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A recent Guardian article highlighted the UN’s Intergovernmental panel on climate change, which stated that “Global warming is a crisis for civilisation and a crisis for life on Earth.” It noted that human-caused climate change was behind 15 deadly weather disasters in 2017, whilst a BBC article noted that in 2018 ten climate change induced events cost more than $1bn each, with four costing more than $7bn each. According to the World Meteorological Organisation, 20 of the warmest years on record have been in the past 22 years.
Meanwhile, the world’s leading climate scientists, in a special report for the UN’s Intergovernmental Panel on Climate Change (IPCC), have warned that there are only about 12 years left for us to ensure global warming is kept to a maximum of 1.5C.
Despite the complexity of the issues at hand, the message is simple – radical, urgent change is needed.
Many governments, companies and individuals are making changes. Government policy has been encouraging green energy and phasing out coal – perhaps this is best illustrated by the Global Coordination at work in the Paris Agreement. When it comes to companies focusing on the green agenda, and disclosing their progress on it to investors, great examples can be seen from the likes of Danish shipping giant Maersk (who have set a target to be carbon neutral by 2050). Consumers are doing their part by making small steps – reducing plastic waste, driving hybrids and consuming less or no meat and trying to reduce their energy consumption. It is also true to say that regardless of which level of society you look at, the battle will be won by making marginal, rather than revolutionary, changes (think Team Sky’s motto of 100 things improved 1%, rather than 1 thing improved 100%).
The investment management industry is making some strides, but in our eyes, they aren’t sufficient to meet the challenge that is facing us.
If meaningful change requires change at a grass roots level then we believe the investment management industry is failing to leverage the power that financial advisers and investors present.
All too often, critics say, revenue-chasing triumphs over principles. Investors who think they’re buying environmental, social, and governance funds—ESG for short—to promote a better world often wind up with costlier products that are, in almost every other respect, the same as any index fund. Criteria are so broad and disparate that companies as unlikely as Exxon Mobil Corp. and Philip Morris International Inc., the maker of Marlboro cigarettes, make the cut in some cases. Take the $1.2 billion iShares MSCI KLD 400 Social ETF. It promises “exposure to socially responsible” companies and can be used to “invest based on your personal values.” Yet a quick look shows it owns half the S&P 500. A Vanguard ESG fund holds 4 out of every 5 stocks in that index. Big investment managers are focusing on the ‘G’ in ESG enabling them to broaden their focus but this ultimately betrays the spirit of why investors invest in these funds.
“There’s been a rush to occupy this space with not much substance,” says Francesco Ambrogetti of the United Nations Capital Development Fund, which helped design an ETF that donates its fee to the organization. “They promise a lot but don’t have a serious, rigorous system in place.”
For example, a 2016 review from the Global Sustainable Investment Alliance noted the largest sustainable investment strategy globally is negative/exclusionary screening ($15.02trn) whilst corporate engagement/shareholder action equates to ($8.37trn).
Whilst it is commendable that $23trn of an assets are making some sort of impact, we have a long way to go if we think not investing in weapons and the practice of investment managers attending corporate AGMs is rising to the challenge we face, and a challenge true impact investing can solve.
This lack of real ‘impact’ in many of these investment strategies may be part of the reason why investors and their advisers don’t truly engage in their investments in this way – even though investor surveys always state impact investing is important to them, few put their money where their mouth is. The flip side to this challenge is the betrayal of investors trust and their real aspirations.
If investors are now increasingly familiar with the carbon impact of their transport and energy needs, it’s time we start believing they are passionate about the impact their investments make, and we need to do better than some of the mainstream products currently on the market.
Financial advisers can help their investors to make more of an impact, but investors need to see their investments as part of the solution – and they can only do this if we have more credible, more impactful products.
Having an impact, without sacrificing returns, is exactly what Goji aspired to do when it launch its Renewables Lending Bond over a year ago.
Goji’s Renewable Lending Bonds finance renewable energy products (wind, solar and anaerobic digestion) across the UK helping to deliver green energy, having a positive impact on rural communities where they are deployed, and they support UK energy security. Investors in the bonds are currently helping to power 30,000 homes with low or no carbon electricity.
Crucially though, investors don’t need to sacrifice returns to have a social impact with their bonds – investors in the bonds can earn up to 8.3% annualised over a 5 year period (3 year bonds are also available). This is far in excess of most fixed income products, and even equity products – even though the bonds have significant downside protection in the form of being asset backed, managed by an independent finance arranger and often they have government support. What’s more is, the products are available in an ISA or a SIPP.
If investors and financial advisers really want to rise to the challenge posed by climate change and make an impact with their investments we hope we have started to provide investors with the choice of product to be able to do so.
To find out more about Goji’s Renewables Lending Bonds and other products, please visit our products page.