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A more reasonable face of ethical investment reporting

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Judging by our traffic on the day, lots of people were interested in a spat between Blue & Green Tomorrow and the Investors Chronicle during National Ethical Investment Week. In an informed and balanced contribution to the debate, IC has put forward the thoughts of its resident economist, Chris Dillow.

In a piece entitled Headwinds and tailwinds for ethical investors, Chris Dillow uses an aeronautical analogy to set out the challenges for ethical investors. Taking a more balanced approach than the article that got us hot under the collar, Dillow paints a picture of headwinds that hold the ethical sector back and tailwinds that speed it on its way.

The headwinds, those holding the sector back, he describes are the ‘good’ performance of tobacco (5m deaths per year, growing to 8m by 2030) and alcohol (2.5m deaths per year, plus millions of lives blighted). Citing our mutual friend, Adam Smith, he explores the compensating advantages of different stocks. ‘Doing good’, as patronising as that sounds, may reduce your yield but it also reduces the number of deaths you’re investing in too.

The final headwind is the positive screening in of higher risk, ‘fashionable’ green technology stocks. These aren’t necessarily going to be the go-to choice of a cautious investor due to failure rate of innovative ventures.

One of the tailwinds is what economist John Kay calls obliquity: “the fact that we can often achieve one objective by focusing upon something else”. By focusing on making great products, businesses do well. By focusing on something other than profit, such as reducing the pollution and waste endemic in manufacturing and distribution, costs fall and profits can rise, or a business can become more competitive. Dillow perfectly illustrates the opposite perspective with the short-termism of profit-maximising banks and the harm that has done to the sector, economy and society.

Another tailwind is the fact that talking the sector down has probably suppressed prices meaning the canny investor can acquire stocks cheap.

The three headwinds outnumber the two tailwinds but miss the critical one that ethical investors are not screwing over the planet and its people for a percentage.

Dillow goes on to say, “During the past 10 years the FTSE4Good UK index has underperformed the All-Share index over the last 10 years, rising by 36.8% compared with 56.7%. And in the past five years, many UK ethical funds have under-performed the average all companies fund.”

Whether the FTSE4Good UK Index is the best comparator here is questionable but at least we’re comparing Granny Smiths with Golden Delicious. Investing ethically (responsibly, sustainably, thematically or impact-first) is certainly a more complicated and involved style of investment that requires research or expert advice on specific fund make-up and performance over aggregate indices.

Mark Hoskin, over at the rather excellent Worldwise Investor, points out that UK Ethical Funds [have] outperform[ed] since Lehman’s collapse.

The final part of Dillow’s tailwind analogy is that investment strategies wax and wane in a phenomenon called evolutionary finance, just as in evolutionary biology.

“Imagine a new source of profits is spotted – say, that ethical stocks are cheap. The strategy ‘buy ethical companies’ then multiplies, as animals do if they find a new food source. This spread of the strategy bids up share prices, to levels from which subsequent profits are low or negative – just as the increase of a species depletes the food source. This causes some of the strategies – some members of the species – to die out. But as they shrink in number, so the food/profit source replenishes itself. And the cycle can then begin again.”

Despite all this fairness, Dillow has firm doubts that the tailwinds are with ethical investors, pointing out that many funds managers are similarly sceptical. As we know from the recent history of stock markets, fund managers as a group really know what they’re doing.

Nevertheless, it’s a more useful and superior contribution to the debate.

He ends his piece with a personal final thought: “I’m sympathetic to this rejection of conventional wisdom. But let’s be clear. To be an ethical investor requires you to hold some out-of-consensus attitudes.”

Out-of-consensus attitudes are what “push the human race forward”

After our “consternation” with Dillow’s colleague, we pointed out in the subsequent Twitter spat that unless investors held “out-of-consensus views”, we’d still have slavery. This was described as a “ridiculous” point, but in fact, many comparisons can be drawn up between the two.

Lest we forget, abolishing slavery was an out-of-consensus investment perspective at the time, simply because slavery was so hugely profitable. Returns on investment can be massive when your workforce is effectively free and has a tendency to reproduce itself. It’s also relatively low risk, because you can just kill them if they cause trouble. To prove that profitable point, the East India Company was actually exempted from the Slavery Abolition Act 1833.

In the 179 years since the Act, we have almost unanimously accepted that slavery is abhorrent. In another 179 years, promoting tobacco and alcohol in developing countries that have poor public health systems to cope with the outcomes and no public health education to discourage take up, will be seen as equally abhorrent. Especially when the death and misery that results is because we want to make an extra 1.5% a year on our investments (which is the annual difference between 36.8% and 56.7% over ten years) – and only then, if we invest in generic index-linked funds rather than pick funds carefully. Is a highly debatable extra 1.5% really worth 21,000 deaths a day and rising?

It’s very likely that in another 179 years, in 2191, future generations will look back at our consensus investment attitudes today (the cavalier use of fossil fuels, ruination of the environment and exploitation of developing countries, women and children) and conclude that we really were a morally bankrupt age. They’ll probably curse us for our complete stupidity, rather than conventional wisdom, and consensus short-sightedness.

Lest we also forget, it is only those who see the business or investment consensus as imperfect, who actually deliver the innovation and growth of the future.

As the great ‘out-of consensus’ thinker Steve Jobs said, and we can’t put  it better, “Here’s to the crazy ones, the misfits, the rebels, the troublemakers, the round pegs in the square holes… the ones who see things differently — they’re not fond of rules… You can quote them, disagree with them, glorify or vilify them, but the only thing you can’t do is ignore them because they change things… they push the human race forward, and while some may see them as the crazy ones, we see genius, because the ones who are crazy enough to think that they can change the world, are the ones who do.”

To put it bluntly, unreasonable, contrarian, out-of-consensus ethical investors are more enlightened, more engaged and more responsible global citizens. We prefer and applaud this out-of-consensus group over any other group of investors, advisers or funds.

The last word goes to George Bernard Shaw: “The reasonable man adapts himself to the world; the unreasonable one persists to adapt the world to himself. Therefore all progress depends on the unreasonable man.”

Further reading:

The Investors Chronicle’s masterclass in misleading ethical investment headlines

Ethical investors are not tree huggers, but air breathers (and responsible global citizens)

Witnessing financial capitalism’s failure

Simon Leadbetter is the founder and publisher of Blue & Green Tomorrow. He has held senior roles at Northcliffe, The Daily Telegraph, Santander, Barclaycard, AXA, Prudential and Fidelity. In 2004, he founded a marketing agency that worked amongst others with The Guardian, Vodafone, E.On and Liverpool Victoria. He sold this agency in 2006 and as Chief Marketing Officer for two VC-backed start-ups launched the online platform Cleantech Intelligence (which underpinned the The Guardian’s Cleantech 100) and StrategyEye Cleantech. Most recently, he was Marketing Director of Emap, the UK’s largest B2B publisher, and the founder of Blue & Green Communications Limited.

Economy

How Going Green Can Save A Company Money

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going green can save company money
Shutterstock Licensed Photot - By GOLFX

What is going green?

Going green means to live life in a way that is environmentally friendly for an entire population. It is the conservation of energy, water, and air. Going green means using products and resources that will not contaminate or pollute the air. It means being educated and well informed about the surroundings, and how to best protect them. It means recycling products that may not be biodegradable. Companies, as well as people, that adhere to going green can help to ensure a safer life for humanity.

The first step in going green

There are actually no step by step instructions for going green. The only requirement needed is making the decision to become environmentally conscious. It takes a caring attitude, and a willingness to make the change. It has been found that companies have improved their profit margins by going green. They have saved money on many of the frivolous things they they thought were a necessity. Besides saving money, companies are operating more efficiently than before going green. Companies have become aware of their ecological responsibility by pursuing the knowledge needed to make decisions that would change lifestyles and help sustain the earth’s natural resources for present and future generations.

Making needed changes within the company

After making the decision to go green, there are several things that can be changed in the workplace. A good place to start would be conserving energy used by electrical appliances. First, turning off the computer will save over the long run. Just letting it sleep still uses energy overnight. Turn off all other appliances like coffee maker, or anything that plugs in. Pull the socket from the outlet to stop unnecessary energy loss. Appliances continue to use electricity although they are switched off, and not unplugged. Get in the habit of turning off the lights whenever you leave a room. Change to fluorescent light bulbs, and lighting throughout the building. Have any leaks sealed on the premises to avoid the escape of heat or air.

Reducing the common paper waste

paper waste

Shutterstock Licensed Photo – By Yury Zap

Modern technologies and state of the art equipment, and tools have almost eliminated the use of paper in the office. Instead of sending out newsletters, brochures, written memos and reminders, you can now do all of these and more by technology while saving on the use of paper. Send out digital documents and emails to communicate with staff and other employees. By using this virtual bookkeeping technique, you will save a bundle on paper. When it is necessary to use paper for printing purposes or other services, choose the already recycled paper. It is smartly labeled and easy to find in any office supply store. It is called the Post Consumer Waste paper, or PCW paper. This will show that your company is dedicated to the preservation of natural resources. By using PCW paper, everyone helps to save the trees which provides and emits many important nutrients into the atmosphere.

Make money by spreading the word

Companies realize that consumers like to buy, or invest in whatever the latest trend may be. They also cater to companies that are doing great things for the quality of life of all people. People want to know that the companies that they cater to are doing their part for the environment and ecology. By going green, you can tell consumers of your experiences with helping them and communities be eco-friendly. This is a sound public relations technique to bring revenue to your brand. Boost the impact that your company makes on the environment. Go green, save and make money while essentially preserving what is normally taken for granted. The benefits of having a green company are enormous for consumers as well as the companies that engage in the process.

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Energy

5 Easy Things You Can Do to Make Your Home More Sustainable

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sustainable homes
Shutterstock Licensed Photot - By Diyana Dimitrova

Increasing your home’s energy efficiency is one of the smartest moves you can make as a homeowner. It will lower your bills, increase the resale value of your property, and help minimize our planet’s fast-approaching climate crisis. While major home retrofits can seem daunting, there are plenty of quick and cost-effective ways to start reducing your carbon footprint today. Here are five easy projects to make your home more sustainable.

1. Weather stripping

If you’re looking to make your home more energy efficient, an energy audit is a highly recommended first step. This will reveal where your home is lacking in regards to sustainability suggests the best plan of attack.

Some form of weather stripping is nearly always advised because it is so easy and inexpensive yet can yield such transformative results. The audit will provide information about air leaks which you can couple with your own knowledge of your home’s ventilation needs to develop a strategic plan.

Make sure you choose the appropriate type of weather stripping for each location in your home. Areas that receive a lot of wear and tear, like popular doorways, are best served by slightly more expensive vinyl or metal options. Immobile cracks or infrequently opened windows can be treated with inexpensive foams or caulking. Depending on the age and quality of your home, the resulting energy savings can be as much as 20 percent.

2. Programmable thermostats

Programmable thermostats

Shutterstock Licensed Photo – By Olivier Le Moal

Programmable thermostats have tremendous potential to save money and minimize unnecessary energy usage. About 45 percent of a home’s energy is earmarked for heating and cooling needs with a large fraction of that wasted on unoccupied spaces. Programmable thermostats can automatically lower the heat overnight or shut off the air conditioning when you go to work.

Every degree Fahrenheit you lower the thermostat equates to 1 percent less energy use, which amounts to considerable savings over the course of a year. When used correctly, programmable thermostats reduce heating and cooling bills by 10 to 30 percent. Of course, the same result can be achieved by manually adjusting your thermostats to coincide with your activities, just make sure you remember to do it!

3. Low-flow water hardware

With the current focus on carbon emissions and climate change, we typically equate environmental stability to lower energy use, but fresh water shortage is an equal threat. Installing low-flow hardware for toilets and showers, particularly in drought prone areas, is an inexpensive and easy way to cut water consumption by 50 percent and save as much as $145 per year.

Older toilets use up to 6 gallons of water per flush, the equivalent of an astounding 20.1 gallons per person each day. This makes them the biggest consumer of indoor water. New low-flow toilets are standardized at 1.6 gallons per flush and can save more than 20,000 gallons a year in a 4-member household.

Similarly, low-flow shower heads can decrease water consumption by 40 percent or more while also lowering water heating bills and reducing CO2 emissions. Unlike early versions, new low-flow models are equipped with excellent pressure technology so your shower will be no less satisfying.

4. Energy efficient light bulbs

An average household dedicates about 5 percent of its energy use to lighting, but this value is dropping thanks to new lighting technology. Incandescent bulbs are quickly becoming a thing of the past. These inefficient light sources give off 90 percent of their energy as heat which is not only impractical from a lighting standpoint, but also raises energy bills even further during hot weather.

New LED and compact fluorescent options are far more efficient and longer lasting. Though the upfront costs are higher, the long term environmental and financial benefits are well worth it. Energy efficient light bulbs use as much as 80 percent less energy than traditional incandescent and last 3 to 25 times longer producing savings of about $6 per year per bulb.

5. Installing solar panels

Adding solar panels may not be the easiest, or least expensive, sustainability upgrade for your home, but it will certainly have the greatest impact on both your energy bills and your environmental footprint. Installing solar panels can run about $15,000 – $20,000 upfront, though a number of government incentives are bringing these numbers down. Alternatively, panels can also be leased for a much lower initial investment.

Once operational, a solar system saves about $600 per year over the course of its 25 to 30-year lifespan, and this figure will grow as energy prices rise. Solar installations require little to no maintenance and increase the value of your home.

From an environmental standpoint, the average five-kilowatt residential system can reduce household CO2 emissions by 15,000 pounds every year. Using your solar system to power an electric vehicle is the ultimate sustainable solution serving to reduce total CO2 emissions by as much as 70%!

These days, being environmentally responsible is the hallmark of a good global citizen and it need not require major sacrifices in regards to your lifestyle or your wallet. In fact, increasing your home’s sustainability is apt to make your residence more livable and save you money in the long run. The five projects listed here are just a few of the easy ways to reduce both your environmental footprint and your energy bills. So, give one or more of them a try; with a small budget and a little know-how, there is no reason you can’t start today.

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