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General Overview

This style of investing has become much more widespread in recent years as investors have become more sophisticated in their requirements. There are three basic approaches adopted by fund managers and you will find that funds will now very often call themselves 'Sustainable Future Funds' rather than 'Ethical'. This allows the fund manager a wider scope and this can help create a wider investment parameter to actively seek investment returns.

Support, Avoid or Engage?

Support strategies will include buying into companies that sell positive products, such as renewable energy, educational materials and safety products to name a few. Funds can also favour companies with positive policies, such as good equal opportunities, supply chain management, community involvement and charitable giving.

Avoid strategies will screen companies prior to investing and avoid areas such as Tobacco, Alcohol, Armaments and Pharmaceuticals (promoting animal testing) etc. These tend to be favoured by investors who have a strong personal feeling towards certain types of business.

Engagement strategies have a more open architecture, as the fund invests in companies with a view to using shareholder rights to encourage more responsible business standards. Engagement is often used alongside an avoidance investing strategy, as certain industries cannot be changed irrespective of investor sentiment.

Engagement fund managers have a clear guideline as to how they work towards their engagement goals. This is borne out of a risk matrix, which positions the prospective company based on its product sustainability and management quality, which creates a grading system such as a credit score might work.

Sustainable Investing

This style of investing allows a wider architecture for the type of assets held and companies chosen as investment opportunities.

Assets are chosen for their long-term ecological prominence, but criteria might also include human rights records and the corporations interaction with local communities. This could mean that they support poor economies, whilst not necessarily falling into a very Ethical sector.

The growing prominence of this sector has brought with it greater need for due diligence when making investment decisions aligned with your moral views.

Portfolio’s for our Future?

The main driving force for this sector lies within the acute need for government’s to make changes to worldwide policy to protect against the damage created by pollution, together with our increasing disgust at the dereliction of the planets resources.

Moreover, we are also becoming more aware of more localised issues, such as poor human rights within the manufacture of goods and the mis-direction of wealth.

The media prominence of these and other issues have pushed ecological, ethical and sustainable arguments to the forefront of politics and our daily lives.

Kyoto

The Kyoto Protocol was adopted in Kyoto, Japan, on 11 December 1997 and entered into force on 16 February 2005. 184 Parties of the Convention have ratified its Protocol to date.

The Kyoto Protocol is an international agreement linked to the United Nations Framework Convention on Climate Change. The major feature of the Kyoto Protocol is that it sets binding targets for 37 industrialised countries and the European community for reducing greenhouse gas (GHG) emissions .These amount to an average of five per cent against 1990 levels over the five-year period 2008-2012.

Recognizing that developed countries are principally responsible for the current high levels of GHG emissions in the atmosphere as a result of more than 150 years of industrial activity, the Protocol places a heavier burden on developed nations under the principle of “common but differentiated responsibilities

Copenhagen – December 2009

More than 180 countries attended a United Nations meeting in Copenhagen, Denmark, to thrash out a new international deal to tackle climate change.

The UK Government believes that if we do nothing, scientists predict that global warming will cause potentially catastrophic changes in the world around us over the course of this century, including:

While the debate about timescales and the depth of the issues continues, the issues for economies and individuals remain.

  • Extreme weather: Summer temperatures as experienced in 2003 a record breaking heat wave in Europe which killed 35,000 people could become the norm.
  • Sea level rise: Steep increases in global sea levels will cause severe flooding in many countries. In Asia, 94 million people could be left homeless, leading to large scale migration.
  • Water shortages: Glaciers could shrink by almost two thirds, and the rivers they feed could start to dry up.
  • Food shortages: Drought in parts of Africa could reduce harvests by half by 2020.
  • Extinctions: Up to a third of known plant and animal species will be at risk of extinction. Entire natural environments like coral reefs and rainforests would be under threat.

The UK Government believes that, in the UK alone, low carbon and environmental goods and services are already worth over £100 billion each year and the sector employs 880,000 people. Important benefits of creating a low carbon future for the UK include:

  • New jobs and business opportunities in low carbon industries, such as solar and wind energy, and low carbon vehicles
  • More secure energy supplies and a more resilient economy as dependence on imported and increasingly expensive fossil fuels is reduced

In the 2009 budget, the UK Government put in place measures to stimulate an extra £10.4 billion of investment in the low-carbon sector.