Advisers yet to get responsible investing

One of the funny things about many if not all of the ethical funds available to retail investors is that they have higher management fees than other similar unit trusts, not that ethical really is it...

Seems to me NZ Financial Advisers 'get' ethical investing only too well. Why would you drop investment in clean long term stable electricity generation from nuclear to invest in windpower that only exists because of massive government subsidisation, is visual pollution and cannot provide the sort of long term stable, consistent generation a country needs. And yet that sort of folly is what 'ethical' investing requires.

NZ Financial Advisers do best for their clients by staying well away from the politically inspired propaganda that is ethical investing.

I think most financial advisers do indeed get responsible investing; however I don’t think they have yet embraced it.
Responsible investing is not solely about investing in cleaner forms of energy. At a broad level, it is about maximising investor returns whilst at the same time taking into account environmental, social and governance issues. With ever great litigation and legislation aimed at protecting the environment and society, it makes sense that if a company’s business activities damage the environment, their employees or their clients, there is a greater likelihood of a price to pay (including to shareholders). Would you not want to ensure that the stocks and bonds you (or your client invests in) are less exposed to these types of risks?
Typically, ethical or socially responsible funds are more expensive than their mainstream counterparts (running ethical screen or ESG assessments doesn’t come free). I guess the question is does the net return justify this. The Responsible Investment Association of Australasian publishes a benchmark report on Responsible Investing in Australasia every two years. In its last report in 2011, responsible funds outperformed the relevant index and the average return from mainstream funds over almost every time period (in the Australian equities, global equities and balanced fund sectors). The next report is due out next month and it will be interesting to see the results (or whether I will need to eat my words).
Finally, I read earlier this year some interesting news about research done by Bloomberg New Energy Finance. The study shows that electricity can be supplied from a new wind farm at a much lower cost when compared to new coal or new gas. Even without a carbon price (which the study factors in) wind energy is according to the report 14% cheaper than new coal and 18% cheaper than new gas.

@Matt I think you have nicely sidestepped the point I was trying to make. Who decides if an investment is ethical against what criteria is a political decision. An investment that is ethical today may not be tomorrow and is totally dependent on what interest groups are in play. Just look at the political footballs that are being kicked around today compared to a few decades ago and what changes will come into play in the next few years? No one can answer that. And therein lies increased risk for the investor.

Ethical investing is just another lever used by interest groups to bring pressure to bear against those they dislike for those they favour when riding their particular hobby horse.

BTW wind power has been shown to be a crock that only survives due to the government subsidies. They do not generate either base load or are reliably available during peak usage. Quite simply the wind doesn't operate to schedule. They would be a terrible investment but considered against today's ethical standards they rate highly. When their true environmental impact is taken account and the government subsidies cease they will be a basket case.

http://wattsupwiththat.com/2013/05/10/the-faults-fallacies-and-failures-of-wind-power/

http://www.telegraph.co.uk/news/uknews/scotland/10038598/Scottish-wind-farms-paid-1-million-to-shut-down-one-day.html

A slightly delayed response but…

No intention of side-stepping the points you make and maybe we are at slightly crossed purposes here.

Responsible Investing is not just about wind or renewable energy. As mentioned above it is about investing for profit whilst taking into account environment, social and governance issues. It may include investments in renewable energy.

I agree that renewables have been privy to government funds. HSBC, in their 2009 report, “A Climate for Recovery”, identified over $US430 billion in fiscal stimulus for key climate change themes. Renewable energy targets exist in over 100 countries, so no doubt will be recipient of more support in the years to come.

But the important issue is why and I think it is because governments recognize that there is a real sustainability crisis taking place. The Global Footprint Network estimated in 2008, that each year we (Mankind) consume 1.5 earths (i.e. it takes 1.5 years for the earth to renew the resources consumed in any one year). By 2050, it predicts (on current trend) we will be using 2.9 earths per year. This places an increasing burden on the earth’s resources. Climate change is a symptom of this (as are other issues such as depleted fishing stocks, severe environmental damage etc).

Major organisations such as the International Energy Agency, The World Bank and the IMF have all issued dire warning over the past 12 months. Without strong action, “future generations will be roasted, toasted, fried and grilled” (quote IMF Chief, Christine Lagarde). Without a fundamental shift from fossil fuels to low carbon sources of energy, and quickly, the 2 degree cap on global temperature increase (which appears to be the agreed consensus for limiting damage from climate change to acceptable levels) will not be met and this could prove disastrous for future generations. Nuclear energy could well be part of the solution but appears to be out of favour post Fukushima (for the time being at least). Nuclear fusion is possibly the answer but commercially viable reactors are most likely 30 – 40 years away. Therefore cleaner renewable sources of energy are the most likely solution. Hence, that is why I suspect many more billions will be poured (from private and public sources) into renewable technology and energy sources in the coming decades.
So yes, it is politically driven to a large degree, but needs to be.

Here’s a couple of links…
Global Footprint Network - http://www.footprintnetwork.org/en/index.php/GFN/page/world_footprint/
Guardian Article - http://www.guardian.co.uk/environment/2013/jun/10/waiting-climate-deal-set-world-path-5c

Matt by your comments you show you have been captured by a political agenda. Therein lies the problem. It is a political issue driving this call for 'ethical investing' with the call on what is 'ethical' made by whatever the political agenda du jour is at the time - not what is actually real or relevant for an investor.

Renewables is a really good example to use because the disaster that it has been should be a salutary lesson. Just look at the solar investments in the US where they have gone belly up - even with massive government subsidies.

Please note I have only used renewables as an example of the underlying problem that is political interference. The FACT that there has been no global warming for 17 years seems to have escaped your notice. Even Pachauri admits its 'on hold' yet the agenda remains.

The issue remains - 'ethical investing' by it's very political nature is not a sound investment strategy for a long term investor.

Responsible investing comes in many shapes and definitions. For example, BP could be included in such a fund due to the company's implementation of strategies for waste reduction and enhanced environmental protection policies. Alternatively, a fund may bar investments in certain industries, such as the tobacco and armament industries. The majority of responsible investment funds do not have an extreme green only policy.

Thank you anon - my point remains however. Who decides what is ethical?

The armaments industry is a good example. One view of the industry is they provide security in a highly regulated and controlled environment. Whereas the politically correct crowd say they are an 'unethical' investment because they kill people.

You don't have to be a conspiracy theorist to recognise ethical investing criteria are promoted by the same individuals who promote extreme green agendas.

Hopefully I haven’t been inadvertently captured by a political agenda. Whilst I remain open minded on the climate debate and did read with interest about the pause in global temperature rises (and this article form the Guardian which adds a bit more colour; http://www.guardian.co.uk/environment/climate-consensus-97-per-cent/2013/jun/24/global-warming-pause-button ) I also have sympathy for Obama’s sentiment in his climate change speech earlier this week when he stated, “we don’t have time for a meeting of the flat earth society”.

Back to responsible investing. As I pointed out above , I see responsible investing as being about maximizing profit whilst at the same time taking into account environmental, social and governance issues as part of he process. It need not be extreme or lead to certain sectors being avoided (though this is one approach). It is also about managing risk. For example, if a company has a poor environmental record, treats its employers poorly or makes products (or services) that are damaging to the health of its customers, then I would suggest it has added risk from purely an investment perspective (notwithstanding some obvious moral issues). It makes good investment sense to factor this into any decision as to whether to invest or not.

Therefore responsible investing can be applied from an investment perspective (as well as from a purely moral perspective).