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Socially Responsible Investing

Green Pensions

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Choosing to go green on our pension investments could have a far greater impact on the environment than we may have thought.

The positive news is that almost three quarters (74%) of pension schemes already have net zero plans in place, or will do within the next two years and pension schemes are making progress towards net zero commitments.

With new Taskforce on Climate related Financial Disclosures (TCFD) requirements coming into force, the number of schemes making such commitments is expected to grow further still.

Environmental Impact of SRI Portfolios

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This video looks at the Sustainable Development Goals that fall within the environmental category. This is concerned with the conservation of the natural world, as well as a companies energy usage, wastage levels and pollution.

How Green is your Pension?

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Time to consider a healthier approach to retirement?

Pension schemes have a critical role to play in the transition to a net zero economy, with many schemes already assessing the impact of their investments in the context of the goals of the Paris Agreement.

Striving to improve investment practices, and robust transparency standards across the investment chain, are an essential part of ensuring schemes can act as responsible stewards on behalf of millions of UK pensions savers.

Net Zero Commitments

Choosing to go green on our pension investments could have a far greater impact on the environment than we may have thought. The positive news is that almost three quarters (74%) of pension schemes already have net zero plans in place, or will do within the next two years and pension schemes are making progress towards net zero commitments.

With new Taskforce on Climate related Financial Disclosures (TCFD) requirements coming into force, the number of schemes making such commitments is expected to grow further still.

Identifying suitable performance

The news comes as climate change and Environmental, Social and Governance (ESG) stewardship continue to rise in importance and have become a central part of pension schemes’ investment strategy, with identifying suitable performance measures and devising frameworks to report on them also rising in importance.

Two-thirds (63%) of pension schemes have started working on their TCFD report, with over half (55%) saying they are within the scope of the reporting deadline and so plan to publish one this year.

Climate transition plans

More than a quarter (28%) have gone a stage further and said that they have already published their TCFD report, despite it not being a mandatory requirement. In terms of stewardship, two-thirds (68%) see their key priority as investors as being climate transition plans. Over half (56%) see these being net zero targets, while around a third (37%) see board diversity and human rights (35%) as key priorities.

Major risk to portfolios

In terms of non-climate related ESG factors, diversity and inclusion (51%) and human rights (49%) are seen to be the most important. There are a number of reasons for this increase, including regulatory pressure and public concern about climate change. However, the most important factor is likely to be financial: more and more investors are recognising that climate change presents a major risk to their portfolios.

Reviewing investment strategies

As a result of this increase in awareness, many pension schemes are now reviewing their investment strategies. Some are divesting from fossil fuel companies, while others are investing in green infrastructure and renewable energy. The survey shows that pension schemes are taking climate change seriously. This is a positive development, as it means that more and more people will have a retirement income that is not put at risk by the threat of climate change.

 So how Green is your pension?

Although we might like to think that our pension contributions are simply locked away for us to use once we retire, the reality is that this money is being invested. Greening your pension might be the single most effective action you can take to reduce your carbon footprint.

For more information or to discuss your retirement plans, please do contact us.

COP27 Goals & Vision

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COP27 Goals and Vision

Mitigation

We must unite to limit global warming to well below 2c and work hard to keep the 1.5c target alive.

Adaption

We must ensure that COP27 makes the crucially needed progress and urge all parties to demonstrate the necessary political will if we are to capture and assess our progress towards enhancing resilience and assist the most vulnerable communities.

Finance

In COP27 it is essential that we make significant progress on the crucial issue of climate finance while moving forward on all finance related items on the agenda.

Collaboration

The advancement of partnership and collaboration will help deliver our four goals and ensure the world is adopting more a resilient, and sustainable economic model where humans are at the center of climate talks.

Source: https://cop27.eg/#/vision

Socially Responsible Investing with Ellis Bates

For more information on our SRI portfolios, visit our Socially Responsible Investing page at https://www.ellisbates.com/socially-responsible-investing/.

COP27

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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/.

Environmental Sustainability

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Environmental impact of SRI portfolios

  • Clean water and sanitation
  • Affordable and clean energy
  • Sustainable cities and communities
  • Life below water
  • Industry, innovation and infrastructure
  • Climate action
  • Responsible consumption and production
  • Life on land

Environmental Impact

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This video looks at the Sustainable Development Goals that fall within the environmental category. This is concerned with the conservation of the natural world, as well as a companies energy usage, wastage levels and pollution.

Visit our Environmental, Social and Governance page for more information.

Environmental Investment Funds

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How are the SRI portfolios helping to combat environmental issues?

Each of the funds in our SRI portfolios invest in companies that are contributing to positive environmental change, or exclude companies deemed to be causing environmental damage. Additionally, the fund managers of our SRI portfolio have strong records of actively engaging with the companies in which they invest, to push for action on climate change. Below are some examples of the funds we have in our SRI portfolios.

EdenTree

EdenTree is a pioneer in the field of SRI, with its roots dating back to 1887, and they launched some of the first socially responsible funds in the UK in the 1980s. Climate change is a key component of EdenTree’s responsible investment engagement strategy – across their entire product range, they assess companies based on their contribution to climate change; and the managers engage with businesses on a range of environmental issues such as decarbonisation and biodiversity. Under their SRI Transparency Code, EdenTree regularly publishes details of its research and engagement on its website.

In addition to their funds, EdenTree has demonstrated that they are truly committed to combating environmental issues at a much higher level. They’re a member of the Institutional Investors Group on Climate Change (or IIGCC for short), whose mission is to drive significant and real progress towards a net zero and resilient future by 2030. EdenTree is also a signatory of the COP21 Paris Pledge, the central aim of which is to strength the global response to the threat of climate change.

WHEB

WHEB was founded in the 1990s as an environmental corporate finance boutique by Rob Wylie and Kim Heyworth, hence its name: Wylie Heyworth Environmental Business. Today, WHEB is responsible for a single global equity strategy: FP WHEB Sustainability. The companies it invests in must be aligned with their sustainability investment themes, of which five are environmental: Resource Efficiency, Cleaner Energy, Environmental Services, Sustainable Transport, and Water Management.

WHEB is a Certified B corporation, where the B stands for benefit. This means that WHEB “meets the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose”.

Ninety One Global Environment Fund

In April 2022, we introduced the Ninety One Global Environment fund across our SRI portfolios. The fund focuses on investing in companies aligned with sustainable decarbonisation – for example, renewable energy (e.g. solar, wind), electrification (e.g. electric vehicles) and resource efficiency (e.g. waste management). The fund’s managers work closely with the CDP (formerly the Carbon Disclosure Project) so they have greater access to high-quality carbon emissions data. From this, the managers then engage with companies to improve their carbon footprint or, where data is not available, to improve their disclosures.

Each of the funds in our SRI portfolios must be aligned with one or more of the United Nations’ Sustainable Development Goals, such as ‘Climate Action’, ‘Clean Water & Sanitation’ and ‘Affordable and Clean Energy’; and they must demonstrate and can evidence that a socially responsible investment culture is intrinsic to their approach.

Learn more about the environmental, social and governance impacts of SRI portfolios.

SRI Fund Screening

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Negative screening

Every fund in our SRI portfolios has a negative screen in place, as this is the fundamental factor that makes them SRI funds and includes:

  • Avoid unethical companies (Fossil fuel, alcohol, tobacco etc…)
  • Support those making a positive contribution to the environment and/or society

Positive screening

This is an additional layer to applying a negative screen, meaning the funds go beyond the approach of ‘avoiding the bad’ and also seek ‘good’ companies trying to benefit the environment and the communities in which they operate and include:

  • Supporting companies making a positive contribution to the environment and/or society through their products and services, such as combating climate change and standing for social justice.
  • Dynamic shareholder engagement where shareholders enter into dialogue with management to encourage behavioural change.
  • Every fund in our SRI portfolios must have engagement and proxy voting policies and procedures in place.
  • ESG Rating Agencies look at a fund’s underlying investments, and scores them based on specific ESG criteria.
  • Additionally, use our own judgement, to assess whether we think a fund is suitable for inclusion in our portfolios, regardless of any ESG label they may have been given.
  • Fund Manager Meetings are an integral part of our investment process, as it allows us to satisfy ourselves that the funds we invest in really are ‘good’ as they say they are.

How do we screen our SRI funds?

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We explain the process of how we choose our SRI funds. The funds we hold in our SRI portfolios must demonstrate a commitment to key areas of responsible investment, and that a socially responsible investment culture is intrinsic to their approach.

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