Ethical investment expert Lee Coates has done it all. As founder-director of Ethical Investors Group, a specialist ethical financial advice firm, he has over 25 years’ experience under his belt.
He set up a screening service for charities, faith groups and funds called Ethical Screening, serves as vice-chair of the Ecumenical Council for Corporate Responsibility (ECCR) and launched a charity – Ethical Giving – in 2009.
Not satisfied with his achievements in the UK, he also runs an Australian ethical investment business which continues to break ground.
To top it all off, he was awarded an OBE in 2011 for services to ethical business and finance.
Coates speaks with Alex Blackburne about his distinguished career and some of the challenges facing investors who want to align their money with their values.
How has the advice market changed for ethical investment in 25 years?
Ethical investment has come up the agenda for more IFAs; it’s still very much the old guard who still consider it to be a bit freaky and a bit weird. There are still too many salespeople, who call themselves advisers but actually sell. The one thing about selling is that you have to control the whole process, and with ethical investment you can’t. You have to hand over something you don’t understand or have no control over, which is ethical values, ask the client to come up with an answer to questions about their ethical values, and then go ahead match them. That takes it right out of the hands of the average seller of financial products, but is ideal for someone who advises.
Is there a stereotype for an ethical investor?
It really varies. Politically, I suppose you would say they lean to the left. We’ve got a lot of clients in education – teachers and university lecturers – but they’re still not the majority. Ethical investors are more likely to be your classic client for financial planning – so people with disposable income or with inherited, saved assets on which they require advice. They might be architects, doctors, solicitors, accountants – people who think about things beyond football and the pub.
Is the ‘sextet of sin’ – tobacco, alcohol, weapons, gambling, pornography and nuclear power – still relevant for ethical investors?
Yes, definitely – though alcohol perhaps a bit less. It’s not a non-issue, because it’s always going to be an issue, but it’s certainly relegated to somewhere near the bottom of a client’s priority. If a client expresses a view on alcohol, it’s more about alcopops and the proliferation of alcohol to young people.
Do you think issues like human rights and child labour could be added to that list?
I can remember when I first started out, human rights wasn’t even an ethical issue. It was stewardship – you used to avoid investments in South Africa and Chile. In South Africa, you obviously had apartheid and in Chile there was Pinochet. They were the big areas at that time, in terms of being investment areas that funds could avoid. Human rights is an interesting area that, a bit like the environment, has morphed into an issue of its own, rather than being a subset.
Twenty-five years ago, climate change was on some people’s agenda but there weren’t very many of them – you could get them all in a room together. People could talk about specific environmental issues they were concerned about, and now the environment and human rights are their own criteria – big issues with multiple subsets.
Are you noticing a shift away from negative screening?
It is interesting that 95% of all clients that complete an ethical questionnaire – and we don’t sit down with them to do it – do not choose the ‘light green’ or engagement basis because there’s always one thing where there’s a no-go area. There are dozens of ethical criteria if you want to break it down, but virtually every client has an area that is non-negotiable. It might be cigarettes, it might be armaments.
As soon as you put a no-go in, you’re in the dark green screens anyway. Then it’s just a question of degrees. Are you talking about someone who doesn’t want to be in any fund unless it has an absolute avoidance of tobacco? That’s only a subtle shading difference to the vegan who says not to destroy the environment and doesn’t want anything to do with human rights – plus they’re a vegan, so that’s no animal testing and no supermarkets.
Divestment from fossil fuels has gained major traction in the past two years, with universities, religious institutions and large institutional investors all taking their money away from oil, gas and coal. Is this reflected among ethical investors?
It’s not an issue that clients are driving. It’s an issue that the industry and some campaign groups are driving as a single issue. Clients are obviously concerned about the use of fossil fuels, but I think maybe they’re more pragmatic. How did they get to the meeting with us? They drove or came by train. Was it a solar-powered train? No, it was burning diesel actually. Are they going to walk next time? No, they’re going to take the train or drive the car.
It’s more a question of wanting to commit their money towards renewables and alternatives, and accepting that every day they’re going to use fossil fuels. It’s very much a utopian ideal from some of the campaign groups, more than actually being driven by clients. I just can’t remember the last time a client told me they wanted to avoid all associations with fossil fuels.
And many ethical funds invest in fossil fuel companies anyway...
Yes, but they’re buying them on the basis that this is the least worst option, given we’re all using fossil fuels. What’s interesting is you can speak to a fund manager, and they’ll say they buy natural gas because it’s the more efficient way of producing energy in our current society; yes, it’s contributing to climate change but it’s the least worst option. But you don’t have a discussion about the least worst weapon, they put their hands up and say – quite rightly – they don’t invest in arms or tobacco.
Fund managers aren’t looking for these sub-divisions in those areas, but when it comes to fossil fuels they’re very much more pragmatic. You can say the same about human rights. We’ve had more clients over the years who have said they don’t want their money going towards any oppressive country. It’s probably doable, but they’d also be avoiding any company trading in an oppressive regime providing clean drinking water or medical services. We have more of those discussions about human rights than we do on fossil fuels. Perhaps it’s taken for granted that the worst types of fossil fuels are not going to end up in an ethical fund.
Do you think that is the case?
I don’t know because clients don’t talk about it! I just wonder if it’s an assumption. The issues are the size of the company and the nature of where they’re extracting. Alongside the fossil fuel issue is a human rights issue. Even if a large oil company were to get through into an ethical fund because it was doing some stunningly wonderful things, if it’s operating anywhere where there are land rights issues, it should be kicked out of a fund anyway.
What do you see of the future of ethical investment?
I think more people would invest ethically if they were given the opportunity, and so therefore what we need are two things: we need better financial education, so people actually understand what investment is and take responsibility for what they do; and we need a massive cull within the financial services industry of people who don’t have ethical questions as part of their fact finding process. That needs regulatory pressure.
Do you think the regulator understands ethical investment?
I, along with many others, have spent years pushing different regulators to get them to see ethical investment decisions as an equal priority as attitude to risk. Although there are definitely more positive noises being made by the Financial Conduct Authority (FCA), we have still not reached the position where a client’s personal beliefs are deemed to be something that advisers should be required to record alongside core personal information.
Until advisers are required to see ethical or religious values as an integral part of the fact finding process, far too many advisers are going to ignore it. If, for example, I decided that I don’t think asking anything about a client’s risk profile is important, the FCA would quite rightly have a problem with this. I firmly believe that a client’s ethical values absolutely influence whether or not a particular investment is suitable, just like their attitude to risk.
What will it take for the mainstream to accept ethical or sustainable investment?
Some fund managers will say they are committed to a company, they are long-term investors, but their definition of long-term is about eight months. Therefore logically, climate change issues are completely irrelevant from an investment perspective. If your average holding lasts eight months, climate change is not going to make a jot of difference in that time. The issue is how many eight months are you going to keep repeating it until it does become an issue? It’s a fingers-crossed-and-I-hope-we’re-not-in-those-stocks-when-it-gets-really-bad job.
If you take it down to a client level and say fund managers are paid vast sums to manage your money but don’t really take much notice of longer term issues, because they may not know about them or don’t understand them, clients are quite rightly bemused. If we then ask, “Are you happy paying them?”, the answer is a resounding no.
2017 Was the Most Expensive Year Ever for U.S. Natural Disaster Damage
Devastating natural disasters dominated last year’s headlines and made many wonder how the affected areas could ever recover. According to data from the U.S. National Oceanic and Atmospheric Administration (NOAA), the storms and other weather events that caused the destruction were extremely costly.
Specifically, the natural disasters recorded last year caused so much damage that the associated losses made 2017 the most expensive year on record in the 38-year history of keeping such data. The following are several reasons that 2017 made headlines for this notorious distinction.
Over a Dozen Events With Losses Totalling More Than $1 Billion Each
The NOAA reports that in total, the recorded losses equaled $306 billion, which is $90 billion more than the amount associated with 2005, the previous record holder. One of the primary reasons the dollar amount climbed so high last year is that 16 individual events cost more than $1 billion each.
Global Warming Contributed to Hurricane Harvey
Hurricane Harvey, one of two Category-4 hurricanes that made landfall in 2017, was a particularly expensive natural disaster. Nearly 800,000 people needed assistance after the storm. Hurricane Harvey alone cost $125 billion, with some estimates even higher than that. So far, the only hurricane more expensive than Harvey was Katrina.
Before Hurricane Harvey hit, scientists speculated climate change could make it worse. They discussed how rising ocean temperatures make hurricanes more intense, and warmer atmospheres have higher amounts of water vapor, causing larger rainfall totals.
Since then, a new study published in “Environmental Research Letters” confirmed climate change was indeed a factor that gave Hurricane Harvey more power. It found environmental conditions associated with global warming made the storm more severe and increase the likelihood of similar events.
That same study also compared today’s storms with ones from 1900. It found that compared to those earlier weather phenomena, Hurricane Harvey’s rainfall was 15 percent more intense and three times as likely to happen now versus in 1900.
Warming oceans are one of the contributing factors. Specifically, the ocean’s surface temperature associated with the region where Hurricane Harvey quickly transformed from a tropical storm into a Category 4 hurricane has become about 1 degree Fahrenheit warmer over the past few decades.
Michael Mann, a climatologist from Penn State University, believes that due to a relationship known as the Clausius-Clapeyron equation, there was about 3-5 percent more moisture in the air, which caused more rain. To complicate matters even more, global warming made sea levels rise by more than 6 inches in the Houston area over the past few decades. Mann also believes global warming caused the stationery summer weather patterns that made Hurricane Harvey stop moving and saturate the area with rain. Mann clarifies although global warming didn’t cause Hurricane Harvey as a whole, it exacerbated several factors of the storm.
Also, statistics collected by the Environmental Protection Agency (EPA) from 1901-2015 found the precipitation levels in the contiguous 48 states had gone up by 0.17 inches per decade. The EPA notes the increase is expected because rainfall totals tend to go up as the Earth’s surface temperatures rise and additional evaporation occurs.
The EPA’s measurements about surface temperature indicate for the same timespan mentioned above for precipitation, the temperatures have gotten 0.14 Fahrenheit hotter per decade. Also, although the global surface temperature went up by 0.15 Fahrenheit during the same period, the temperature rise has been faster in the United States compared to the rest of the world since the 1970s.
Severe Storms Cause a Loss of Productivity
Many people don’t immediately think of one important factor when discussing the aftermath of natural disasters: the adverse impact on productivity. Businesses and members of the workforce in Houston, Miami and other cities hit by Hurricanes Harvey and Irma suffered losses that may total between $150-200 billion when both damage and sacrificed productivity are accounted for, according to estimates from Moody’s Analytics.
Some workers who decide to leave their homes before storms arrive delay returning after the immediate danger has passed. As a result of their absences, a labor-force shortage may occur. News sources posted stories highlighting that the Houston area might not have enough construction workers to handle necessary rebuilding efforts after Hurricane Harvey.
It’s not hard to imagine the impact heavy storms could have on business operations. However, companies that offer goods to help people prepare for hurricanes and similar disasters often find the market wants what they provide. While watching the paths of current storms, people tend to recall storms that took place years ago and see them as reminders to get prepared for what could happen.
Longer and More Disastrous Wildfires Require More Resources to Fight
The wildfires that ripped through millions of acres in the western region of the United States this year also made substantial contributions to the 2017 disaster-related expenses. The U.S. Forest Service, which is within the U.S. Department of Agriculture, reported 2017 as its costliest year ever and saw total expenditures exceeding $2 billion.
The agency anticipates the costs will grow, especially when they take past data into account. In 1995, the U.S. Forest Service spent 16 percent of its annual budget for wildfire-fighting costs, but in 2015, the amount ballooned to 52 percent. The sheer number of wildfires last year didn’t help matters either. Between January 1 and November 24 last year, 54,858 fires broke out.
2017: Among the Three Hottest Years Recorded
People cause the majority of wildfires, but climate change acts as another notable contributor. In addition to affecting hurricane intensity, rising temperatures help fires spread and make them harder to extinguish.
Data collected by the National Interagency Fire Center and published by the EPA highlighted a correlation between the largest wildfires and the warmest years on record. The extent of damage caused by wildfires has gotten worse since the 1980s, but became particularly severe starting in 2000 during a period characterized by some of the warmest years the U.S. ever recorded.
Things haven’t changed for the better, either. In mid-December of 2017, the World Meteorological Organization released a statement announcing the year would likely end as one of the three warmest years ever recorded. A notable finding since the group looks at global land and ocean temperature, not just statistics associated with the United States.
Not all the most financially impactful weather events in 2017 were hurricanes and wildfires. Some of the other issues that cost over $1 billion included a hailstorm in Colorado, tornados in several regions of the U.S. and substantial flooding throughout Missouri and Arkansas.
Although numerous factors gave these natural disasters momentum, scientists know climate change was a defining force — a reality that should worry just about everyone.
How to be More eco-Responsible in 2018
Nowadays, more and more people are talking about being more eco-responsible. There is a constant growth of information regarding the importance of being aware of ecological issues and the methods of using eco-friendly necessities on daily basis.
Have you been considering becoming more eco-responsible after the New Year? If so, here are some useful tips that could help you make the difference in the following year:
1. Energy – produce it, save it
If you’re building a house or planning to expand your living space, think before deciding on the final square footage. Maybe you don’t really need that much space. Unnecessary square footage will force you to spend more building materials, but it will also result in having to use extra heating, air-conditioning, and electricity in it.
It’s even better if you seek professional help to reduce energy consumption. An energy audit can provide you some great piece of advice on how to save on your energy bills.
While buying appliances such as a refrigerator or a dishwasher, make sure they have “Energy Star” label on, as it means they are energy-efficient.
Regarding the production of energy, you can power your home with renewable energy. The most common way is to install rooftop solar panels. They can be used for producing electricity, as well as heat for the house. If powering the whole home is a big step for you, try with solar oven then – they trap the sunlight in order to heat food! Solar air conditioning is another interesting thing to try out – instead of providing you with heat, it cools your house!
2. Don’t be just another tourist
Think about the environment, as well your own enjoyment – try not to travel too far, as most forms of transport contribute to the climate change. Choose the most environmentally friendly means of transport that you can, as well as environmentally friendly accommodation. If you can go to a destination that is being recommended as an eco-travel destination – even better! Interesting countries such as Zambia, Vietnam or Nicaragua are among these destinations that are famous for its sustainability efforts.
3. Let your beauty be also eco-friendly
We all want to look beautiful. Unfortunately, sometimes (or very often) it comes with a price. Cruelty-free cosmetics are making its way on the world market but be careful with the labels – just because it says a product hasn’t been tested on animals, it doesn’t mean that some of the product’s ingredients haven’t been tested on some poor animal.
To be sure which companies definitely stay away from the cruel testing on animals, check PETA Bunny list of cosmetic companies just to make sure which ones are truly and completely cruelty-free.
It’s also important if a brand uses toxic ingredients. Brands such as Tata Harper Skincare or Dr Bronner’s use only organic ingredients and biodegradable packaging, as well as being cruelty-free. Of course, this list is longer, so you’ll have to do some online research.
4. Know thy recycling
People often make mistakes while wanting to do something good for the environment. For example, plastic grocery bags, take-out containers, paper coffee cups and shredded paper cannot be recycled in your curb for many reasons, so don’t throw them into recycling bins. The same applies to pizza boxes, household glass, ceramics, and pottery – whether they are contaminated by grease or difficult to recycle, they just can’t go through the usual recycling process.
People usually forget to do is to rinse plastic and metal containers – they always have some residue, so be thorough. Also, bottle caps are allowed, too, so don’t separate them from the bottles. However, yard waste isn’t recyclable, so any yard waste or junk you are unsure of – just contact rubbish removal services instead of piling it up in public containers or in your own yard.
5. Fashion can be both eco-friendly and cool
Believe it or not, there are actually places where you can buy clothes that are eco-friendly, sustainable, as well as ethical. And they look cool, too! Companies like Everlane are very transparent about where their clothes are manufactured and how the price is set. PACT is another great company that uses non-GMO, organic cotton and non-toxic dyes for their clothing, while simultaneously using renewable energy factories. Soko is a company that uses natural and recycled materials in making their clothes and jewelry.
All in all
The truth is – being eco-responsible can be done in many ways. There are tons of small things we could change when it comes to our habits that would make a positive influence on the environment. The point is to start doing research on things that can be done by every person and it can start with the only thing that person has the control of – their own household.
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