Environment
The issue
The environment is a very broad issue and can encompass a variety of factors and activities including:
Environmental management, policy, reporting and performance
Chemicals of concern
Climate change and greenhouse gases
Mining and quarrying
Nuclear power
Sustainable timber
Pollution
Water pollution
Biodiversity
Its relevance for charities
Environmental issues are likely to be of relevance to all charities especially as companies that have a poor record of environmental management or performance could be a riskier investment financially and/or subject to future litigation. Such companies may not be well placed to deal with the environmental challenges facing them and the planet.
The issue is of particular concern to environmental, wildlife and conservation charities. The specific environmental issues described below are likely to be of most relevance to particular types of charities.
If a charity is approaching Responsible Investment from the perspective of social, environmental, ethical or governance risk management, it may wish to pay particular attention to this issue. It may be especially concerned about companies which have a high exposure to this area and seek to understand how these companies will manage and mitigate the resulting risks in order to better safeguard longer term investments.
Incorporating the issue into investments
It is possible to use positive screening, negative screening and engagement approaches in relation to environmental issues. Further details are given below
Environmental management, policy, reporting and performance
The issue
Some companies have responded to concerns over the degradation of the environment by producing environmental policies, implementing environmental management systems, and reporting on environmental issues relevant to the company.
Developing an environmental policy statement or making a formal commitment to a set of principles is commonly the first step for companies wishing to address their environmental impact.
Companies may then implement an environmental management system (EMS) to drive continual improvement in performance and compliance with their corporate environmental policy.
Calls for increased transparency in company activities have led to an increase in reporting on environmental performance, although the quality of information continues to vary widely. A number of companies have been criticized for publishing 'greenwash' to improve public relations without including meaningful performance data.
As more companies adopt certified EMS the spotlight is now turning to what companies have actually achieved in performance terms.
Its relevance for charities
This issue may be of particular concern to environmental and conservation charities, but is relevant for any charity with an interest in how companies manage potential environmental risks.
Incorporating the issue into investments
It may be possible to implement screens in relation to environmental policies, management systems and reporting – screening in the best performing companies or screening out the worst performing. It may also be possible to screen companies on the basis of demonstrable improvement in environmental performance. It is possible to focus on companies working in sectors that have a high impact on the environment – such as oil and gas or construction.
It may be possible to engage with companies on this issue.
Chemicals of concern
The issue
The manufacture of chemicals and their subsequent use and sale in consumer products is an issue that is of growing concern for consumers, governments, regulators, health and environmental organisations, as well as for companies themselves. There is increasing scientific evidence that certain chemicals are hazardous to human health and the environment, and it is recognised that further action needs to be taken to phase out and substitute some of these substances as a priority.
These chemicals can include:
- ozone depleting chemicals
- pesticides
- PVC and phthalates
Its relevance for charities
This issue may be of particular relevance to health and environmental charities.
Incorporating the issue into investments
It is possible to apply negative screens on this issue, to avoid investing in companies which manufacture, supply or market ozone depleting chemicals, pesticide products or PVC or phthalates.
It may be possible to engage with companies on this issue.
Climate change and greenhouse gases
The issue
Climate change is now widely recognised as one of the most significant challenges facing the global economy. Environmental impacts include increased flood risk, declining crop yields, species extinctions and extreme weather patterns. The 2007 Stern Review concluded that under a Business-As-Usual (BAU) scenario a 2-3°C rise in temperature could reduce global economic output (as measure by GDP) by 3% annually.
The international science community has now accepted that one cause of climate change is likely to be the increase in greenhouse gas emissions, particularly carbon dioxide, which has occurred since the industrial revolution.
Under the Kyoto Protocol to the Climate Change Convention, agreed at the Rio Earth Summit in 1992, industrialised nations have now agreed to reduce their emissions of greenhouse gases by 5% on average over the next decade. Efforts are being made to improve energy efficiency and develop cost-efficient renewable energy sources such as wind and solar power, which produce no carbon dioxide.
For companies and their investors the issue of climate change presents a number of risks and opportunities including:
- regulatory challenges, such as emerging product standards and environmental taxes
- changing market dynamics, including higher and fluctuating energy costs and changing consumer attitudes and demand patterns
- reputational issues, such as the impact of customer, investor and societal perceptions on brand value.
Its relevance for charities
This issue is likely to be a concern for all charities, particularly those working on environmental and conservation issues.
Incorporating the issue into investments
It is possible to apply negative screens in relation to this issue to avoid investing in companies that are involved in, or derive a particular proportion of their turnover from the fossil fuel industries or energy intensive industries.
It is possible to apply positive screens, to support companies that develop renewable energy.
It may be possible to consider how companies are responding to the challenges of climate change and managing any risks to their business, for example the management of emissions and development of alternative approaches, when applying positive or negative screens.
It may also be possible to engage with companies on this issue.
Mining and quarrying
The issue
Charity investors may have a variety of reasons to be concerned about mining and the extraction of commodities. Some are concerned about pollution and the effect individual operations have on the landscape and local communities. The production processes associated with open cast or strip mining may be of particular concern to these investors. Others argue that the nature of extractive industries is inherently damaging to the environment not just because of the production process but also because the end-products serve to increase greenhouse gas emissions, waste energy, and discourage recycling of resources.
Its relevance for charities
This issue may be of particular concern to environmental charities.
Incorporating the issue into investments
It is possible to screen out companies that derive turnover from mining or quarrying.
It may be possible to engage with companies involved in mining or quarrying.
Nuclear power
The issue
Since being hailed in the 1950s as cutting edge technology which would be the answer to the world’s growing energy demands, nuclear power has become one of the most contentious of industries, due to radioactive pollution and waste problems, accidents, and the industry’s link to nuclear weapons.
Each stage of the nuclear fuel cycle, from uranium mining to the transport and disposal of radioactive waste, is seen by critics of the industry as increasing the risks of hazardous pollution.
In the 21st century, the industry’s wish to replace ageing plants together with ongoing initiatives to reduce carbon emissions has encouraged a new generation of proposals to be debated internationally.
Its relevance for charities
This issue is likely to be of particular concern to environmental charities.
Incorporating the issue into investments
It is possible to apply negative screens in relation to nuclear power. It may be possible to avoid investing in companies which:
- own or operate nuclear power stations
- sell nuclear generated electricity
- supply major products or services for nuclear power stations
It may be possible to set a materiality threshold – for example excluding companies which derive five per cent or more of turnover from such activities.
It may be possible to engage with companies involved in the nuclear power industry.
Some pooled investment funds apply screens in relation to nuclear power. The Database of funds and fund managers provides some examples.
Sustainable timber
The issue
A critical aspect of international trade in timber is the impact it has on the world’s forests, which are in turn important natural assets supporting a wide variety of social and environmental functions.
Tropical forests, in particular, are extraordinarily rich areas of biodiversity which have in recent decades been threatened by unsustainable commercial logging practices. Temperate and boreal forests, which provide the majority of the world’s industrial roundwood, also hold important ecological and social value.
Widespread public concern over the effect of current harvesting and silvicultural practices on these and other forests has led to calls for more sustainable forest management practices. As a result, labelling systems have been developed for timber and timber products derived from well-managed forests to give the consumer a guarantee of sustainability.
Illegal logging remains a significant threat to any efforts towards sustainable forestry. Responsible sourcing of credibly certified timber and timber products helps discourage illegal logging and promote greater transparency throughout the timber industry.
Its relevance for charities
This issue is of particular concern to conservation, wildlife and environmental charities.
Incorporating the issue into investments
It may be possible to screen investments in relation to
- companies’ standards for timber sourcing. It is possible to focus only on those companies using significant amounts of timber.
- companies that manufacture products from uncertified tropical hardwood
- companies that sell uncertified tropical hardwood or products made from this
- companies that harvest tropical hardwood from uncertified forests
It may be possible to screen in the best performing companies or screen out the worse performers.
It may be possible to engage with companies on this issue – for example if there have been allegations of the use of illegally logged timber.
There are pooled investment funds which focus on the environmental and forestry sectors.
Pollution
The issue
The effects of many industrial pollutants on human health and the environment are well-established. But in recent years attention has been focused on the possible links between poor air quality and respiratory illnesses, with atmospheric emissions from road traffic and industrial sources thought to contribute to thousands of deaths every year. Concern is also growing over the effects of complex organic chemicals such as pesticides and industrial chemicals.
Its relevance for charities
This issue may be of particular concern to health and environmental charities.
Incorporating the issue into investments
It is possible to apply negative screens in relation to this issue, for example screening out companies with recent cautions or convictions for pollution offences.
It may also be possible to engage with companies on this issue.
There are examples of pooled investment funds which consider this issue, for example by seeking to invest in companies that control pollution or that are involved in reducing pollution.
Water pollution
The issue
Water is the most important natural resource and its pollution has both environmental and economic impacts. The consequences of water pollution depend both on the type and level of pollution and the use to which the receiving water is put. Sewage discharges have polluted bathing waters and threatened the health of bathers. Water supplies may be contaminated by pollution if the receiving water is used as a source of drinking water. Toxic discharges may kill fish and other aquatic wildlife, and may ultimately affect the marine environment. International attention is currently focused on the potential long-term effects on human health and wildlife of many complex chemicals that cannot be broken down naturally and persist in the environment.
Its relevance for charities
This issue is likely to be of particular concern to environmental charities, though it may be of relevance to all charities.
Incorporating the issue into investments
It may be possible to screen out companies that have received recent cautions or convictions for a water pollution offence.
It may also be possible to engage with companies on this issue.
There are examples of pooled investment funds which include water pollution amongst their screening criteria.
Biodiversity
The issue
Biodiversity is vital for maintaining ecosystems on which all life depends. It is known that diverse ecosystems are better able to withstand environmental changes, such as climate change. Conserving biodiversity is therefore essential in ensuring the continued functioning of the ecosystems on which we all depend.
The biggest threat to biodiversity is from changes in land use leading to habitat destruction, fragmentation or simplification. The second biggest threat is the introduction of exotic species resulting in change at the ecosystem level, sometimes wiping out native species. Lastly, over-exploitation threatens many species.
Its relevance for charities
This issue is likely to be of particular concern to conservation, wildlife and environmental charities.
Incorporating the issue into investments
It may be possible to screen companies according to their biodiversity policy (where relevant), screening in the best performers or screening out the worst performers.
It may also be possible to engage with companies on this issue.
Not what you're looking for? Email us for further help, information and advice.
