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Weekend reading: An ethical quandary

Weekend reading: An ethical quandary post image

What caught my eye this week.

A short while ago the UK blogger DIY Investor wrote passionately about the threat of climate change. He’s now put money into the Impax Environmental Investment trust in part to do something about it:

As I was writing my article on climate change recently, I must admit to a feeling of guilt that I did not hold a ‘green’ fund in my portfolio.

I have some reservations regarding this sector and suspect many funds are not really as green as they make out.

However some are clearly better than others [and] I think that being aware of a potential problem brings with it a responsibility to do something positive.

So, time to make amends.

We get a fair few queries about ethical / SRI1 investing. In response, The Accumulator wrote a big article about it last year, with a tilt towards passive options.

What jumped out at me from DIY Investor’s write-up though was this section from Impax on the happy consequences of buying a big wodge of its shares:

Environmental impact of £10m investment in IEM plc

  • Net CO2 emissions avoided 7,940tco2
    Equivalent to taking 3,940 cars off the road for a year
  • Total renewable electricity generated 2,150 MWh
    Equivalent to 520 households’ electricity
  • Total water treated, saved, or provided 2,340 megalitres
    Equivalent to 18,500 households’ water consumption
  • Total materials recovered/waste treated 1,340 tonnes
    Equivalent to 1,340 households’ waste arising

I am as concerned about the environment as anyone I know. I applaud the aims of both the trust and my fellow blogger.

However I can’t decide whether buying into a trust like this really equates to anything like the impact quoted above.

I’m not doubting the underlying green businesses which it invests in. I haven’t researched them.

Rather, if you buy shares of an investment trust in the open market, you’re simply swapping your money for the shares of someone else. You now own a bunch of companies achieving those lofty targets – but now somebody else does not. Surely it’s a zero sum trade?

It’s only when the fund raises money that new funds will go into the sector.

That’s on the one hand.

On the other hand, the greater the demand for assets like this, the stronger the secondary market and the easier such companies – and funds – will find it to raise money in the future.

So on balance I think owning the fund does no harm and probably a little good – but it would be best to buy into such trusts when they first raise money if you want to make the most impact.

Of course, I own Tesla shares and console myself for putting up with their volatility with the importance I see in its mission.

But then again that electric car / battery / controversy maker will certainly need to raise money again in the future if it’s to achieve its ambitions. Hence its shares really do need all the support they can get.

Do you consider ethical factors when making an investment – and would you feel easier flying to Spain on the back of it?

Let us know in the comments below.

From Monevator

Why would higher bond yields cause share prices to fall? – Monevator

From the archive-ator: Asset allocation rules of thumb – Monevator


Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!2

Government borrowing in September lowest since 2007 – BBC

Flat rate pension to rise by 2.6% (or £4.25 a week) from April… – ThisIsMoney

…while the pension Lifetime Allowance will rise to £1,054,800 – Professional Pensions

UK house prices rise at their lowest rate in five years, says ONS – Guardian

Jargon-free pensions statement criticised for leaving out fees [Search result]FT

Bumper year for income, with FTSE 100 posting 10% dividend growth – ThisIsMoney

(Click to enlarge)

The demographics of UK home buyers shifted after 2009 – Neil Hudson on Twitter

Products and services

Banks to check account names to beat transfer fraud – Guardian

How can a salary sacrifice scheme boost your pension? – ThisIsMoney

Share incentive schemes: Invest in your employer [Search result]FT

Ratesetter will pay you £100 [and me a bonus] if you invest £1,000 with them for a year – Ratesetter

UK investment trust discounts widen since Brexit vote [Search result]FT

Investment platform AJ Bell grows customer base ahead of IPO – CityWire

The rise and fall of the ethereum crypto-currency [Search result]FT

Comment and opinion

Designing an ETF portfolio withdrawal strategy – Just ETF

A bear market comes bearing gifts for most – Humble Dollar

This is the end – Pension Partners

What is your financial tipping point? – Of Dollars and Data

Actually, maybe you should sell some shares this time [US but relevant]Morningstar

The worst kind of bear market – A Wealth of Common Sense

Nice people have emptier wallets, on average – Scientific America

Shorting pioneer Tom Barton exposed some crazy frauds [Podcast]Meb Faber

The one-word secret of the best investor you’ve never heard of – The Value Perspective

What colour is your parachute? – Simple Living in Somerset

For stock pickers: Has chasing hot stocks stopped working? – The Macro Tourist

For investing nerds: Why seed fund-raising scaled – Robert Bryce

Another for active-eers: More ways to manage equity risk – Flirting with Models


Want a referendum on the final deal? Tomorrow’s London march is for you – People’s Vote

Eggsit means Eggsit – Gary Bainbridge

Brexit and finance – Young FI Guy

Cryptocurrency exchange Coinbase sets up Brexit contingency plan [Search result]FT

Kindle book bargains

A Million Years in a Day: A Curious History of Daily Life by Greg Jenner – £0.99 on Kindle

The Templars: The Rise and Fall of God’s Holy Warriors by Dan Jones – £0.99 on Kindle

You Are a Badass: How to Stop Doubting Your Greatness by Jen Sincero – £0.99 on Kindle

Way of the Wolf: Straight line selling by Jordan Belfort – £0.99 on Kindle

Pay what you want for a bunch of electronic books [Beware all the trading tomes!]Humble Bundle

Off our beat

The life-changing magic of tidying up – Get Rich Slowly

How Netflix expanded to 190 countries in seven years – HBR

It’s okay to feel down for no reason – Raptitude

The bad behaviour of wealth managers’ richest clients – Guardian

Saudi Arabia and the common knowledge game – Epsilon Theory

And finally…

“People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare them out of the game.”
– Peter Lynch, One Up On Wall Street

Like these links? Subscribe to get them every Friday!

  1. Sustainable, Responsible, Impact Investing. []
  2. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. []
{ 26 comments… add one }
  • 1 John B October 19, 2018, 6:42 pm

    There is the argument that you should invest in an index tracker, and have a pretend investment in an ethical fund, and note the returns in each before fees. Probably the index tracker will be ahead, take the difference and give it to an ethical charity, taking advantage of gift aid.

  • 2 hosimpson October 19, 2018, 7:21 pm

    No. I don’t invest in ethical / green funds. That would be a waste of money, IMHO.
    I take a more direct approach to tackling climate change – I vote green in local elections, I compost, recycle, switch off the lights in empty rooms, use green energy at home, don’t buy useless crap only to take it to landfill a few months later, and cycle to work. I do travel a reasonable amount, which involves a bit of flying short and long haul, but then I offset that by not having children 😉

  • 3 dearieme October 19, 2018, 10:56 pm

    “The recession ended in June 2009 but the Fed held off from hiking rates until December 2015.” For what reason? Domestic politics e.g. an easy ride for Obama? Deeper politics: to make mega millionaires even richer? Foreign politics: something to do with USA vs China? Cock-up and confusion: macro-economics is mainly junk?

    Housing market: it would be (mildly) interesting to know how many new BTL mortgages are being taken out by individuals, how many by companies.

    “An historic night it was.” I’ve hated that absurdity since boyhood. Can we agree that it should either be “A historic night it was” or “An ‘istoric night it was”? Please.

    As for the article it came from: America is relaxed about her murder of Arabs by the hundreds of thousands, but gets her knickers in a twist about the murder of Mr Wosname by her Very Important Ally.

  • 4 L October 20, 2018, 8:49 am

    I’m largely with hosimpson on this one, although I suspect I may end up having a deathbed/retirement conversion to ethical funds.

    We also recycle, compost, have all LED lightbulbs and low energy appliances, insulation and a modern boiler, solar panels and a fuel efficient car that is used relatively little. I’m too scared to cycle to work, but I do take the bus, which is also fairly green in the grand scheme of things.

    As a parent, climate change scares the shit out of me.

  • 5 The Investor October 20, 2018, 9:12 am

    “The recession ended in June 2009 but the Fed held off from hiking rates until December 2015.”

    For what reason? Domestic politics e.g. an easy ride for Obama? Deeper politics: to make mega millionaires even richer? Foreign politics: something to do with USA vs China? Cock-up and confusion: macro-economics is mainly junk?

    There was no need to raise rates because there was no threat from inflation.

    In the very article you quote from there’s a graph showing that the Fed funds rate minus core CPI in the US has only just gone positive for the first time in over ten years! Up until last month, it was still an accommodative policy.

    I was never on board with the political kicking Central Bankers got, especially in the US, but in the light of history it looks even more ridiculous and so should certainly be consigned to the dustbin now. 🙂 At almost every step they have called it as right as anyone.

    President Trump seems to be setting the Fed up as fall guys for the next recession, whether it comes about through his own trade policies or just the fact that they are a feature of capitalism and the US hasn’t had one for a decade.

    No need for us to play such games.

  • 6 thenumpty October 20, 2018, 9:31 am

    I agree with hosimpson in that taking a more direct approach to reducing your footprint is the best approach, as you can only offset so much. However, I still believe investing in renewable energy and sustainable funds will help by providing direct investment and maybe by reducing the required return on capital for those companies. I do balance it by having roughly half my investments in ethical/green funds or shares in renewable energy cooperatives and the other half in a global equity index fund.

    To choose ethical funds I looked into the highly rated funds from 3d investing as set out in Blue & Green Tomorrow’s guide (unfortunately I don’t think there’s a more recent version) – https://blueandgreentomorrow.com/invest/guide-sustainable-investment-may-2016/

    Legal & General have also launched a future world index fund which may be worth a look as it’ll have lower fees (but lower impact?).

    Personally I don’t do it to make me feel better about my consumption, but because I think it’s a good thing to do. I’ve found learning to be content has helped reduce my footprint the most. Compared to my early twenties (I’m now 30) I buy less stuff, eat a lot less meat (and avoid beef) and holiday in the UK. Something just seemed to click around 5 years ago and the more I looked into it the more I started to care and take personal action.

    The WWF have an easy to use, if simplistic, footprint calculator which can help put co2 figures into context – http://footprint.wwf.org.uk/
    I’m on 8.7 tonnes which is still quite a bit over the world average, but much less than the 15.9 it used to be 5 years ago!

  • 7 Massum October 20, 2018, 10:52 am

    I invest for the best return. If ethical funds can appear to me to do that. I will be there.

    The converse is also true.

  • 8 L October 20, 2018, 11:35 am

    @thenumpty –

    That’s sobering, I’m only 8% better than the UK average, I’d fancied myself a bit of a green crusader! 🙁

    Food was one of the larger areas, home was fine, travel was also fairly bad (surprising to me, as I bus commute and we drive 6,000 miles a year in a small petrol car).

  • 9 John @ UK Value Investor October 20, 2018, 11:58 am

    I like the idea of direct climate-related investments via platforms like Ethex, where you can invest in local solar panels on a school, or whatever. I haven’t actually invested in any projects yet, but I intend to put about 10% of my pension funds into that sort of thing at some point.

    Like others here, I focus mostly on having renewable electricity for my house, driving a fuel efficient 10yr-old car, not flying anywhere, eating a vegan-ish diet and trying not to buy loads of throw-away junk.

  • 10 Gentleman's Family Finances October 20, 2018, 12:21 pm

    If you want to invest your money into green projects then Abundance Investment is worth looking into.
    At the moment you can invest fresh money into green projects in the UK like a tidal wave project based in Orkney. This would be your money going into ethical / green projects so you can tell that you are making a difference.
    There is also a marketplace to buy shares in operating green projects for sone diversification.

  • 11 Alex October 20, 2018, 7:28 pm

    I held an Amundi Low carbon ETF to try and capture some “green” benefit. However, it delisted from the LSE, which was a risk I was not expecting! I eventually managed to get liquidity when the brokers agreed to sell on the French market, but this was months later. Before that point they said the only option I had was to donate the shares to charity, as they couldn’t sell them!

    Has anyone else been hit with delisting before?

  • 12 Dave October 20, 2018, 9:42 pm

    I’ve been hit by several delisting etf’s, so now I filter out anything with a market cap below £100m. It’s bloody annoying when someone else triggers a cgt bill for you.

  • 13 Tammer October 21, 2018, 12:13 pm

    Hosimpson and Massum might like to note that much empirical evidence now shows that “ESG investing” generates better long term returns or reduced risk…..

  • 14 ZXSpectrum48k October 21, 2018, 1:15 pm

    I’ve invested in renewable projects over the years via both equity and direct lending. I liked the risk-return, the tax breaks and the fact it was renewable. Triple-win. The problem is that you never understand the long-term consequences of investing in anything. If I’d known that investing in a tech stock (lets call it FaceTweeter) might have in some way helped some ex-bankrupt, with a dodgy orange tan, to get access to the nuclear codes and put back the environmental agenda by a generation, I probably wouldn’t have invested!

    I’m also somewhat pessimistic that “ethical” investing is doing anything other than fiddling while Rome, or to be more precise, the Earth burns. Renewable energy obeys the second law of thermodynamics. You still generate waste heat. Entropy will not be denied. The only sustainable solution is to delink what is perceived to be “economic growth” from higher energy usage, which is hard. I feel that compounding economic growth and a finite biosphere are just incompatible and that has clear consequences for investment.

  • 15 thenumpty October 21, 2018, 2:05 pm

    Maybe I’m wrong on this, but I’m not sure people are worried about heat generated directly from energy use. The main worry is the trapping of solar heat in the atmosphere and oceans by greenhouse gases, which are generated from burning fossil fuels. The sun provides the world with much more energy than we use. But I agree that we should be trying to reduce wasteful energy use/increasing efficiency.

    GMO have produced a white paper about climate change which is an interesting read – https://www.gmo.com/docs/default-source/research-and-commentary/strategies/asset-allocation/the-race-of-our-lives-revisited.pdf?sfvrsn=4

  • 16 Hari October 21, 2018, 8:14 pm

    I’m curious that ESG investing returns better returns …than what ?

    Delighted that ESG investing is doing well but surely it’s only a subset of the total investing market of investing products.

    IE the best returns must apply to funds within the total product set of possibilities.

  • 17 hosimpson October 21, 2018, 8:33 pm

    @tammer – it does not. I don’t normally argue with peoples’ notions on the internet, but this one is dangerous.
    Have a look at Mercer’s 2015 study, there’s also a plethora of posts on Bank Underground (mainly from stranded assets / financial stability point of view).
    But basically, the gist is: we don’t know which global warming scenario we will end up with. +2 degrees has different financial / investment implications from +4 degrees. Your green fund needs to know *now* what long term (warming) scenario we will end up with *in the future* in order to make the correct investments *now* so that they can reap gains in the long term. It is possible that some green funds will outperform the market, if they guess the right warming scenario early enough and correctly model its implications (also see: complex ecosystems, interlinked, climate warming has, at times, counter-intuitive effects). The funds that don’t guess it right will underperform the market. It is impossible to tell *now* which green funds will outperform the market in the future. Overall though, Russia and Canada are expected to be winners from the climate change, Africa the biggest loser, the Arabian deserts might turn green and bloom again. I don’t suggest you make changes to your investment portfolio based on that fact alone, because: 2,000+ other things to consider.
    As for social investing as a way of alleviating personal guilt for taking part in wrecking the planet, there was an excellent article in the FT a few years ago, something about the wages of sin being higher-than-average returns.
    Also, the problem with “ethical” in general is that ethics is such a personal thing. You’re not ok with child labour, right? How about guns? Define guns. Is that all military equipment or just firearms? And how about military contractors? Tobacco is out, right, but how about beer (that’s alcohol)? … you have to understand that some of the so-called ethical funds, esp. the American ones, are targeted at christian evangelicals, hence as well as excluding fags and booze they divert funds away from anything that could be linked to abortion. I, however, support a woman’s right to choose, and I won’t be seen dead investing in a product made for bible-waving radicals who believe that the earth is 5,000 years old.
    And what is green – renewable energy only? How about GM, is that green? Meat farms: in or out? How about the people who process meat and sell it on to the end consumer? You see the problem, right?
    If ESG funds worked like add-on features on new cars where you could “DIY” a portfolio based on your own values that would be one thing. But they don’t. If you looked at actual investments some of them hold, I bet you’d be surprised.

  • 18 The Investor October 21, 2018, 9:38 pm

    I have seen studies saying ESG outperforms, and studies saying it underperforms. I strong suspect it depends on how you define your ESG, and also time frames.

    @Hosimpson raises some interesting points about the unpredictable impact of climate change and the difficulty of investing for it. However these would seem to most apply to a particular kind of fund investing for a particular outcome. There are ESG funds that have big holdings in oil giants like ConocoPhillips and Shell, for instance (though doubt any own Rosneft, to the point about Russia! 🙂 )

    The Wages of Sin spin I believe came from the long run studies of Elroy Dimson et al, as one of the data dives into one of their annual Credit Suisse Equities Yearbooks). The stellar performance of tobacco stocks over the time period studied was a big driver of returns, if I recall correctly. Not to take anything away from the wider point about the unpredictability of ESG returns, but this wouldn’t seem to tell us much either way about investing re: climate change.

    On the other hand recent (say past 10 years) outperformance of ESG might simply be another way of saying growth has outperformed value. Growth companies tend to be new economy, value companies old economy, in super crude binary terms. So more Amazon and Google, less coal mining and steel smelting.

    But again, to add to points raised here already, good luck unpicking whether Amazon’s data centers and one-day delivery is a net positive or negative versus the infrastructure it’s replacing.

    Personally I mostly side with those who prefer to “do good” (which itself we could debate ad nauseum 🙂 ) via charities and consumption habits… but as a stock picker I do have the luxury of DIY-ing my own ethical portfolio to some extent. I’ve never owned tobacco firms because I hate the stuff, almost never gambling firms (I’d say never but I can’t 100% remember) and never pure military suppliers, though I’ve definitely owned companies with a foot or two in that business. I’ve certainly owned fossil fuel companies many times, and could easily argue that, say, Shell has the potential to be a positive due to its overweighting assets in gas rather than oil, for example. And as I mentioned I own Tesla, which I still think has the potential to be a game changer (even more than it has been already).

    Basically, as they say in the teen movies, It’s Complicated.

  • 19 Learner October 22, 2018, 5:46 am

    There’s another argument that we humans are well past the point where individual behavior can substantially move the needle on climate change. First it was 1 degree, then 1.5, then 2 degrees as the line in the sand. In a year or so we’ll be hearing that 2 degrees is regrettably inevitable and we simply must not allow 3 degrees of warming. Then 4. The only way now is structural change: wholesale elimination of some industries – or at least their current operating processes – subsidies and heavy regulation. (Decide for yourself whether this is likely to happen any time soon.)

    Ethical funds probably fall into the individual category wrt climate. I certainly see the sleeping-at-night appeal of not actively supporting the kind of companies who prey on society or turn a blind eye to the disappearance of journalists in order to sell arms to the perpetrators.

  • 20 allthegoodnamesaretaken October 22, 2018, 9:20 am

    I’ll believe climate change is a crisis when the people who tell me it’s a crisis start acting like it’s a crisis.

  • 21 Rachel October 22, 2018, 11:53 am

    I haven’t invested in ethical funds yet. Climate change is a serious issue, I sometimes wonder what my kids would do if they don’t have the things we are enjoying in abundance from nature.

    Also, I was hit by delisting quite a few times 🙁

  • 22 Rob October 22, 2018, 2:19 pm

    @Gentleman’s Family Finances

    I’d be wary of Abundance’s latest offerings. What began as lending for fairly ‘secure’ projects (e.g. had regulatory sign off, established businesses, clear funding & business case) has become increasingly risky – this project for example https://www.abundanceinvestment.com/investments/monnow-valley-biomass-2 has struggled to get their subsidy approved and so the likelihood of money being repaid has diminished. The interest rates on offer don’t seem to correlate with this level of risk.

  • 23 Duncurin October 22, 2018, 4:02 pm

    For my day-to-day life my WWF CO2 footprint score is a little over 100%. Add in my annual trip to Australia to see my Dad and it leaps to 186%. Air travel has a lot to answer for, apparently.

  • 24 Xenobyte October 22, 2018, 11:00 pm


    Oh! the WWF embeds the services of the notorius data-raper DoubleClick within its website. Alas that would not make it into my Ethical fund!

    I’ve owned an ethical pension for a decade; performed well but its criteria resulted in it being rather overweight in tech companies. It can be unnerving when they tighten criteria and decide to reject a well-performing constituent. Also, I could never understand why companies involved in mass surveillance were considered ‘ethical’.

    Delisting? Oxonica and Gippsland – ‘sure things’ from Investors Chronicle!

  • 25 Tim October 22, 2018, 11:53 pm

    I’ve long held some Thrive Renewables (originally Triodos Windfund) because – years ago – I got interested in having a green electricity supply. Having solar panels on the roof or a windmill out the back isn’t practical (we live in a flat), and simply paying more for a “green tariff” didn’t particularly appeal… but there are two sides to every trade and I quite fancied being on the supplier side of that one. According to the impact calculator on the Thrive Renewables website, these days owning ~535 shares means you own a stake in enough generating capacity to power an average UK home. (Shares have a “recommended price” of £2.60 which I assume is basically the NAV but they have been trading for considerably less – ~£1.50 – in the Ethex monthly auctions for a while; I have a theory the slide to a discount coincides with the appearance of larger listed renewables funds like UKW and JLEN). As an investment I can’t say its growth or dividends have shot the lights out but there’s a certain amount of satisfaction to be had from knowing you own hardware putting more renewable energy into the grid than you’re taking out (and also having considerably more impact than the same amount of money invested in a domestic rooftop solar installation would have).

  • 26 SemiPassive October 26, 2018, 3:08 pm

    I hold JLEN (John Laing Environmental Asset Group) and it has held up very well in the recent market turmoil. A healthy 6% yield with inflation link, mainly solar and wind power, with some water related infrastructure.
    It wasn’t really a conscience based decision, I have a lower carbon footprint than pretty much any hypocrite politician or virtue signalling celebrity anyway.

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