Climate Change & Money An ethical investment perspective Presented by Julian Parrott – Ethical Futures llp

Julian Parrott Retail financial planner – private clients, trusts & charities Extensive sector experience & participation Introduce your experience

Session Outline Ethical Investment Markets & Process What is it and why does it matter? Markets & Process Relevant finance sectors, investment process Trends & Market Development Evolution and developing themes & links to climate change Topics and agenda we will follow – Q’s welcome as we go through

What’s in a name? Ethical Investment is an umbrella term. Causes some people some ‘marketing’ communications concerns. Other terms coined as more thematic perhaps less judgemental approaches developed.

Ethical Investment – a definition “A system of financial management or investment that seeks qualitative outcomes other than purely the management of returns. Outcomes sought may reflect ideas from faith, social, environmental and governance theories.” Source: Ethical Finance Hub EFH definition – intepretation depends on starting point.

Do you know what its doing? It’s your money Do you know what its doing?

Development of the ethical investment market 18th C early Quakerism 19th C Benevolent capitalism 1960 & 1970’s social activism 1980’s UK ethical market starts 2000- today – market rapidly evolves Quakerism – slavery, John Wesley/Methodism “use of Money” sermon 19th C benevolent capitalism Cadbury, Rowntree's etc. 60’s & 70’s – challenge to authority, Vietnam – Pax , Apartheid – banks 1983, EIRiS launched 1984, Friends Provident Stewardship 2000 an on significant evolutions in markets and assets available – solutions have become more investable

Where can you manage your money ethically? Banks, investments pensions

Approaches to ethical investment Core approach is Investment Screening Negative Screening – avoidance Positive Screening – positive bias/selection (e.g. climate change) Engagement – active ownership

Screening & selection process Criteria Filter Select

Screening is a filtering process Negative - Arms Alcohol Tobacco Environmental damage Human rights abuses Gambling Animal testing Nuclear Pornography investable stocks Social Sin Eco Positive + Environmental tech Positive goods & services Community involvement Responsible business practice Core screens – not universally applied Vast number of different issues that can be considered

What makes an investment ethical? No common standard (in UK) – but norms apply Principles based approaches & innovation of ideas, guided by expert opinion & thought leadership Resistance to kite marks & standards limits innovation But, alos leads to cncerns over ‘greenwash’…

Who does the research? In-house researchers, investment managers and outsourcing In- house teams, stock analysis, controversy screening & company meetings

Market development & themes Negative screening has not met everyone's expectations – so market has evolved:- Impact Sustainable Thematic SRI Ethical Dark green – light green – direction of travel ; impact developing and not issues remain around measurement & outcomes

Investment trends connected to climate change

Response to the challenges Avoid Carbon & fossil fuels Unsustainable practices: Intensive Farming, Extraction manufacturing Supply chains ‘externalising costs’ Irresponsible management (ESG) Focus on: Renewable energy & energy efficiency Green & smart technology Telephony & digitisation Building efficiency, supplies & better communities Circular economy Better transport & infrastructure Waste management Water supply & management Gender equality & opportunity

A search for solutions & metrics To meet demands of the market –new approaches have evolved. A positive philosophy replaces negative screening The emphasis is placed on outcomes Engagement & ESG Climate change & sustainability Impact Impact reporting adoption of UN Sustainable Development Goals Impact reporting; issues around consistency, quality & availability of data, disclosure & interpretation. SDG’ – useful communication tool – but similar issues exist – wide range of interpreations. Not a system or process of investment. Philosophical approach still required.

Performance trade off? Academic research suggests not Long term correlation to mainstream returns Short term variance due to stock/sector exclusions Limited range & size of ethical deposit takers can affect deposit rates But – the ethical and environmental ‘dividend’ is equally important to clients Triple Bottom Line The Triple Bottom Line Defined. The TBL is an accounting framework that incorporates three dimensions of performance: social, environmental and financial. ... The TBL dimensions are also commonly called the three Ps: people, planet and profits

Next steps Ask an adviser! Find out what your money is doing and if you are unhappy with it…. make a positive change And if you are still unsure ………… Ask an adviser!

Thank You & Questions