Liz Rees, Impact Analyst at The Big Exchange, was there to find out more about some of the policies and technologies supporting a sustainable future, and how they are captured in the WHEB Sustainability Fund.
Any views expressed at this event represent the personal opinions of the speakers and should not be construed as investment advice. If you are unsure whether an investment is right for your personal circumstances, you should consult an independent financial advisor.
Jayne Sutcliffe, WHEB’s non-executive Chair, reflected on the human suffering caused by geopolitical events and natural disasters, as well as the economic consequences, such as inflation, which she thought has magnified social inequality.
2023 is set to overtake 2020 as hottest on record1 yet at same time there has been an ESG backlash, questioning short term policies in place. Elections set to take place in 2024 will, in her opinion, determine whether governments are mandated by voters to dial up or dial down policies on climate action.
Against this background WHEB retains its focus on impact investing. Companies make, do, or sell things that can have an important positive impact on society and planet, and this presents opportunities as well as threats.
Guest speakers at the event included MP Sir Alok Sharma, Kingsmill Bond from US think tank The Rocky Mountain Institute, and Leila Lodwick from Spirax Sarco, one of the companies held in the WHEB portfolio.
Sir Alok, President of COP26 In Glasgow, was en route to COP28 in Dubai and was optimistic that we will see commitments to 'keep 1.5 degrees alive’ from many of the countries attending.2 With the World Meteorological Organizations predicting we will breach 1.5C in the next 5 years (even if temporarily) the call to action is a matter of urgency.3
Looking on the positive side, Sir Alok thought that, in some countries, businesses are ahead of the government in taking action as they understand what their customers, suppliers and local communities, want them to do. Since COP26, over 9,000 companies have signed up to commitments such as setting net zero targets, limiting deforestation, and phasing out sales of new cars with Internal Combustion Engines .4
He emphasized that to achieve 1.5C, global emissions must be cut by over 40% by 20305 and suggested this will require large scale investment in renewables and the development of new technologies like hydrogen, delivered through deals on finance, technology, and agriculture which are then translated into domestic policy. Negotiations are complex though, and he warned that if one party walks away the whole proposition collapses. Also, if you want the private sector to invest you must be able to demonstrate the long-term rewards.
Sir Alok cited the US Inflation Reduction Act as what he considered to be an example a brilliant piece of industrial strategy which has resulted in significant amounts of private sector investment.6 He concluded that if he had a magic wand, his one wish would be for a global price for carbon to allow climate risk to be priced into everything we do.7
Kingsmill Bond expressed confidence that, in his opinion, the recent sell off in renewable energy stocks echoes the technology crash in 2000 and will prove to be a technical correction on a long-term growth trajectory. He is convinced that fossil fuels have reached the limits of growth as they waste a significant amount of the energy produced as well as polluting our water and nature. The solutions to replace them, he believes, are offshore and onshore wind, solar, and batteries. Kingsmill thinks renewable energy can increasingly compete with fossil fuels on price and noted that capacity is growing rapidly as innovation and capital pour into the space. He likened the transition to an unstoppable industrial revolution, just as when cars replaced horses or electric lighting replaced gas. There will always be barriers to change, such as resistance from oil producing nations, but he believes the benefits should outweigh the challenges and deliver energy security. There is a limited supply of fossil fuels but almost everywhere has access to some form of renewables.
So, the energy transition isn’t going away, and Kingsmill believes it makes sense to allocate capital to it. He highlighted four buckets of companies which offer investment opportunities: efficiency; decarbonisation of electricity; electrification, and green hydrogen. However, he dismissed natural gas and biomass as being, in his opinion, ‘temporary fake solutions’.
His closing remark was that it is going to be ‘cheaper to save the planet than destroy it’.
Spirax-Sarco, a UK manufacturer of steam management systems, is a good example of a company adapting to change. Leila Lodwick explained how an engineering business established well over 100 years ago is driving the shift from gas to electricity by retrofitting the gas burner in a boiler. Positive impact is delivered through electrification and decarbonising industrial heat.
The challenge the company currently faces is that electricity adoption is driven by sustainability rather than economic factors as the cost is higher. As the pricing gap continues to narrow, Leila thinks the investment case will start to stack up. Customers of Spirax who have renewable energy on site can already bring down their operational costs, leading to improved financial returns. She added that Spirax is investing in research and development to make its own products more efficient.
What’s more, Spirax Sarco is actively improving the culture at the firm through diversity and inclusion; increasing the number of female employees, and setting a target of 50% female graduate intake, not an easy task in a male dominated industry. Spirax ensures all employees have access to equal career opportunities and encourages people from ethnically diverse backgrounds to take STEM subjects.8
WHEB’s Laura Grenier reiterated the importance of culture to their own business. WHEB has core values which they live by. For example, they were one of the first UK certified B Corp businesses9, they have implemented lifestyle benefits for their own employees, and they strive to make a positive impact on local communities through volunteering programmes.
WHEB are a signatory to ACT- the Corporate Culture Standard created by City Hive whose CEO Bev Shah is also a non-executive of The Big Exchange.10 Many of the asset managers with funds on our platform have committed to supporting this framework which promotes diversity and inclusion in the investment world.
2 This refers to the goal of holding global warming to 1.5C above pre-industrial levels, a target set in the 2015 Paris climate agreement.
7 The concept behind a carbon price is to make polluters pay for their emissions, either with a tax or an emissions trading scheme whereby companies purchase tradable allowances to cover their carbon emissions. It offers a way for governments to raise funds for climate related spending.
8 STEM subjects are Science, Technology, Engineering, and Mathematics.
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