Serfdom, argues that passive investing is worse for society than Marxism. It notes that both active investment management in capitalist economies and centrally planned Marxist economies seek to allocate capital to productive purposes, but trackers abdicate that responsibility and simply invest in the largest businesses.
Castlefield’s report acknowledges that low costs and charges have helped to fuel the huge growth of investment trackers but it argues that the returns on managed socially responsible investment funds have outperformed some of the biggest UK tracker funds over the last five years.
Alliance Trust (Sustainable Future UK) and WHEB Sustainability funds have both beaten the multibillion Vanguard FTSE UK All Share, L&G European Trust and HSBC FTSE All Share tracker funds over the last three and five years.
John Ditchfield said: “When making investments it is more important to look to the future than the past. These socially responsible funds have long-term sustainable investment strategies, and are well placed to spot opportunities in the emerging green economy. As the world’s population grows beyond seven billion, market innovation in areas such as clean energy, water infrastructure and energy efficiency will become more and more important.”
“Responsible investment funds are delivering very positive returns, and we want to encourage investors to move away from potentially harmful tracker funds and choose to be ‘active’ and smart investors, investing in a more sustainable world.”
Simon Holman, Partner at Castlefield Investment Partners, said:
“This is a key issue to put under the spotlight. We know that Millennials are the group most keen on investing in companies with positive environmental and social outcomes, but are also one of the groups with the fewest available assets to invest for their future. Investing in such damaging industries isn’t what many of the younger generation want to do with their precious funds and the finance industries need to offer better solutions. These funds might be ‘low cost’ to buy but they are already high cost in terms of their environmental and social impacts, let alone the possible future financial costs from being invested in the areas highlighted here.”
Consumer Survey Results – from Good Money Week Survey from Triodos Bank
Opinium Research interviewed 4228 people about responsible investing for Triodos Bank:
Nearly half of investors don’t know where their money is invested but want to be told
• 48% think that it should be standard that banks and other financial providers should make customers clearly and fully aware where their money is being invested.
• 47% of people do not know about which companies or industries are supported in their investments; 11% have no idea how to find out.
Three in five say people should avoid damaging investments; nearly half would move their money
• 60% think people should avoid investments that negatively impact people, society and the environment.
• 47% said that they would move their money if they discovered their money was being invested in companies that conflicted with their personal values and ethics.
• The areas investors most want to avoid are: 1. Human trafficking, 67%; 2. Forced/child labour, 65%; 3. Animal testing and factory farming, 47%; 4. Arms/munitions, 46%; 5. Companies involved in tax avoidance, 45%; 6. Tobacco, 38%; 7. Companies with accounting or remuneration controversies, 37%; 8. Fracking, 26%; 9. GM foods, 20%; 10. Nuclear power, 17%; 11. Coal, oil and gas, 13%.
Three in five people would like to invest in companies which make money and a positive impact
• 58% think people should invest their money where it can support companies that make a positive contribution to society, to people and the environment.
• Nearly half – 47% believe that companies trying to make a positive contribution to society and the environment are more likely to succeed in the long term.
• 62% would like their money to support companies which are profitable and make a positive contribution to society and the environment.
• The areas investors would most like to invest in for positive impact are: 1. Healthcare, 49%; 2. Energy efficiency, 49%; 3. Renewable energy, 38%; 4. Urban regeneration and social housing, 31%; 5. Sustainable business, 31%; 6. Organic farming, 26%.
Build, Buy, Or Retrofit? 3 Green Housing Considerations
Green housing is in high demand, but it’s not yet widely available, posing a serious problem: if you want to live an eco-friendly lifestyle, do you invest in building something new and optimize it for sustainability, or do you retrofit a preexisting building?
The big problem when it comes to choosing between these two options is that building a new home creates more waste than retrofitting specific features of an existing home, but it may be more efficient in the long-run. For those concerned with waste and their environmental footprint, the short term and long term impacts of housing are in close competition with each other.
New Construction Options
One reason that new construction is so desired among green living enthusiasts is that it can be built to reflect our highest priorities. Worried about the environmental costs of heating your home? New construction can be built using passive solar design, a strategy that uses natural light and shade to heat or cool the home. Builders can add optimal insulation, build with all sustainable materials, and build exactly to the scale you need.
In fact, scale is a serious concern for new home buyers and builders alike. Individuals interested in green housing will actively avoid building more home than they need – scaling to the square foot matter because that’s more space you need to heat or cool – and this is harder to do when buying. You’re stuck with someone else’s design. In this vein, Missouri S&T’s Nest Home design, which uses recycled shipping containers, combines the tiny home trend with reuse and sustainability.
The Simple Retrofit
From an environmental perspective, there’s an obvious problem with building a new home: it’s an activity of mass consumption. There are already 120 million single-family homes and duplexes in the United States; do we really need more?
Extensive development alone is a good enough reason to intelligently retrofit an existing home rather than building new green structures, but the key is to do so with as little waste as possible. One option for retrofitting older homes is to install new smart home technology that can automate home regulation to reduce energy use.
Real estate agent Roxanne DeBerry sees clients struggle with issues of efficiency on a regular basis. That’s why she recommends tools like the Nest Thermostat, which develops a responsive heating and cooling schedule for the home and can be remotely adjusted via smartphone. Other smart tools for home efficiency include choosing Energy Star appliances and installing water-saving faucets and low-pressure toilets. These small changes add up.
Ultimately, the most effective approach to green housing is likely to be aggressive retrofitting of everything from period homes to more recent construction. This will reduce material use where possible and prevent further aggressive land use. And finally, designers, activists, and engineers are coming together to develop such structures.
In the UK, for example, designers are interested in finding ways to adapt period houses for greater sustainability without compromising their aesthetics. Many have added solar panels, increased their insulation levels, and recently they even developed imitation sash triple glazed windows. As some have pointed out, the high cost of heating these homes without such changes will push these homes out of relevance without these changes. This is a way of saving existing structures.
Harvard is also working on retrofitting homes for sustainability. Their HouseZero project is designed for near-zero energy use and zero carbon emissions using geothermal heating and temperature radiant surfaces. The buildings bridge the gap between starting over and putting up with unmanageable heating and cooling bills.
It will take a long time to transition the majority of individuals to energy efficient, green housing but we’re headed in the right direction. What will your next home be like? As long as the answer is sustainable, you’re part of the solution to our chronic overuse – of land, energy, water, and more.
How the Auto Industry is Lowering Emissions
Currently, the automotive industry is undergoing an enormous change in a bid to lower carbon emissions. This has been pushed by the Government and their clean air plans, where they have outlined a plan to ban the sale of petrol and diesel cars by 2040.
Public Health Crisis
It is said that the levels of air pollution lead to 40,000 early deaths in the UK, with London being somewhere that is particularly bad. This has led to the new T-Charge, where heavy polluting cars will pay a new charge on top of the existing congestion charge. Other cities have taken action too, with Oxford recently announcing that they will be banning petrol and diesel cars from the city centre by 2020.
It is clear that the Government is taking action, but what about the auto industry? With the sale of petrol and diesel plummeting and a sharp rise in alternatively fuelled vehicles, it is clear that the industry is taking note and switching focus to green cars. There are now all kinds of fantastic eco-friendly cars available and a type to suit every motorist whether it is a small city car or an SUV.
Of course, it is the cars that are currently on the road that are causing the problem. The used car market is enormous and filled with polluting automobiles, but there are steps that you can take to avoid dangerous automobiles. It is now more important than ever to get vehicle checks carried out through HPI, as these can reveal important information about the automobile’s past and they find that 1 in 3 cars has a hidden secret of some kind. Additionally, they can now perform recall checks to see if the manufacturer has recalled that particular automobile. This allows people to shop confidently and find vehicles that are not doing as much damage to the environment as others.
With the rise in sales of alternatively fuelled vehicles, it is now becoming increasingly more common to see them on UK roads. Public perception has changed drastically in the last few years and this is because of the air pollution crisis, as well as the fact that there are now so many different reasons to switch to electric cars, such as Government grants and no road tax. A similar change in public opinion has happened in the United States, with electric car sales up by 47% in 2017.
The US is leading the way for lowering emissions as they have declined by 758 million metric tons since 2005, which is the largest amount by far with the UK in second with a decline of 170 million metric tons. Whilst it is clear that these two nations are doing a good job, there is still a lot of work that needs to be done in order to improve the air quality and stop so many premature deaths as a result of pollution.
With the Government’s plans, incentives to make the change and a change in public perception, it seems that the electric car revolution is fully underway.