Going green really can pay dividends

Clean up by putting your money into ethical funds

The message for savers as we look forward to the next decade is that climate change really matters.

Sections of the investment community have been campaigning for years for companies in Britain and around the world to incorporate environmental, social and governance (eSG) criteria into the way they do business.

But it is only this year that some of the biggest and most influential investors have hoisted the eSG flag. Doubtless the activists of extinction Rebellion, who brought London and regional cities to a grinding halt in 2019, would like to claim responsibility for the conversion of business to the cause.

Similarly, the Swedish schoolgirl Greta Thunberg, star turn at the Davos World economic Forum, must take some credit.

But the real catalyst has been the weather itself. WEATHER

of biblical proportions has been seen at the start of 2020, ranging from flooding in parts of Yorkshire and the North to the devastating bush and forest fires in australia which made that blessed land – which hasn’t seen a recession for a quarter- of-a- century – look like Dante’s inferno.

The green prophets of doom have been urging banks, insurers and other enterprises to prepare themselves for climate change for some years.

When Mark Carney, governor of the Bank of england, first spoke about the business risks involved in climate change in 2015, the sceptics pounced and argued he would be better deployed worrying about interest rates and how to avoid the next financial crisis.

But if you were to look at the global insurance industry alone, it faces rocketing bills. The cost of the australian fires has been estimated to be at least £3.4bn, before the interruption to tourism and other commerce is taken into account.

a huge barrier was crossed for activists at the start of this year when the world’s biggest investor, Larry Fink of Blackrock, with £5.4 trillion of funds under management, wrote to clients telling them of its future approach. The firm would be making ‘sustainability integral to portfolio construction, exiting investments that present high-sustainabilityrelated risk such as thermal coal producers; launching new investment products that screen fossil fuels’ and more. also, the world’s biggest miner, London-based Rio Tinto, has been exiting thermal coal as quickly as it can. There is an element of hypocrisy in such gestures since all it achieves is to pass the risk onto other producers who might be less scrupulous in their mining practices.

The sums involved in green transformation are huge.

Iain Conn, chief executive of Centrica, one of Britain’s biggest energy suppliers, estimates the cost of meeting the UK’s climate change goal of a 90pc reduction in carbon emissions by 2050 will be £700bn. That is just under seven hS2 high-speed rail links. CENTRICA

aims to facilitate this using technology – such as its hive mobile app and its fleet of engineers – transforming itself from a carbon producer to being carbon neutral.

The short-term cost for corporate Britain will be high and will depress earnings. But the longer-term payoffs in terms of making some companies more suitable for investment should be considerable.

If savers really want to make a difference, ethical funds, some relabelled as green funds, have been around for a long time. There has been an understanding that such funds might sacrifice performance to deliver on eSG goals. But with big battalion investors such as Blackrock proposing to give a green tinge to portfolios, the more eSG tuned the enterprises, the more investable they become and the more likely they will attract higher valuations.

There is already an environmentally-focused fund manager nestling on the London alternative investment market (aIM).

Founded by physicist and former World Bank researcher Ian Simm, London-based Impax had garnered £15.1bn of assets at the end of 2019 up from £12.4bn in 2018 well ahead of expectations.

Simm and his colleagues invest in small and mid- cap mainly quoted – therefore liquid – companies, which generate more than 50pc of income from environmental products or services including energy efficiency, renewable energy, water and waste management.

Impax’s main funds only cater for the institutional investor. Retail investors can gain access by buying Impax shares directly or alternatively by buying into its quoted, closed-investment trust, Impax environmental Markets. This could be a gateway to some familiar FTSe growth companies such as DS Smith, the cardboard recycling specialist and supplier of packaging to amazon among others.

You don’t have to sacrifice performance by going green.