5 reasons why you should invest ethically

Consumer demand for ethical investing is on the rise, now almost £13 billion of UK investors’ money now under the management of ethical funds (Investment Association). We’ve put together a few reasons which why this may be happening and why we think you may want to consider investing ethically.

1.       You can decide what your money is financing. If you currently invest in a pension or an ISA there is a very strong chance that your money could be financing, among other things, weapon production, animal exploitation or environmental damage. If the impact that your money may have on such issues matters to you then responsible investing is something you should consider.

2.       You can make a difference. Nowadays investors have a growing choice of funds and can personalize their portfolios to make a positive difference. Impact investing is investing made with the intention to generate positive, measurable and environmental impact alongside a financial return. Here is an example below (ImpactBase)

A European private equity fund invests between several million in companies that provide clean electricity to rural communities in developing countries with limited access to energy. The fund made an investment in a company that provides solar energy for lighting and refrigeration in rural Indian households, schools, and hospitals that have limited access to the main electricity grid. Enabled by this investment, the company has installed more than 40,000 systems and currently offsets 25,000 tons of carbon dioxide emissions.

Some positive criteria which a fund may choose to invest in are: minimising animal testing, environmental management and human rights support.

3.       You don’t have to sacrifice financial returns. For a long time, ethical investing had negative connotations attached to it; more volatility, lower returns, higher costs. Fortunately, a remarkable transformation has taken place as many ethical funds currently on the market consistently outperform their more conventional and established their peers.

In a journal by Friede (Deutsche Asset &Wealth Management) and Busch (University of Hamburg), over 2000 empirical studies on the relationship between ESG factors and corporate financial performance from the past 40 years were aggregate. The journal concluded that 90% of them have found that ESG factors have a positive or neutral impact on financial returns.

4.       It makes sense. Investing ethically provides solutions for environmental concerns in the long term such as global warming and pollution, and investments supporting these tend to hold firm in times of volatility.

5.       Psychic returns (non-wealth motivations). Making a positive difference to the world we live in through your investment decisions can give a feel good factor, just like when you would donate to charity or volunteer. All whilst insuring a hopefully brighter future for now and the generations to come.

Results of client ethical views survey

As many of you are probably aware we have a survey on our website entitled ‘What are your ethical concerns?’ We’ve put this up to find out what people’s ethical views are, mostly so we can further understand what funds we should be researching to add to our portfolios to better suit our clients.

The results are as follows:

·         100% of people would be concerned if their pension or investment was supporting animal testing for non-medical purposes, such as perfume or cosmetics

·         100% of people would be concerned if their pension or investment was supporting the intensive farming of animals.

·         100% people would be concerned if their pension or investment was supporting the manufacture of armaments.

·         87.50% of people would be concerned if their pension or investment was supporting climate change/fossil fuels-the extraction and exploration of fossil fuels.

Luckily, all our portfolios are now fully divested. Ensuring that our clients’ pensions and ISAs benefit from all the research and attention you would expect from a wealth manager, whilst helping the transition to a sustainable economy and relationship with the world.

·         87.50% of people would be concerned if their pension or investment was supporting gambling.

·         100% of people would be concerned if their pension or investment was supporting human rights violations.

·         62.50% of people would be concerned if their pension or investment was supporting pornography.

·         88.89% of people would be concerned if their pension or investment was supporting tobacco.

These results are intriguing and help us better understand what clients would possibly want in their portfolios, allowing us to narrow down our research.

We aim to keep these results regularly updated and shared with you to give you a brief look at what other people’s thoughts and ethical issues are.

Our Chartered status

Purposeful.Money have previously achieved Chartered Status and we now feel it is important to explain what this actually means, as it is an important award with significant recognition. 

The status was awarded to Purposeful.Money by the Chartered Insurance Institute (CII) and acts as a kitemark for quality in the eyes of the public being widely recognised as a symbol of trust. 

This recognition is more important nowadays as quite rightly consumers are more demanding than ever before. Understandably they expect to deal with Financial Advisers who can provide first class service, advice and support. Independent research has shown that consumers recognise the Chartered status as a symbol of professionalism and excellence.

What does the charter mean though and why is it such a symbol of excellence?

Essentially, Chartered Status enables us to be able to demonstrate our professional commitment to raising standards of knowledge, capability and ethical practice.  It lets our clients know that they will receive the highest levels of service from us.

Any client who engages the services of a Chartered Financial Adviser can expect the highest level of qualifications to have been achieved along with the highest standards of professionalism.

Royal Charters date back as far as the 11th century and can cover bodies such as Universities, Charities and professional Institutions.  On the advice of the Privy Council a Charter is awarded by the Monarch of the time.  These are granted in rare circumstances and in general terms is only done so where there is a convincing case that it is in the public Interest to provide Government oversight of the body and where a profession is able to demonstrate a track record of achievement over a number of years.

Once a professional body is granted this Charter they are then able to grant ‘Chartered Titles’ to individuals and firms which meet strict qualifying criteria.  In our circumstances the CII, who were granted its Royal Charter in 1912, must uphold the rules of its Charter and in turn the holders of the Chartered titles such as Purposeful.Money must comply with their Code of Ethics

Chartered Status brings with it some serious obligations on the part of the adviser.  We are required to ensure that our advice and ongoing support is:

• Of the highest quality

• Based on the client’s researched needs

• Provided by someone operating within their level of competency

Advisers must meet these requirements in a number of ways:

• A commitment to professional development, including attaining the highest qualifications

• An adherence to continual professional development that is evidenced to the CII.

Even though the Royal Charters are a British Institution it is widely recognised outside of the UK as well.  Being able to demonstrate an ongoing commitment to professional development is a set of values that is recognised the world over.

At Purposeful.Money we are proud to have achieved the status of Chartered Financial Advisers and continually strive to meet the code of ethics and standards of professional qualifications set by the CII.  Our core objective is to offer clients an opportunity to invest their money in a more socially responsible manner in order to help achieve positive benefits in the world.  We believe that the ethics and values required to maintain the Chartered Status are in perfect accord with our own principles of integrity and trust.

Palm Oil, good or bad?

Palm oil is a vegetable oil that is produced by simple steaming and pressing (Palm Oil Health), much like how olive oil is produced. Global consumption has risen from 14.6 million tonnes in 1995 to 61.1 million tonnes in 2015 (EPOA). This vegetable fat can be found in 50% of packaged goods, baked goods, cosmetic and cleaning products in supermarkets (Rainforest Rescue). Even though palm oil is widely popular it might be a bit tricky investigating product labels for a direct reference as it comes under various names, a few being: vegetable oil, vegetable fat, sodium lauroyl lactylate/sulphate, hydrogenated palm glycerides, ethyl palmitate, octyl palmitate, palmityl alcohol, palm kernel, palm kernel oil, palm fruit oil, palmate, palmitate, palmitic acid, palmitoyl oxostearamide, glyceryl, stearate, sodium lauryl sulfate or sodium palm kernelate.

The popular ingredient needs hot and moist conditions to thrive in. Conditions that are commonly found in rainforests, more specifically within 10 degrees north or south of the equator. Malaysia and Indonesia account for around 90% of the entire world’s palm oil production (Palm Oil Investigations). Why is it so popular you might ask? One reason is its ability to maintain its properties even under high temperatures, as the highest-yielding vegetable crop it produces up to 10 times more oil per unit as compared to soya beans and sunflowers (Earth and World). It also requires less than half the land required by other crops to product the same amount of oil, making it the cheapest vegetable oil in the world.

Even though palm oil has very recently come under scrutiny as Iceland released their Christmas advert and it was banned from the UK as it was ‘deemed to breach political advertising rules’, the debate on whether it’s good or evil can be dated back on the web to 2011.

The banned advert has had about 30 million views over social media streams. (Image Source: PA/Greenpeace)

The Iceland advert was originally produced by Greenpeace, it shows a cartoon orangutan mourning the loss of its home, a forest, that was wiped out to make way for palm oil plantations. Just like Brazil is clearing hectares of its rainforests to make way for cattle ranching, countries with optimal conditions to grow palm oil are doing the same. The WWF states that up to 300 football fields of forest are cleared every hour to make room for palm plantations.

This sensitive video has led to many questioning their unconscious usage of products featuring palm oil derivatives, is there a way to curb our thirst for it and use other more sustainable products?

It is said that in the past 10 years, the orangutan population has decreased by 50% as the result of habitat loss from the forest clearing for palm plantations (The Orangutan Project), at this rate many experts have estimated that orangutans could become extinct in the wild in less than 25 years. Not only are orangutans a victim of deforestation, but there are around 300,000 different animals found in the jungles of Borneo and Sumatra. These animals are being killed, injured and displaced due to the clearing of forests, they’re also at a higher risk by poachers and wildlife smugglers due to the increased accessibility. Apart from the impacts on wildlife, lies the impact on the environment- deforestation to make way for the palm plantations puts a huge strain on the biodiversity of the forests and ecosystems in the country. The ‘most efficient’ removal of the native forests is by burning invaluable timber, which releases vast quantities of fumes into the air- making Indonesia the third highest greenhouse gas emitter in the world.

Smog engulfs the forest as an annual slash and burning starts. (Image Source: CNN)

Wildlife and animals are as greatly affected as the local communities, indigenous communities have witnessed the government hand over their land to private companies and have subsequently become laborers on their own land. This dilemma dates to 1967 but started to get worse towards the late 1990s as locally elected officials began to exercise virtually total control of land allocation and used it to facilitate access for plantation companies that didn’t abide by environmental warnings or regulations. The problem here might not be so much palm oil as a crop but instead its profitability and the multinational companies that want to take a bite out of this profit.

As soon as Iceland’s advert went viral, several petitions popped up on the web urging people to join in the collective boycotting of palm oil and all its derivate products. While this seems like an understandable stance, there has been a lot of talking that this could bring more harm than good to the forests of Indonesia and like countries. A report published by the International Union for the Conservation of Nature stated that blacklisting palm oil would ‘just shift losses to wildlife and animals instigated by agriculture’, instead of reducing them. If palm oil was completely boycotted then we would need another vegetable oil to replace it and meet the vast global demand that comes with it, this would be even more devasting on rainforests as palm oil plantations would need to be eradicated to grow another crop which will yield much less product and require far more pesticides and fertilizers, This dilemma can be almost be mirrored to our problem with fossil fuels- our energy demand is ever-growing, it’s relatively easy to obtain and efficient through fossil fuels and we know its damaging our planet and that there are other options we should take, but right now they’re not very viable (e.g. solar power, which is  not yet economically viable as it’s expensive and relies heavily on government assistance.)

 ‘If all palm oil production was regulated and sustainable, would it be okay?’

The definition of ‘sustainability’ can differ from person to person, let alone from nation to nation. Even though organizations such as the Roundtable on Sustainable Palm Oil (RSPO) strive for transparency so that their growers are RSPO certified, it’s a very difficult thing to ensure- a lot of farmers just tend to a few hectares and sell bunches of the palm oil fruit for cash to traders. This is just one of 8 principles that the RSPO expects from growers, so one can imagine how challenging it must be to perform well against all of them put together. Greenpeace released a report in 2013 that demonstrates that the RSPO wasn’t producing anything close to truly sustainable palm oil and the Roundtable was in-fact certifying forest destruction mainly through slash-and-burn approaches to clear forests. In June 2018 new research was published in Environmental Research Letters comparing environmental, social and economic performance between certified and non-certified plantations, concluding that there was ‘no significant evident to suggest RSPO was better in achieving any of those metrics compared to non-certified plantations’.

As the world population is growing, so is the demand for this vegetable oil which means its production needs to be stepped up – this would expand the reach of organizations such as the RSPO if all palm oil were to be regulated, which so far haven’t been able to stick to what they promise.

So that leaves us as in question as before… what are your thoughts on palm oil?

Let us know!

Good Money Week: Why our portfolios are now divested

In light of Good Money Week we wanted to explain why our portfolios are now fully divested.

It is a fact that there are a growing number of people who are aware of, and want to fight against, man made climate change. It is also a fact, that most pensions and Stocks and Shares ISAs contain funds which invest in fossil fuel extraction or exploration companies due to the simple fact that they historically have provided excellent returns. I’ve spoken to clients who donate money each month to charities such as Greenpeace, and at the same time hold money (without realising it) through their pensions, in Shell and BP!

We’ve been wanting to provide a solution to this problem for some time. The problem for us wasn’t necessarily a lack of time, knowledge or inclination, but more a lack of choice! For example, winding the clock back only a few years, I could only find one fund which had a clear, checkable policy on excluding fossil fuel stock. One fund of course is not enough to make a portfolio! Our aim as wealth managers is to ensure that client money is diversified, can be tweaked according to changes in performance, cost, the emergence of new funds, risk and so forth. We have been checking the market place continually since that point, and, happily for clients and for the world in general, there seems to have been a rather swift change of direction in the market. We’ve seen numerous new funds launch, matched by clearer exclusion policies for existing funds.

Image Source: Finance Matters

We now offer portfolios which are 100% free of fossil fuel extraction and exploration companies to suit every category of investment risk. A divested range of portfolios such as this is something we believe to be unique in our sector and has taken years of ongoing research and gradual improvements to work towards, with continued effort required to maintain and develop the proposition.

You might ask yourself why we believe that fossil fuel investment should be avoided?

Firstly, we consider the overwhelming scientific consensus that man-made climate change is real, and is a result of our carbon emissions to be a compelling reason not to support the industry on ethical grounds. Climate change is causing problems in a range of areas where it is not yet perhaps given full credit. A warmer climate is leading to more extreme weather events and destabilized seasons which can lead to turmoil for farmers and our food resources. As well as the humanitarian issues; we are losing land- with trillions of dollars of real estate around the world is on coastlines and directly at risk from a rising sea level, and animals such as polar bears, coral and turtles.

Image Source: Forbes

Secondly, and removing any ethical, moral or political arguments, we have the risk of the ‘Carbon Bubble’. At the recent Paris Climate Agreement (COP21), 195 nations agreed to various measures to ensure that global temperatures did not exceed 1.5 degrees centigrade above pre-industrial temperatures, as it has been accepted that we will experience an environmental catastrophe if we go much beyond this. We now have a legal obligation to reduce the level of carbon emissions at a national level. This means that significant assets currently making up the balance sheets and therefore the valuations of fossil fuel companies, can never be extracted and turned into money. This means that right now, many of the world’s largest companies, whose shares are owned by most of the worlds investment and pension funds, are significantly overvalued. We do not consider this a worthwhile risk to take, especially when you factor in the growth, and potential growth available through their competitor industries in the clean energy generation sectors.

If you also believe in avoiding fossil fuels we can check your pension or ISA for them, and if necessary help you ensure that your money is no longer supporting the fossil fuel industry, or indeed at risk from it!