You don’t have to look 30 years and beyond to be rewarded for a responsible investment. There are some extremely powerful factors that suggest investing this way now makes financial sense.
This article is an extract from Richard Essex’s 2014 book, Invest, Feel Good and Make a Difference, which is available now on Amazon.
There is a mountain of challenges that face us environmentally: the need for alternative energy, the need to save energy, waste management and conserving our water supply more efficiently. And there are many more: retaining healthy sustainable agriculture and forests, improving the physical and social environment in our towns and cities. The list goes on.
Past evidence, however, has shown that we tend to find ways of developing technology to help overcome environmental challenges, and those companies at the forefront of this technology will prove to be successful.
And what happens when a technology solves a problem and becomes successful? In basic terms it means that companies in this area will start making profits, enhance their share value and further down the line start paying dividends to their shareholders. If the paying of dividends becomes a long-term trend, then the share will appreciate even further.
This might sound a little obvious but this is what sensible long-term investing in the market is all about. This is perhaps easy to forget after all the recent crises that have surrounded the markets. The end of 2008, for example, has left a nasty taste in the mouth for people where they simply have seen the market as a casino for gamblers.
So let’s break this down in a bit more detail and see how companies are benefitting from specific environmental challenges.
Successful companies will be those that benefit from the ecological constraints
The developed world is facing a number of targets. As a result, there is a very real desire to find solutions and make them commercially viable. This need couldn’t be more relevant than when applied to alternative energy.
However, good news is at hand. We are starting to see real indications that companies who are developing in this area are showing real signs of future sustainable returns.
An example would be SSE Group plc, previously Scottish & Southern. SSE is one of the UK’s largest power generation providers that has made significant inroads into the renewable energy sector. In fact, it has ownership interest in over 100 thermal and renewable power stations and is now Scotland’s leading renewable producer.
This has helped to reap positive rewards for investors. In particular, its dividend payments have shown sustainable growth over the last 10 years. In 2003, the dividend per share was 30.5p. This has risen consistently over the last 10 years, outstripping inflation, up to 2013 where the announced dividend is 84.2p per share. Based on its share price on January 1 2013, the dividend payment equates to just under 6% of share price value.
Equally, the share price has performed well over this period. Between January 2 2003 and January 2 2013, the share price increased by 115% when compared with a 50.39% increase in the FTSE 100 over the same period.
An overseas example would be the Elster Group based in Germany. It is benefitting from the constraints that face us with regards water and energy efficiency. It does this by providing advanced metering solutions and smart grid technology. It is now recognised as one of the major players in a high-growth industry with operations in over 100 countries.
This can be seen from the analysis carried out by the Nasdaq market, the second largest American stock market, which Elster joined at the back end of 2010. In its summary of January 30 2012, Nasdaq showed that Elster’s earnings growth for 2011 was 33.24% against an industry average of 18.10%.
It also shows that the share price reflects good value given this level of earnings. Not surprisingly, its analysts currently indicate the stock as a very good buy. Both these stocks have been invested in by certain sustainable and responsible investment (SRI) collective funds.
Emerging nations can see economic advantages
I have had many conversations in the past with people about investing for the environment. One common response is, “What’s the point us doing anything about it when the new emerging countries will simply ignore their responsibilities.”
But this is missing a significant point. Countries like India and China don’t have the same traditional infrastructure and industries that we have. They are starting from a newer base. Therefore in many ways they are far better equipped to take on new technologies, and new technologies that will have economic as well as environmental rewards.
A fine example of this would be the potential of the solar industry in China. With the help of clear government planning, subsidies, and a lower cost base, China has stolen a march on its western rivals and has now become the largest world exporter of solar equipment.
This has resulted in very sudden growth for the top companies in this area. JA Solar is one such company. It is now one of the world leaders in solar cell production. Its growth has been astounding. Between 2009 and 2010, total revenues increased from $3.8 billion (£2.23 billion) to $11.8 billion (£6.92 billion), a percentage increase of 211%.
It could be argued that these levels of growth cannot be sustained, particularly as margins have recently been squeezed due to price pressures. As a result, companies like JA Solar may have to diversify from being driven purely by exports. The signs for development however are encouraging.
China, for example, is planning to develop its domestic market. It has set itself a target that it will generate 15% of its energy from solar power by 2020. This would make it by far the biggest solar producer in the world. This then provides huge opportunities for companies like JA Solar to expand into areas like solar project development.
Tackling social challenges can also be financially successful
There are now plenty examples of companies making healthy profits by finding solutions to social challenges. One such challenge is that of health and wellbeing. With an ever ageing population, there is now a greater demand for innovative, quality, medical care.
One such company very much at the forefront of this is Smith & Nephew. Founded in the UK in the early part of the last century, it is a world leader in the provision of precision equipment for the medical industry, in particular orthopaedic treatment, wound management, and invasive surgery.
More importantly, its continued success seems to be very much related to the social impact of its business. Its vision refers to it “helping people regain lives by repairing and healing the human body“. It also goes on to stress the importance of the quality relationships it has with medical professionals and other stakeholders.
This socially responsible approach certainly seems to have helped Smith & Nephew achieve strong financial results. Firstly, since 1937 it has never failed to pay a dividend. This and other factors have resulted in real strength with regard to its share price.
For example between February 6 2002 and February 6 2012 the share price increased by 60%. This compared with a 16% rise by the FTSE 100 (of which it’s a constituent) over the same period. Again, interestingly, this is a stock you can invest in through SRI funds.
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: Luis Villa del Campo 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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