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How we spend our money is an expression of our values.
Buying power is a moral power and the way we spend has the ability to shape the world.
While most people would agree with that statement many people who care about the environment are simultaneously invested in Exxon Mobil. People who want to see a reduction in gun violence in America may also be invested in arms companies. Those who have lost family members to lung cancer may also be invested in tobacco companies.
The truth is, a vast number of those who are invested in the stock market have very little understanding of what theyre invested in. They rely on fund managers to buy and sell and only pay attention to whether their portfolio is going up or down.
The practice of screening out bad investments called Environmental, Social and Corporate Governance (ESG) is one way to pay more attention and be a little less bad.
ESG is a step in the right direction. However,if we believe that how we spend our money is a reflection of our values being less bad, then this is not enough.
To build a better future for our children, there must be a collaboration between all of us who care and all of us who believe it is our responsibility, in order for the future generation think in a new and different way. This new thinking is especially true for the world of finance.
The entire world of investment needs to be reshaped based on the values of those who are doing the investing.
A wholesale reset is needed in the financial approach for millions of people around the world.
Investors who care about making the world a better place should put their investments into companies that proactively address global, national or local problems while simultaneously making a profit.
Commerce should have a conscience. Profit should have a purpose.
The research is clear. Companies that do good in the world return more profits to their share holders than their counterparts -- those who do harm:
A factory the dumps toxic materials into the river down the road may profit in the short run but in the long run will destroy not only its reputation but also the health livelihood of the employees; and customers who live nearby.
An apparel company that pay workers a tiny wage and force them to work in slave- like conditions might make a faster profit in one year but over the long run will pay the price for their short-term, myopic thinking.
A meat producer who abuses the animals that it farms may make more money than its competitors due to its lower cost, until the public finds out about what it has done.
Those who believe that capitalism requires exploitation and domination are a dying breed. They are dinosaurs who operate in an antiquated mindset. The good news is that things are changing.
So what needs to be done?
Whats needed is a financial architecture that allows for proactive, long-term sustained change. While ESG screening can help investors stop supporting companies whose values they dont share, it doesnt actively use capital to address social problems.
We need to move beyond ESG to the next era in social impact investing. We must move from passively participating through funds to actively investing in operating companies who return generate long term profits and sustained social change.
By their nature funds encourage short-term thinking.
Funds also have far less power to encourage and monitor social impact than operating companies who will buy and hold a long-term position in other companies.
Theres no question that a fund that generates true innovation-- for example a battery that harnesses the power of the sun for longer periods of time--can be very important but most funds back less impactful technologies and companies.
To generate sustained social impact, capital should back companies that have a proven model that can be brought to scale.
I am not aware of any companies with this model. While there are many companies who have deeply incorporated social impact into their business plans, the world of finance has yet to create an investment platform with permanent capital to support them as they grow.
The best model for this in finance outside of impact investing is Warren Buffetts Berkshire Hathaway--arguably the greatest company in the history of finance.
It is also clear that this model is also the best model for generating real profit. An analysis in the Financial Times of what would have happened had Warren Buffett been a hedge fund manager instead of the owner Berkshire Hathaway shows the dramatic difference between the two:
The extraordinary mathematical conclusion was that, siphoning off 2+20 fees and investing them in the same underlying assets as Berkshire - compounded over a 42-year career - would have yielded Mr. Buffett the investment manager a $57 billion fortune. By contrast, the Berkshire
fund, reduced each year by the fees and therefore compounding at a much lower rate, would have grown to a meager $5billion.
The Oracle of Omahas model for profit-making should be the model we adopt for impact investing.
How we spend our money is an expression of our values. Buying power is also moral power and the way we spend has the ability to shape the world.
Its just not enough to only be less bad, but it is essential to be actively good.
If investors who care about addressing the many problems of the world move their investments into companies who proactively do good in the world over long periods of time, we will unlock a revolution in finance.
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Leonardo DiCaprio is putting his money where his heart (and mouth) is.
The actor and environmentalist has joined a group of investors that are refusing to fund fossil fuels and are committing to fight global warming instead.
The star of the upcoming The Revenant tweeted this week that he recently joined the ranks of Divest Invest, which asks investors to divest from fossil fuels and invest in climate solutions.
Together, we are holding fossil fuel industries accountable for their obstruction of climate policy solutions, investing for public good and financial performance, and accelerating the growth of a sustainable and equitable economy, its website reads.
DiCaprio is not alone in his new investment move. CNN Money reports that a recent report shows the divestment group not only has 2,040 individuals (which includesincluding Black Swan director Darren Aronofsky and actor Mark Ruffalo) and 436 institutions, but its also grown from $50 billion to $2.6 trillion in assets in just one year.
Not surprisingly, portfolios belonging to its investors are expected to be devoid of fossil fuel investments, while also increasing their stake in clean energy companies.
CTV reports that DiCaprio is divesting his own and his foundations fossil fuel holdings.
The star of Wolf on Wall Street clearly knows money talks. The avid environmental crusader recently raised over $40 million for the environment this past summer, and were sure the actor has plenty more of where that came from.
Via CNN Money
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Millions of social workers, teaching assistants and other council employees have over pound;3,000 each in coal, oil and gas investments as part of their pension pots - assets that are at risk of falling in value as the world tackles climate change.
The first analysis of the pound;231bn in assets held by 4.6m local government workers through their pensions schemes has revealed a total of pound;14bn in fossil fuel investments, with the Greater Manchester and Strathclyde funds having the largest holdings.
Most existing fossil fuel reserves must stay in the ground to avoid catastrophic global warming and institutions including the Bank of England, the World Bank, the G20 and city analysts are concerned about the risk of huge financial losses if the world's nations act to slash carbon emissions.
Many institutions, including two of the world's largest pension funds in California, have committed to sell fossil fuel investments with the aim of limiting the impact of climate change on both the world and the value of their portfolios. The value of the funds divesting from fossil fuels has soared 50-fold in a year to $2.6tn.
"We don't want fossil fuels to destroy our pensions, and we don't want our pensions to destroy everyone's future," said Jane Ivimey, a local authority pension-holder and member of the Fossil Free Oxfordshire divestment campaign.
"Public investments in fossil fuels are fuelling dangerous climate change, and present a threat to the pensions of public sector workers. There's a strong ethical and financial case for local councils to divest from fossil fuels and reinvest into infrastructure fit for the 21st century," said Danni Paffard of campaign group 350.org.
There are 101 local government pension funds covering the nation's 418 councils and, using freedom of information requests, campaigners at 350.org, Platform, Community Reinvest and Friends of the Earth created a detailed database of the pound;231bn assets, made public on Thursday.
It shows that 6% of all pension scheme investments are in coal, oil and gas companies. The two biggest funds are Greater Manchester, which holds pound;1.3bn of fossil fuel stocks (9.8% of its total assets), and Strathclyde which holds pound;752m (5%). The fund with the highest percentage of fossil fuel investments is the London Borough of Merton Pension Fund, with 11.0%.
Thirty local campaigns, including a dozen launched on Thursday, are now targeting their local councils in an attempt to persuade them to reduce their investments in fossil fuels.
"Local residents and pension-holders won't be happy that their money is funding climate change. Today we're calling on Greater Manchester to stand on the right side of history and divest from fossil fuels," said Ali Abbas, of Friends of the Earth Manchester.
A spokesman for the Greater Manchester Pension Fund said: "It is critical that we assess all financial risks to the fund, including those posed by fossil fuels." He said the issue fund was complex and the fund was developing its understanding but the process could not be rushed: "There are no plans to disinvest from fossil fuel companies in the medium term."
A spokeswoman for Merton council said: "The law demands any pension fund's investment managers seek to maximise returns for staff. However, Merton Council itself has a proud track record of investing in sustainability." She said Merton had invested over pound;4.6m in energy efficiency since 2010.
Natalie Smith, a lawyer at Client Earth, said: "There is a growing body of evidence suggesting that the financial risks associated with climate change will impact investment portfolios. If pension fund trustees fail to properly manage these risks and the value of the pension pots of members declines as a consequence, then trustees and investment managers could be sued for breaching their fiduciary duties."
The Strathclyde Pension Fund considered a report on the feasibility of divestment strategy earlier this summer, according to a spokesman. "Members backed active investment, through which the fund will continue to use its influence as a shareholder to press for improvements in governance and environmental performance; continued investments in renewable energy, and asked officers to monitor developments and alternative investment approaches," he said.
The fossil fuel holdings of the pensions funds calculated by 350.org and its partners are for the financial year 2013-14, the latest data available. They include direct holdings in the 100 coal and 100 oil and gas companies with the biggest reserves (pound;5.5bn), with BP and Shell being the largest investments overall.
The calculations also include indirect holdings via pooled funds (pound;8.5bn). These were determined using an average value for the proportion of oil and gas stocks in pooled funds. Indirect holdings in coal companies were not included as these firms are grouped with general mining companies, meaning the calculated indirect holdings are likely to be an underestimate of the total fossil fuel stocks held.
- This story was amended on 24th and 25th September. It originally stated that teachers are part of the employees enrolled into local government schemes. A few are but the majority are part of a separate teachers scheme. We had also referred in places to pension schemes where pension funds would have been correct. These have been changed.
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The key to a well-funded retirement is seeking out equity investments that have been more resilient during market downturns.
Market downturns can be particularly harmful to retirees because they are drawing regular income from their portfolios and, without a salary to make up for losses, they could suffer serious setbacks, states anew American Funds report.
The report, Key Steps to Retirement Success: How to Seek Greater Wealth and Downside Resilience, has identified three critical factors for selecting retirement investments that both generate strong returns to address longevity risk and also have the downside resilience to address market risk.
After years of investing during their working lives, millions of baby boomers are beginning to draw on these savings for their retirements, said Rob Lovelace, portfolio manager and senior member of Capital Groups management committee, in a statement. The needs of these investors change as they move from growing their nest egg to living off of it protecting their savings against market downturns while continuing to build wealth becomes even more important.
According to the study, American Funds suggests looking for funds that meet these three criteria:
- Low downside capture ratio: A downside capture ratio measures how a fund has fared relative to the market during downturns. According to the study, funds that were most frequently in the best quartiles of downside capture in the period under review tended to outpace indexes more often in withdrawal scenarios.
- Low expense ratios: The study also found that funds that had the lowest expense ratios tended to outpace indexes in withdrawal scenarios. The study says that this tendency makes sense, as funds with lower expense ratios have a lower bar to clear to beat indexes.
- High manager ownership at the firm level: If managers are invested in their own funds, their interests are better aligned with an investors, the study states. According to American Funds, investment firms whose managers had invested more dollars into their funds also tended to outpace benchmarks over the long term.
By seeking active managers who keep fees low, have their own money in the fund and do a better job of limiting the impact of market downturns, investors who are nearing or are in retirement are, we believe, well-positioned to outpace index returns and build sustainable retirement income, Lovelace said in a statement.
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The Environmental Protection Agency is not properly recording its information technology investments, which totaled more than $334 million in fiscal 2014, finds an internal audit. Because it isnt adequately tracking spending, EPA is at risk of misusing or wastingtaxpayer dollars, says the Office of Inspector General.
The agency manages its IT investments through its Capital Planning and Investment Control, or CPIC, process. It also records all IT systems in its Registry of EPA Applications, Models and Databases, or READ. But the audit showed some confusion at the agency over what should be recorded in CPIC and what should be included in READ.
The CPIC process classifies EPAs IT investments into major, medium and lite categories based on the cost of the investment. The agency believes major investments need special management attention, but auditors found guidance for overseeing medium and lite IT investments missing in EPA policy documents.
These medium and lite investments account for more than $83 million, writes EPA Inspector General Arthur Elkins in the Sept. 22 report (pdf).
The IG also identified a major investment with a fiscal year 2015 budget of $15 million that was covered by the CPIC process but not recorded in READ, because EPA said it did not meet the agencys definition of an application or system.
The EPA needs to provide guidance on tracking funds to medium and lite IT investments, as well as clarify the READ and CPIC inclusion criteria for all investments, says IG.
The report recommends that EPA update the CPIC process policy to require investments that meet the inclusion criteria be recorded in READ, and to require documentation of medium and lite investments.
The agency agreed with the recommendations and has planned corrective actions with dates for completion to the OIG, says the report.
- download the report, No. 15-P-0292 (.pdf)
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