Transparency is king in the world of sustainable investment, writes financial adviser Richard Essex.
This article is an extract from Richard Essex’s 2014 book, Invest, Feel Good and Make a Difference, which is available now on Amazon.
Many years ago, I was attending a seminar hosted by a well-known fund manager. This was held shortly after the exposure of Enron and the resulting market collapse.
One particular manager was providing a summary of the economic situation and how it was going to affect markets and investments generally. We had had all the usual charts and predictions, and I think by that stage I was getting a little weary; bored probably.
To be frank, I was getting tired of hearing that negative message that there is nothing we can do about the markets. In other words, “We’ll just have to trust we make the right bets.”
Something then jolted me out of my slumber. I asked whether these sudden shocks to the markets could be avoided by investors having more information on where there funds are invested. I couldn’t believe the answer.
Basically the response was, “Our view is that people aren’t interested.” Well aren’t you?
And that was then. This is now. I wonder if that same manager would make that comment in the light of the financial meltdown of 2008 and its current repercussions.
The one overriding lesson for me about 2008 was the complete lack of transparency of where your and my money was.
OK, the house of cards may have been triggered by vulnerable US homeowners defaulting on mortgages, but the situation would not have escalated to where it was if dodgy loans were not wrapped up in bigger dodgy loans, and then passed on into even bigger, dodgier financial packages.
If people with authority and without a selfish interest had provided a culture of real transparency, we would not be in the mess we are in today.
A staggering fact that came out of this mess was the excessive growth of derivatives. For those of you who are not quite sure, a derivative is an investment derived from something else. Hence, you are not investing in a real asset, rather a bet that is derived from the change of value in a particular underlying asset.
Derivatives do have a part to play. Their origins come from the Chicago agricultural markets in the 1850s where they were a very effective insurance allowing farmers and traders to benefit from steady prices and not be subject to the perils of unpredictable harvests.
They still have a very important part to play in this regard. But derivatives have been abused. People saw these as a great opportunity to make money quickly; greed, in other words. They could wrap up often very vulnerable financial assets in a clever package and sell them on, making a quick buck in the process.
The whole point was to hide as much of this as you could. And this happened time and time again contributing to a mountain of toxic debt.
You have probably heard all this before but it’s worth quoting the numbers. Apparently the size of the derivative market in 2008 was greater than actual world GDP. That is greater than the value of everything the world produces in that year.
In fact, according to distinguished sources, including the Bank of International Settlements in Basel, it dwarfed GDP by a multiple of 22. So should you be interested in where your money’s being invested? Too right you should.
Many investment companies offering positive solutions in this area will want to be transparent with you. These companies often want to help solve fundamental problems with the environment, so it makes sense that they want to talk about it.
Their factsheets will often be considerably more comprehensive than their conventional counterparts. The conventional fund will typically offer a fact sheet with limited information on funds – a list of the top 10 holdings, for example.
Eco and ethical funds on the other hand tend to produce far more detailed fact sheets. They will often include short biographies on the companies they are investing in. And far more detailed information is available if requested.
Interestingly, the WHEB Sustainability fund is the first fund to actively promote the idea of revealing all its holdings at any time with a description of why it’s doing so.
Equally, I have found that fund managers in this sector respond quickly if you challenge something in their portfolio. This is a refreshing change from the typically more secretive world of the City.
I had first-hand experience of this when I recently wrote to a manager questioning its support of a well-known FTSE 100 stock.
Whilst the company had been involved in promoting projects in the eco and social sector, there had been a question mark over some involvement that it had in the pornography industry.
I didn’t just get a quick curt response. Instead I received a detailed reply on their current position with the company and what action they were currently taking with the company to see whether this involvement had any real substance in it and whether financial support could continue. This was refreshing and also gave me information from which to hold them to account in the future.
But rather than just receiving information with investments in this sector, you can benefit from seeing real tangible benefits leading from your investments, not just the financial return that would result.
Richard Essex is an independent financial adviser with Grayside Financial Services, where he is a specialist for green and SRI advice. He is also on the steering committee with the Ethical Investment Association, a member of the UK Sustainable Investment and Finance Association (UKSIF) and the author of the 2014 book, Invest, Feel Good and Make a Difference.
Photo: Kara Allyson via Flickr
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.
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