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Integrating water into our investment decisions

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Research analyst at Alliance Trust Investments, Emma Lupton explores how water can be valued and integrated into investment decisions.

This article originally appeared on Alliance Trust Investments’ Sustainable Future Hub.

Access to usable water is one of the most critical aspects of both personal and corporate survival. This most basic need for humanity and the environment has increasingly become a critical input for a range of industrial activities. Yet, for such an important issue it has remained stubbornly difficult to value.

The difficulty in valuing water lies in both its pervasiveness, it impacts the whole supply chain, and its critical importance to people and the environment – industry must drink last.

So while investors are beginning to measure and value factors like carbon emissions or employee injury rates, water is different.

We argue that data on the volume of water withdrawn, or even consumed by a company is of little use to an investor without context. The issues are local. We need to know the degree of water stress in that location, the condition of the water pre and of course post consumption. A litre of harvested rainwater returned unaltered to the natural environment simply cannot be valued in the same way as a litre drawn away from a desperate community and returned in a toxic state.

So, why are we assessing water?
It is becoming clear that this plentiful and infinitely reusable resource is becoming increasingly scarce and constrained. Part of this is natural; 97% of the water on earth is salt water. Of the remaining, 68% is frozen and 30% is locked away underground, leaving less than 1% of our global supply economically accessible with current technologies.

Part of this is demographic. Water use has been growing at more than twice the rate of the population in the last century and as the global average income increases, the demand for protein rich diets increases in turn. This adds to the pressure as protein requires far more water in the production process. And part of this is just poor management; our simple economic systems will not properly price long-term constraints on what is seen as plentiful resources. As a result, we take water for granted.

McKinsey and the Water Resources Group estimate that if this ‘business as usual’ attitude is not altered within the next twenty years, the demand for water resources will be 40% greater than the availability, the World Economic Forum list a water-supply crisis as one of their top global risks within the next ten years. The era of abundance is over and as sustainable investors we want to know who will profit from doing the right thing in our water-constrained future.

From risk…
We do see grounds for hope as companies across a broad range of sectors begin to respond to this critical issue. Significant numbers of companies are now analysing how they use water and are evaluating the risks they face. 68% of respondents to the 2014 CDP Water Program questionnaire reported that water poses a substantive risk to their business. 22% reported that water related issues could limit the growth of their business and, of these, one-third expected that constraint to be felt in the next 12 months.

…To opportunity
This is an important start but we want to identify those companies that are seeing the opportunities in transitioning from being simply better takers of water to water managers. We are particularly interested in those looking to their suppliers or counterparts to exploit the opportunities in becoming water-stewards by working throughout their supply chains and at the basin level.

Being a clean fish in a dirty pond may look good on the company website, but it does little for people, planet or profit.

Identifying the winners
We want to analyse how companies are managing water and integrate this into our understanding of their financial growth prospects. To enable this, water management needs to be integrated into forecast cash flows and valued.

Our report used the apparel sector as a case study. Water use may be more straightforward in the food and beverage sector for example, but this would limit the applicability of conclusions drawn to wider sectors. The apparel supply chain is widely impacted by, and vulnerable to, water related issues at the manufacturing and agricultural levels. Pressure at any of these points can negatively impact upon retailers’ financial returns and conversely, there are financial opportunities for those who manage water issues throughout their supply chains.

Material impacts on financial performance
One of the key factors for the apparel sector is the Cost of Goods Sold (COGS) as a driver of gross margin. Raw material pricing and manufacturing production costs in the supply chain can both be impacted by water, which can therefore have a material impact on the financials of a company.

We assessed the falls in retailer profits and share prices as the drought influenced short-ness of supply and raised cotton prices in 2011. We believe extreme drought was one factor in that cotton price rise and in such a fiercely competitive industry that cost inflation could not be passed on. Share prices fell as the cotton price rose.

Today, with cotton prices relatively low and evidence that water could impact the supply of cotton and the cost of processing it, we assessed the potential impact on retailer profits. We want to avoid complacent companies in this environment and invest in those preparing for water constraints.

Our report assessed the retailers’ ability to diversify their supply chains away from water-constrained basins and select suppliers using water management processes such as new ‘dry’ technologies in production and dying. We have more confidence in the forecast revenues and margins of companies who have strong water management policies extending all the way through their supply chains.

Alliance Trust Investments strategy
At Alliance Trust Investments, we will be furthering our engagement with companies over financially material water issues. We will be demanding a higher level of data disclosure throughout supply chains and are working to incorporate this into our investment process.

We recognise that water is an extremely complex and localised issue but we do believe that companies can deliver solutions to the benefit of all of their stakeholders, not least our clients.
Companies that can manage a resource that is so vital to local communities, the natural environment and gross margins are quite simply better investments.

Emma Lupton worked with the Sustainable Future team for three months highlighting the importance of integrating water further into the investment decision process. She holds an MSc in Environmental Technology, specialising in Water Management, from Imperial College London and has worked for industry experts Global Water Intelligence, managing their Corporate Water Stewardship programmes. Prior to her Masters, Emma worked in the investment management industry and holds the Investment Management Certificate.

Further reading:

Half of world could face extreme water scarcity by 2095

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Environment

How to be More eco-Responsible in 2018

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Shutterstock / By KENG MERRY Paper Art | https://www.shutterstock.com/g/kengmerrymikeymelody

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.

energy efficient

Shutterstock Licensed Photo – By My Life Graphic

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

eco-friendly

Shutterstock / By Khakimullin Aleksandr

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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Energy

Top 5 Changes You can Make in Your Life to Reduce Your Carbon Footprint

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Saving money and reducing your carbon footprint? What isn’t to love? - Image from Shutterstock - https://www.shutterstock.com/g/thodonal88

In a world, where war rages and global warming threatens our very existence, the inhabitants of earth need to be extra vigilant in their efforts to go green. This includes reducing your carbon footprint on the earth and leading a more sustainable life.

Many homeowners feel perplexed by all of the options available to reduce their carbon footprint. They may even feel (falsely) that making their household more green will fail to make that much of a difference in the fight to save our planet.

Even a single home going green has a massive impact on the environment. We can win this battle on home at a time. If you’re interested in accepting the challenge of making your household a green home, read on below for a few of the top changes you can make in your life to reduce your carbon footprint. We all stand to benefit from making the earth safer for future generations – and your wallet won’t complain when you start to see the savings in annual energy costs.

Switch From Dirty Energy to Clean Solar

The ION Solar reviews tell it all–solar is the best way to go. Whether your goal is to slash your energy bills, or to reduce your carbon footprint, the sun is a fantastic source of renewable energy.

It’s important to get past the hype from solar installers. Instead, listen to the plethora of impartial customer reviews that mention everything from a $20 energy bill, to the incredible feeling of knowing that you are doing your part by going green and minimizing harmful emissions in to our atmosphere.

The average investment is $15,000 to $30,000 for installation and purchase of solar panels. Optional battery power packs can help provide consistent power during both night and day. And many government agencies provide federal, state or local grants to help offset upfront investments in clean energy.

Depending on which installed you choose, your household may qualify for low-interest or zero interest loans to cover the up-front cost of your installation. And the loan payments are usually less than your current monthly power bill.

It really is a win-win, as home buyers are looking for homes that feature this technology – meaning solar power installation improves the resale value of your property.

Home Modifications

And there are a number of additional home modifications that can help improve the energy efficiency of your home. A programmable thermostat can better manage energy consumption from home cooling and heating systems while you’re away from home. And weather stripping your doors can help keep cool air in during the summer, and warm air in during the winter.

Of course, energy conservation starts at home. And this includes setting a powerful example for your kids. Teach your children how to close windows, strategically keep doors open or closed based on airflow, and encourage them to leave the thermostat alone – opting for adding or removing layers of clothing instead.

Unplug Appliances and Shut Off Electronics

Unplugging your appliances when they aren’t in use, such as the toaster and the coffee maker, has more of an impact than you might think. Set your TVs and stereos on sleep timers, instead of letting them run around the clock. The cumulative impact of wasteful electronic device usage is horrible for our environment – putting unnecessary strain on our electrical grid.

Recycle

One of the simplest and easiest ways to reduce your carbon footprint is by recycling. You are already throwing this stuff away anyway, right? It doesn’t take much more effort to just put recyclables in a separate container to be recycled, now does it?

Oh, and did I mention that you can earn money for recycling? Yes! Many cities and towns have recycling centers that will purchase your clean plastic and glass bottles for reuse.

Minimize Your Water Usage

Water is one of the easiest things to forget about when it comes to reducing your carbon footprint. Preserve water by turning off the faucet while brushing your teeth. Shorten your shower by a few minutes and turn down the heat on that water heater. You’ll be surprised at how much lower your water bill and your energy bill will be.

Saving money and reducing your carbon footprint? What isn’t to love?

These are just a few of the top ways that you can reduce your carbon footprint and start living a greener lifestyle. And we aren’t factoring in all of the advantages that we’ll reap from public investments in a smarter energy grid.

From decreasing your water usage, to switching to solar for your home’s energy needs, you will feel good at the end of the day knowing you are doing your part to save the future of this planet for generations to come!

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