Dominic Rowles, Investment Analyst, looks at how to give your money a real impact and two ecology funds that could help.
Our planet is getting warmer.
Scientists agree that we must limit global warming to no more than 2°C above pre-industrial levels or we’ll face serious and irreversible environmental consequences – from catastrophic wildfires and droughts, to severe storms and rising sea levels.
The bad news is that we’re not doing enough. Current policies put in place by governments around the world are projected to limit temperature rises to around 3°C of warming. That’s some way below the 5°C we could expect if we took no action at all, but still above the 2°C tipping point.
The good news is that you can help in the fight against climate change and other environmental and social issues through the way you invest. Funds with a sustainability-focus try to make money by investing in companies that are more long-term minded than their competitors. Or that are likely to benefit from the growing need for more sustainable goods and services.
Impact funds go a step further in their ethical endeavours by measuring and reporting back on the positive impact they make on the environment and society.
How much difference can one person make?
There are lots of things you could do to reduce your carbon footprint. You could shorten your showers by two minutes each time, or take one less flight per year. You could consider taking the train instead of the car, or eat one less piece of meat each week.
But investing in a sustainable or impact fund could be much more effective than all of the above suggestions combined.
We’re not saying you should invest your whole portfolio in impact funds. We think the most successful portfolios are ones that invest in a range of themes, assets, countries and industries. But if you feel passionately about social and environmental issues, you might want to think about investing a small amount of your portfolio in one.
We look at two impact funds in more detail below. This information isn’t a recommendation to invest, should you be unsure of an investments suitability please seek personal advice. All funds will fall as well as rise in value so you could get back less than you invest.
Charlie Thomas has managed the Jupiter Ecology Fund since 2003. He invests in companies across the globe that offer solutions to environmental and social problems like pollution, resource scarcity and water shortages.
He thinks these themes will become more important as the population grows. Global demand for food and energy is expected to rise 50% by 2030. Those challenges will have to be met, while at the same time addressing other environmental issues like climate change.
Current investments include Alfa Laval, a Sweden-based company that produces a range of engineering solutions, including scrubbers that remove sulphur dioxide from ship emissions. The fund also invests in Norwegian recycling technology leader Tomra. The business operates ‘reverse vending machines’ which allow users to deposit used bottles and cans. The system captures over 40 billion beverage containers every year and helps to increase resource efficiency.
Thomas is an experienced, well-resourced manager and we think this could be a reasonable choice for a fund focused on sustainability issues. It invests in quite a niche area of the market though, so we expect it to perform differently to other funds in the IA Global sector. Investment in a niche area and the manager’s flexibility to invest in smaller companies adds risk.
FP WHEB Sustainability
The team behind the FP WHEB Sustainability Fund invest based on nine sustainable investment themes. These range from resource efficiency and sustainable transport to education and wellbeing. The fund invests in emerging markets which can increase risk.
Every investment into the fund makes a positive difference. £10,000 invested into the fund in 2019 helped:
- Generate 8 MWh of renewable energy
- Avoid 9 tons of carbon dioxide emissions
- Treat 110,000 litres of waste water for reuse
- Recycle or recover 2 tons of waste material
- Provide a day of tertiary education
- Two people receive healthcare treatment, and saved £490 of costs through more efficient healthcare systems
This is the only fund managed by the WHEB team, meaning they’re totally dedicated to it and focused on its success. We think it could be a reasonable choice for investors who want to make a measurable difference. However, the portfolio looks very different to the broader global stock market, so we expect it to perform differently too. This, and the fund’s focus towards small and medium-sized companies adds risk.
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