Walking to work, taking public transport, recycling household waste, installing energy efficient light bulbs, we are all being encouraged to do our bit to reduce carbon emissions.
However while many people are now making everyday choices based on green principles, fewer people consider that they have an even bigger weapon when it comes to fighting climate change - their money.
InvestorTV spoke to Ethical Investor’s Executive Director, Michael Walsh, and 2007’s Australian of the Year, Professor Tim Flannery, on how best to make your money work well for you, and for the environment.
Michael Walsh explains: “Ethical investment is simply a component of a broader investment theme, so people will choose their investment method, whether that be through shares, or managed funds, or concentration on their super, and investing in their house. And within each of those areas there’s the opportunity to green up the way you invest.
“With shares, you can actually consider whether the shares you own are actually in companies who are making an effort to address their environmental commitments,” Mr Walsh says.
“Companies that have made the commitment to go carbon neutral for example. And in managed funds and superannuation, there’s the opportunity to not just have a mainstream approach, but to adopt an ethical investment strategy where these sorts of things are incorporated. So whichever way you’re investing, you can actually incorporate this into your investment methods.”
There is a wealth of “green investment” advice available on the internet but as Mr Walsh points out, it is often a company’s own website that indicates whether the organization is truly committed to reducing its carbon footprint.
“Look out for a separate, dedicated sustainability report,” says Mr Walsh. “I think that’s a good sign that a company is serious, because producing a formal report that’s signed by the directors in the area of sustainability and environmental commitments is a significant move.
“Also look at whether that report’s audited by an independent expert, in which case you’ll know that the data that’s being gathered to produce that report has been based on verifiable items. And then third there is the content of what they’re doing.
“Some companies are saying, well we’re good corporate citizens; we’ve got recycling programs, we recycle waste etc. Other companies will say we’re changing our whole business so that we’re responding to the environmental challenge. Obviously that’s a much more pervasive thing to do – there are very few companies who are doing that at this stage but I think we will see more.”
To avoid confusion from conflicting messages, however, many investors prefer to employ an investment professional to advise them.
“The Ethical Investment Association is a very good source of information and other contacts,” Michael Walsh says. “They list fund managers that have environmental and ethical portfolios, and they also list financial advisors that give specialist advice, and other service providers that are actually quite experienced in this area.”
These ethical and environmental advisors investigate a range of factors in order to rank companies against each other. Often, one company’s idea of green, can be another company’s idea of standard practice.
Michael Walsh explains the process by which companies are assessed: “First of all there’s their environmental footprint,” he says. “Obviously the more significant their footprint, the more you’d expect them to be managing that footprint.
“ We don’t want footprints removed; but what we want is we want to see that the companies are doing their bit to get that footprint down over time. Companies that are actually looking at alternative ways of having their business in the future, such as an energy company looking at alternative energies; they’ll obviously score better.
“And then you’ve got what the company does to support its normal activities; that it actually manages its environmental liabilities, that it adheres to standards, and lastly that it actually stays out of trouble, because environmental performance is regulated.
“So a company with a clean slate in terms of avoiding criticism and legal sanctions will actually be a better performer as well. So we have all these components in our model and the companies that score better on those; well they’ll get a better ranking.”
Aside from investing in companies whose practices are green, there is also a rapidly expanding green energy sector to consider.
However it can be a gamble, knowing which of the technologies and research projects will ultimately pay off. Internationally acclaimed environmentalist Professor Tim Flannery believes that understanding the technologies themselves, and keeping abreast of the politics, is half the battle when it comes to making a sound investment.
“Don’t necessarily look at government policies as they are today, or what a good rate of return is today,” says Prof Flannery. “You can look at what tomorrow’s policies will be driven by, by trying to understand the science. And once you do that, you’ll be in a good position I think to do well.
“I mean I’ve invested money in geothermal energy for example because I think there’s a lot of heat between us and the centre of the Earth,” the professor says.
“And it’s a limitless source of energy, and if that pays off then we’ll have a very large scale, cheap, emissions free form of energy. But there’s many other options; there’s concentrated PV, there’s just standard photovoltaics, solar thermal technologies, wind technologies, wave energy, and so forth and so forth. And of course bio fuels and bio mass which will be enormous in the future.”
However, for those investors who do not want to put money directly into the green energy sector, or invest in carbon neutral corporations, Michael Walsh says that superannuation funds themselves are now very influential in the battle against climate change.
“Through their superannuation, investors’ power to influence companies’ response to the environment is becoming very significant,” says Mr Walsh. “And that’s because some very large superannuation funds and institutional investors have made a commitment to ensure that environmental issues, and social and corporate governance issues as well, are incorporated into their investment process.
“They’re actually telling their fund managers, their advisors and indeed the companies they invest in, that they want to see a response. So through your superannuation and through the institutions that are becoming aware of this, I think we’re seeing a very substantial but subtle movement take place.”
InvestorTV spoke to Ethical Investor’s Executive Director, Michael Walsh, and 2007’s Australian of the Year, Professor Tim Flannery, on how best to make your money work well for you, and for the environment.
Michael Walsh explains: “Ethical investment is simply a component of a broader investment theme, so people will choose their investment method, whether that be through shares, or managed funds, or concentration on their super, and investing in their house. And within each of those areas there’s the opportunity to green up the way you invest.
“With shares, you can actually consider whether the shares you own are actually in companies who are making an effort to address their environmental commitments,” Mr Walsh says.
“Companies that have made the commitment to go carbon neutral for example. And in managed funds and superannuation, there’s the opportunity to not just have a mainstream approach, but to adopt an ethical investment strategy where these sorts of things are incorporated. So whichever way you’re investing, you can actually incorporate this into your investment methods.”
There is a wealth of “green investment” advice available on the internet but as Mr Walsh points out, it is often a company’s own website that indicates whether the organization is truly committed to reducing its carbon footprint.
“Look out for a separate, dedicated sustainability report,” says Mr Walsh. “I think that’s a good sign that a company is serious, because producing a formal report that’s signed by the directors in the area of sustainability and environmental commitments is a significant move.
“Also look at whether that report’s audited by an independent expert, in which case you’ll know that the data that’s being gathered to produce that report has been based on verifiable items. And then third there is the content of what they’re doing.
“Some companies are saying, well we’re good corporate citizens; we’ve got recycling programs, we recycle waste etc. Other companies will say we’re changing our whole business so that we’re responding to the environmental challenge. Obviously that’s a much more pervasive thing to do – there are very few companies who are doing that at this stage but I think we will see more.”
To avoid confusion from conflicting messages, however, many investors prefer to employ an investment professional to advise them.
“The Ethical Investment Association is a very good source of information and other contacts,” Michael Walsh says. “They list fund managers that have environmental and ethical portfolios, and they also list financial advisors that give specialist advice, and other service providers that are actually quite experienced in this area.”
These ethical and environmental advisors investigate a range of factors in order to rank companies against each other. Often, one company’s idea of green, can be another company’s idea of standard practice.
Michael Walsh explains the process by which companies are assessed: “First of all there’s their environmental footprint,” he says. “Obviously the more significant their footprint, the more you’d expect them to be managing that footprint.
“ We don’t want footprints removed; but what we want is we want to see that the companies are doing their bit to get that footprint down over time. Companies that are actually looking at alternative ways of having their business in the future, such as an energy company looking at alternative energies; they’ll obviously score better.
“And then you’ve got what the company does to support its normal activities; that it actually manages its environmental liabilities, that it adheres to standards, and lastly that it actually stays out of trouble, because environmental performance is regulated.
“So a company with a clean slate in terms of avoiding criticism and legal sanctions will actually be a better performer as well. So we have all these components in our model and the companies that score better on those; well they’ll get a better ranking.”
Aside from investing in companies whose practices are green, there is also a rapidly expanding green energy sector to consider.
However it can be a gamble, knowing which of the technologies and research projects will ultimately pay off. Internationally acclaimed environmentalist Professor Tim Flannery believes that understanding the technologies themselves, and keeping abreast of the politics, is half the battle when it comes to making a sound investment.
“Don’t necessarily look at government policies as they are today, or what a good rate of return is today,” says Prof Flannery. “You can look at what tomorrow’s policies will be driven by, by trying to understand the science. And once you do that, you’ll be in a good position I think to do well.
“I mean I’ve invested money in geothermal energy for example because I think there’s a lot of heat between us and the centre of the Earth,” the professor says.
“And it’s a limitless source of energy, and if that pays off then we’ll have a very large scale, cheap, emissions free form of energy. But there’s many other options; there’s concentrated PV, there’s just standard photovoltaics, solar thermal technologies, wind technologies, wave energy, and so forth and so forth. And of course bio fuels and bio mass which will be enormous in the future.”
However, for those investors who do not want to put money directly into the green energy sector, or invest in carbon neutral corporations, Michael Walsh says that superannuation funds themselves are now very influential in the battle against climate change.
“Through their superannuation, investors’ power to influence companies’ response to the environment is becoming very significant,” says Mr Walsh. “And that’s because some very large superannuation funds and institutional investors have made a commitment to ensure that environmental issues, and social and corporate governance issues as well, are incorporated into their investment process.
“They’re actually telling their fund managers, their advisors and indeed the companies they invest in, that they want to see a response. So through your superannuation and through the institutions that are becoming aware of this, I think we’re seeing a very substantial but subtle movement take place.”
