Ellis Bates Financial Advisers
Sustainable investing is growing ever more popular due to the impact of climate change. Financial Advisor, Gary Davies, outlines the growing popularity and availability of investing in green pension funds.
Read more about Ethical Investing at Ellis Bates.
By Kim Holding, Portfolio Manager
The world of ethical, responsible and sustainable investing is very fast moving and becoming increasingly complex. Not a day seems to go by without a new regulation or piece of legislation being proposed or enacted, to further promote sustainable practices, and hold businesses accountable for their impact on the environment and society.
How, then, can investors successfully navigate the landscape, and make sense of the information overload?
At Ellis Bates, our Investment Team has been managing Socially Responsible Investing (SRI) portfolios since 2008, demonstrating our deep roots in this area. To keep up to date with developments and filter out funds most worthy of our clients’ investment and trust, our investment process has naturally evolved over the years, more recently with the development of our SRI Framework. This Framework is a highly detailed tool that allows us to carry out an in-depth analysis on many factors including a fund’s alignment with the latest standards, investment philosophy, experience of the management team and engagement policies, to ensure the fund really is as ‘good’ as it says it is. As a living, breathing document, the Framework has undergone many developments and refinements since its implementation, and further revisions will be necessary as the landscape continues to evolve.
Utilising our Framework has allowed us to pinpoint several funds requiring further assessment. The most effective approach to clarify this information is to engage in discussions with the management teams – our well-established relationships with these teams significantly improves our access to valuable insights, enables constructive dialogues, and keeps us informed about their strategies and decision-making processes.
By way of illustration: this summer, our Framework brought attention to a fund in our SRI portfolios that exhibited notable exposure to UK water companies. Investors are no doubt aware that these companies have faced scrutiny in recent months due to their involvement in polluting rivers with sewage, and we recognise that addressing such negative environmental impacts is of utmost importance.
From our interactions with the fund’s management team, we established their beliefs and perspectives: a combination of events including outdated infrastructure (much of which dates to the Victorian era) and population growth (thus putting increased demand on this infrastructure) have contributed to these events. This can raise questions among observers as to why infrastructure dates back several decades, when investment in the industry has doubled since privatisation in 1989[1].
One area of criticism is that directors have allowed larger pay-outs to investors than on infrastructure investment. In economics, capitalism and socialism are opposing schools of thought: when capitalism is left unchecked, this can lead to inequalities and social injustices stemming from firms’ pursuit of profit. On the other hand, an anti-profit culture can result in a lack of dynamism in an economy, while failure by directors to make investor payments could violate their legal obligations under the Companies Act (which says, among other things, that they must act in shareholders’ best interests).
When capitalism or socialism is taken to an extreme, from an economic perspective, it can become necessary to restore balance. Indeed, water companies, regulators and government are responding positively to feedback from the Industry and Regulators Committee[2] who, following an investigation, have recommended measures to tackle these concerns. One example is providing new powers to regulator Ofwat, to closely monitor investment by the industry, and to hold firms to account[3].
Meanwhile, the fund’s management team is engaging with water companies to issue ‘use of proceeds’ blue bonds, where money raised is dedicated to specific projects such as upgrading infrastructure. The team – and we – continue to monitor the situation regarding pollution, while holding what they consider to be the most impactful names within the water sector, all of which should improve water security, and deliver better environmental and social outcomes.
We are reassured by the amount of time and research that the team has clearly dedicated to understanding this issue. Further, they have experience of engaging with companies on Environmental, Social and Governance (ESG) matters, thus fostering positive change and promoting sustainability.
As awareness and interest in ESG factors continue to grow, the trend towards responsible investing will only strengthen. Starting a portfolio and filling it with environmentally, socially and governance-minded investments doesn’t need to be difficult. To find out more, please speak to us today.
Sources
[1] Ofwat, March 2022. Investment in the water industry. Retrieved from https://www.ofwat.gov.uk/investment-in-the-water-industry/ (Accessed: August 2023)[2] UK Parliament, March 2023. Failures of regulators, water companies and Government leaving public and environment in the mire. Retrieved from https://committees.parliament.uk/committee/517/industry-and-regulators-committee/news/194330/failures-of-regulators-water-companies-and-government-leaving-public-and-environment-in-the-mire/ (Accessed: August 2023)
[3] GOV.UK, March 2023. Government supports new Ofwat powers to tackle water company dividends. Retrieved from https://www.gov.uk/government/news/government-supports-new-ofwat-powers-to-tackle-water-company-dividends (Accessed: August 2023)
In this video we take into consideration the social and governance side of ESG investing. We explore people and relationships, human rights, labour standards, employee engagement and gender and diversity.
If you want to find out more about ESG investing or our sustainable investment funds, please get in touch and speak to one of our ESG investment Advisors.
Over the past few decades, there has been a growing interest and awareness in investing in companies that take into account environmental, social and governance (ESG) factors.
This type of investing – also known as sustainable, responsible or impact investing – aims to generate both financial returns and positive social and environmental impacts.
The origins of ESG investing can be traced back to the 1960s, but it was in the 1970s that the environmental movement gained momentum, with investors increasingly calling on companies to address issues such as pollution and resource depletion. And in the 1990s, corporate governance came into the spotlight following a series of high-profile corporate scandals.
ESG investing has its roots in the field of responsible investing (RI), which emerged as a response to growing concerns about the negative social and environmental impacts of businesses. RI investing initially focused on screening out companies with poor ESG records from investment portfolios.
Over time, RI evolved into a more proactive approach that seeks to engage with companies on issues related to their ESG performance and influence corporate behaviour for positive change. This is often referred to as ‘active ownership’ or ‘impact investing’.
Today, ESG investing is a mainstream investment strategy used by institutional investors and individual investors alike. In fact, one in six investor respondents to a global responsible investing survey are committed to aligning their portfolios to net zero, with a further 42% intending to align their investment portfolios to net zero before 2050[1].
While debate continues about whether doing well (financially) and doing good (morally) need not be mutually exclusive, the survey finds that more than two-thirds (69%) of respondents with exposure to responsible investments are satisfied or very satisfied with their returns to date.
Increasingly, investors are also reflecting more on what it means to be ‘responsible’. Specifically, many are actively considering what impact their investment approach can have on society and the environment. The survey identified one of the main reasons for including responsible investments in portfolios is the perception that they will lead to better risk adjusted returns when compared to ‘traditional’ investments.
Investors’ concerns around major ESG issues continue to rise, and many are in the process of addressing at least some of these in their investment strategies. For some, it’s simply a matter of aligning their investments with their personal values.
Others believe that companies that manage ESG risks well are likely to be more financially successful over the long term. And still others see ESG investing as a way to generate positive social and environmental impacts.
Climate change, demographics, biodiversity and the need for social justice are at the top of the agenda for many investors. The world of investment is catching up. An increasing number of funds now boast of their ESG credentials. If you would like to discuss how this could form part of your portfolio, please contact one of our ESG investment advisors for more information.
Important information: The value of your investments can go down as well as up and you may get back less than you invested.
Source data: [1] Aon’s Global Perspectives on Responsible Investing Report January 2022.
Time for a tax health check?With the current tax year having begun on 6 April 2022, the clock is ticking and it is important to utilise all the tax reliefs and allowances available to you before 5 April 2023 in order to minimise any potential liabilities.
Personal tax planning should be at the top of your agenda as the end of the current tax year is not too far away. Taking action now may give you the opportunity to take advantage of any remaining reliefs, allowances and exemptions.
At the same time, you should be considering whether there are any planning opportunities that you need to consider either for this tax year or for your long-term future. We’ve listed a few reminders of the issues you may want to consider as worthy of including in your 2022/23 tax health check to-do list.
Married couples should consider utilising each person’s personal reliefs, as well as their starting and basic rate tax bands. Could you make gifts of income-producing assets (which must be outright and unconditional) to distribute income more evenly between you both?
This is an especially tax-efficient way for you to make pension contributions, to save and reduce your Income Tax and National Insurance.
Have you considered exchanging part of your salary for payments into an approved share scheme or additional pension contributions?
Unless you are an additional rate taxpayer or have already accessed pension benefits then you are entitled to make up to £40,000 of pension contributions per tax year. Have you fully utilised your tax-efficient contributions for this tax year or any unused allowances from the three previous tax years?
A stakeholder pension is available to any United Kingdom resident under the age of 75. Children can also make annual net contributions of £2,880 per year, making the gross amount £3,600 regardless of any earnings. It is also a very beneficial way of giving children or grandchildren a helping hand for the future. Is this an option you or a family member should be utilising?
The Pension Lifetime Allowance (LTA) is currently £1,073,100 and has been frozen at this level until the 2025/26 tax year. The maximum you can pay in is £40,000 per annum unless you pay tax at 45% in which case the annual limit could be as low as £4,000. Inflationary increases by the end of the current tax year could also have an impact on your pension funds. Do you have a plan in place to protect your money from this?
If your are 55 or over you could access 25% tax-free cash from your Defined Contribution (also known as Money Purchase) pension pots and invest the rest. However, drawing large amounts in one tax year can lead to a larger tax bill than if spread over a longer period. Do you know the implications of taking money out of your pension pots?
Usually called a ‘spousal by-pass trust’, although the recipient may not always be a spouse, this is a discretionary trust set up by the pension scheme member or pension holder to receive pension death benefits. Are your pension death benefits written in trust?
An ISA allows you to save and invest tax-efficiently into a cash savings or investment account. The proceeds are shielded from Income Tax,
tax on dividends and Capital Gains Tax. The government puts a cap on how much you can put into your ISA or ISAs in any tax year (from 6 April to 5 April). The ISA allowance for 2022/23 is set at £20,000. Have you fully utilised the maximum annual allowance?
This is a long-term tax-efficient savings account set up by a parent or guardian, specifically for the child’s future. Only the child can access the money, and only once they turn 18. Have you invested the maximum £9,000 allowance for your child or children?
The Lifetime ISA (LISA) is a tax-efficient savings or investments account designed to help those aged 18 to 39 at the time of opening to buy their first home or save for retirement. The government will provide a 25% bonus on the money invested, up to a maximum of £1,000 per year. You can save up to £4,000 a year, and can continue to pay into it until you reach age 50. Could you be taking advantage of this very tax-efficient option?
There are two different rates of CGT – one for property and one for other assets. If your assets are owned jointly with another person, you could use both of your allowances, which can effectively double the amount you can make before CGT is payable. If you are married or in a registered civil partnership, you are free to transfer assets to each other without any CGT being charged. It is currently £12,300 but will be reduced to £6,000 from 6 April 2023 and £3,000 from 6 April 2024. Have you fully used your current £12,300 annual exemption?
IHT must be paid on the value of any estate above £325,000, or up to £1 million for married couples including the residence nil-rate band). However, certain business assets, including some types of shares and farmland, in private trading companies can qualify for 100% relief from IHT. The government has frozen the IHT thresholds for two more years to April 2028. Are you taking advantage of the reliefs available to you?
This allowance was introduced during the 2017/18 tax year and is available when a main residence is passed on death to a direct descendant. The allowance is currently £175,000. When combined with the nil-rate band of £325,000, this provides a total IHT exemption of £500,000 per person, or £1 million per married couple. If you are planning to give away your home to your children or grandchildren (including adopted, foster and stepchildren) the RNRB must be claimed. There is a form for this purpose – IHT435. The form is available on the Gov.uk website. If applicable, have you applied for the RNRB?
If you leave at least 10% of your net estate to charity a reduced inheritance rate of 36% applies rather than the usual 40%. Other exemptions apply for inter-spousal transfers, transfers of unused annual income, business and agricultural assets, and for various other fixed, small amounts. Are you intending to make gifts before the end of the current tax year?
These help protect your assets and guarantee that your loved ones have financial stability for their future. Crucially, a trust can help to avoid IHT and ensure that the majority of your money, shares and equity are passed on in the most efficient way. Should you consider setting up a trust? Future legislation could potentially result in changes to tax law, which could in turn require adjustments to your plans.
We hope you find this checklist useful, but please bear in mind that this only provides a summary of the options available and not all options will be suitable for everyone. Therefore, for more information in respect of the ideas outlined, please contact us.
A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The value of your investments can go down as well as up and you may get back less than you invested. The financial conduct authority does not regulate taxation and trust advice. Trusts are a highly complex area of financial planning.
Asset allocation involves diversifying your investments among different assets, such as equities, bonds, property and cash. Asset allocation may change depending on what works for you based on your financial goals and your ability to tolerate risk.
When building our portfolios, we consider all the economic and technical market conditions that influence our exposures to the main asset classes of Ellis equities, bonds, property and cash.
We screen and choose all our funds, not just our Socially Responsible Investment portfolios, against a range of Environmental, Social and Governance (ESG) factors so you can see the impact your investments are having.
Read more on our screening process for sustainable investment funds.
By Kim Holding, Portfolio Manager
On 6 November, the 27th Conference of the Parties (the name given to the United Nations’ annual climate change conferences) began. Hosted this year by Egypt, COP is an important platform for nations to discuss and reach consensus on how to protect the world in terms of environmental issues. This year’s summit is expected to be a crucial point in the fight against climate change, as it seeks renewed solidarity between countries to deliver on their previously agreed pledges. Further, due to the scale of its potential impact, climate change takes a global effort so coordinated action is crucial.
Environmental issues have been at the centre of society’s concerns since the 1980s following disasters such as Chernobyl and the Exxon Valdez oil spill. In more recent years, climate change has been rising up public agendas. Further pressure to take action came in 2021 when the Intergovernmental Panel on Climate Change (IPCC) reported that unsustainable human behaviours (such as burning fossil fuels) have caused global temperatures to increase by 1.2°C since the 1850s, which is worryingly close to the globally agreed target of 1.5°C. According to the IPCC, this rise has damaged our planet in unprecedented ways which is, in turn, disrupting food and fresh water supplies, significantly impacting on our health and wellbeing, and putting life (both on land and at sea) at risk; and, further, that some of these effects are ‘irreversible’. Temperatures are expected to continue to rise, unless those unsustainable behaviours are addressed and greenhouse gas emissions are significantly reduced.
That said, temperature rises are not uniform across the globe, with some locations warming faster than others. Scientific research indicates that several of the world’s developing regions are contributing less to climate change, yet they are more vulnerable to its impacts, and in this regard they will continue to face much greater risks in the years ahead. One of the most widely publicised examples of 2022 is Pakistan which, following torrential monsoon rains over the summer, experienced the most severe flooding in its modern history, washing away villages and affecting millions of people; yet the country contributes less than 1% of the global carbon footprint. Another example is Africa, where large parts of Ethiopia, north-eastern Kenya and Somalia are currently facing their worst droughts for over four decades, yet the continent accounts for only 3-4% of global greenhouse gases. In contrast, approximately a quarter of emissions come from China, followed by about 12% from the US.
This non-uniformity of temperature rises is expected to be a key focal point at COP27 where world leaders, some of the world’s most influential businesses, environmental and faith groups, policymakers and think tanks are in attendance. While China, among other high-emitting countries, will not be at the summit, they – along with the US and other rich nations – are being urged to increase their financial aid to poorer countries. In doing so, this will allow the latter to deal with the impacts of climate change – for example, to establish green energy systems (to cut their own greenhouse gas emissions) and to improve their infrastructure (so they may adapt to hotter conditions).
This all comes at a time, though, when Russia’s invasion of Ukraine is putting increased economic strains on developed countries. That said, according to the International Monetary Fund (IMF) in its October assessment of the world economy, a timely and credible green transition is not only critical for our planet’s future but will also help macroeconomic stability, since the relinquishment by nations of their reliance on Russia’s fossil fuels will enable a quick transition to clean energy, simultaneously putting them more in control of their own destiny with regard to energy prices. Thus, COP27 could represent a historic turning point in the global energy crisis and in the fight against climate change.
Companies demonstrating poor practices – whether they are damaging to the environment, have poor human rights records, or are poorly managed – are more likely to fail and won’t be around in years to come, so from an investment perspective, diligent investors simply will not look to invest. For this reason, we incorporate environmental, social and governance (ESG) considerations across all our portfolios, and SRI has always formed a fundamental part of our investment process. Our SRI portfolios provide our clients with a more targeted approach in tackling the world’s challenges, and every fund we hold must demonstrate that a socially responsible investment culture is intrinsic to their approach.
For more information on our SRI portfolios, visit our Socially Responsible Investing page at https://www.ellisbates.com/socially-responsible-investing/.
We put you, and what you want your money to achieve, at the very heart of everything we do. The Ellis Bates advantage for you is that our expert Investment team are in-house and work hand in hand with your Financial Adviser on a daily basis.
ISAs are a type of savings plan where you can pay in lump sums and/or regular contributions. There are both advantages and disadvantages to having an ISA.
In this session we talk about Individual Savings Accounts (ISAs) and how they encourage saving and investing in a tax efficient way.