Does climate change mean investment change?

Invest in the problem or the solution, which way will your money go?

Should the catastrophic consequences of climate change affect how you invest?

Does climate change mean investment change?

Does climate change mean investment change?

It might not be clear to you that the latest IPCC report confirming catastrophic climate change has anything to do with where you stick your ISA.

It has a lot to do with it.

Traditionally when we choose investments we do so primarily on performance criteria using anything at our disposal: financial advice, historical performance, annual reports, fund manager credentials, profit forecasts, analyst notes and articles in the financial pages.

In the past, funds or accounts that have a sustainability or ethical focus have been considered poor performers, mud that has stuck despite evidence that they have now begun to outperform less ethical counterparts, according to Moneyfacts.

Generic investments with a non-ethical, return-driven mandate may earn you steady annual double-digits, but they might also be contributing to the pollution that is causing climate change (and currently choking up London and the South East).

The names of the big investment categories are benign and would not make you feel guilty. Indeed they refer to a huge variety of countries, companies and strategies. But think of emerging markets as a byword for heavy-industry-somewhere-else, think of natural resources as digging stuff out of the ground and burning it, and index trackers as a passive and morally disengaged reflection of a largely ethically negligent investment universe, and you start to see the link between the funds you choose and the personal contribution your money could be making to this massive problem.

When we think of doing our bit for the planet, we tend to think of recycling, cycling, driving less and going veggie twice a week. We should add to this list moving our money which is about investments as much as current accounts or energy providers.

But investing in non-harmful activities is not just about doing your bit. Investing sustainably increasingly looks like the best, least risky financial option too. It’s nice tortoises versus naughty hares. It could make you more money in the long term because there are arguments to suggest that sustainable industries are less risky than carbon-burning ones – and more efficient. In technological terms, things like clean energy are several leaps ahead of coal mines because they do not produce as much waste and do not cost as much money over time. With a solar farm, almost all of the costs are upfront and from then on, free. A coal mine constantly absorbs cash as it brings up coal.

Sustainable investments also do not run the risk of having performance curtailed by the global low carbon policies we will need to stop the planet frying. The “carbon bubble” – the theory that fossil fuel reserves in the ground may be unburnable if there is a global crackdown on emissions, is gaining traction.

This is not hippy talk. Plenty of fund managers are buying into responsible investing as a way to protect investors’ cash, as well as to sleep better at night and give their kids something to be proud of. Read First State’s Responsible Investment and Stewardship Report 2013 or the investment strategies of WHEB Asset Management or the thoughts of Jeremy Grantham, the hedge fund manager.

Wise professional investors everywhere are setting out their stall on which way the rapid awakening to the reality of climate change will take us – down a path of action, involving low carbon policies, taxation of heavy polluters, even a ban on investing in companies whose main business is destruction; or one of submission or “adaptation”, where we agree that it is too late to fight it, continue with current energy use and indeed go all out to extract all remaining fossil fuels while embarking on the creation of an entirely new and hideously expensive global construction and engineering challenge, faced with the impossible task of adapting the entire world to a new climate.

The latter was the position taken this week by ExxonMobil, which stated that it expects the global temperature to rise to 6 degrees (currently about 0.6) and stated it could/ would do nothing about it except continue to try to meet the world’s growing energy demand.

The choice that it boils down to for us individually, as we sit and mull the ISA tables, is actually very simple: will you invest in the problem, or the solution?

If you think it is game over and there is nothing we can do, or if you still remain wedded to the idea that climate change is overblown, or if you simply don’t care either way, you are more likely to invest in the problem.

You might, for example, cynically choose to invest in a big oil company or utility. Less direct but equally cynical profits might be had from investing in champagne production in Kent – where, thanks to global warming, the quality of the fizz has gone up a notch as conditions have mimicked those of the great French region. Or you might just stick to the generic, conscience-free funds that make up most of the mainstream investment world.

If you accept the scientific consensus as well as the need for low carbon strategies and adaptations like flood defences AND also believe in the difference that individuals can make together, you are more likely to invest in the solution.

There is a plethora of “solution” options. There are a number of fund managers in the City with a sustainability focus – Jupiter has a popular Ecology Fund, Triodos has an ethical ISA, First State has Worldwide Sustainability Funds and CIS has Sustainable Leaders, to name a few. Down the cash route, Ecology Building Society has a range of eco savings accounts, ING has a green savings account… more opportunities are opening up all the time. Seek and ye shall find.

Invest in the problem or the solution, which way will your money go?

Editorial Note: This content has been independently collected by the EveryInvestor advisor team and is offered on a non-advised basis. EveryInvestor may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.
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