Environmental crisis: Fear financial gloom? A greater challenge lies ahead

12th October 2011

Each of us is already consuming more energy, for instance, than the world has to offer us each day. The speed with which we're using natural resources means we are building up an eye-watering ‘ecological debt'; a greater debt than that which crippled the financial system.

However, in contrast, we haven't yet suffered the same shocks to make us sit up and take notice.

Facts and figures

Just some of the global sustainability challenges we face include a 50% increase in food demand by 2030, according to the Food and agricultural organisation, and a 50% increase in demand for energy by 2030, says the International Energy Agency.

Meanwhile, there are ‘megatrends' impacting businesses, including water scarcity, obesity, rising global temperatures and a soaring global population. The world's population over 60 will be growing 3.5 times faster than the total population by 2025-2030.

As a result, there are some feedback loops impacting on business. For example, one of Coca-Cola's largest bottling facilities in India has remained shut for 17 months due to concerns about water shortages and pollution.

As the world's population grows, ages and urbanises, our resources will be stretched beyond their capabilities

What's the tipping point?

"The tipping point is that magic moment when an idea, trend, or social behavior crosses a threshold, tips, and spreads like wildfire."

Malcolm Gladwell, The Tipping Point: How Little Things Can Make a Big Difference

When it comes to the financial crisis, we can name several ‘catalysts' such as Lehman Brothers filing for bankruptcy back in 2008, that triggered a series of events leading to the state we find the economy in today. But as yet, we are unaware of what will trigger the ‘ecological debt crisis' that will force us to tackle this issue.

Seb Beloe, head of SRI research at Henderson and a Mindful Money blogger, says that perhaps there won't be a "big natural disaster" that will prompt this crisis, but a ‘slow burn effect'.

He says: "Perhaps we're expecting some big natural disaster to be the trigger, but we've had a few of those. I suppose the current situation can be likened to a basic analogy. So I've been told, if you put a frog in a glass of water and very slowly heat it up it will boil and die eventually – but it won't suddenly try and jump out as until it's too late, as it won't be aware of what's happening.

"We are undergoing a period of incremental change, as natural resources are far harder to come across – with more energy required by us to access a unit of energy, for example, and plenty of data around to support this.

"But we are good at finding ways to cope regardless, and sustain our lifestyle, so while we may not get a huge catalyst for change, it needs to be self-imposed as the scientists are giving us all the information we need – but still, the average person isn't feeling the impact of this. The price of commodities and energy may be on the rise, but perhaps they don't realise that this is due to the scarcity of resources."

However the looming environmental crisis hits us, we'll only ever really know what the trigger point was after the event.

How can investors profit from this trend?

Given National Ethical Investment Week starts on Sunday, perhaps it's time to start considering these issues.

Yet there has been a significant rise in the money invested in thematic funds over the last five years despite economic and performance headwinds.

Agriculture has caught the imagination of investors and performed well against global equity funds. There is £7.1bn invested in these funds, representing 1% of the investment fund market. Agriculture and water themes have proved to be the most profitable single themes to be invested in over the past year.

The number of ethically screened funds has also risen during financial crisis from 46 to 60, according to Worldwise Investor.

Where to find information

Worldwiseinvestor.com launched today. This is a free to use information site that provides investors, financial advisers and fund managers with a single point of reference for thematic, environmental and ethical investment funds, with performance comparisons and related news.

In total, there is £21.8bn invested in the 130 funds listed by Worldwise Investor. This represents between 3%-4% of the money invested in the UK in Investment funds. Of this £7.4bn is invested in ethically screened funds, with £15.1bn in thematic funds.

The site categorises funds into several groups, including: Clean Energy funds; Water funds; Agriculture funds; Forestry funds; Carbon funds; Multi-thematic funds; Environmental funds; Global Ethical funds; UK Ethical funds; and UK Ethical Fixed Interest funds. These are all linked to what people may identify as ‘sustainable' or ‘green' themes, but they all are set to benefit from the same growth drivers to the economy, namely – population growth and the rise of the emerging markets.

Anyone interested in this area of investment can find a fund library, news, blogs and a MyWorldwise section to streamline the content they want to see.

The site is sponsored by various asset managers, including Sarasin, Schroders, Pictet , Henderson, Ecclesiastical, and Cheviot. 

What are the strongest themes for investors?

Mark Hoskin, Managing Partner at Holden & Partners, which own and operate Worldwise Investor, says on his blog : "This morning I was at an UKSIF event at Henderson Global Investors as a forerunner to Ethical Investment Week which starts on Sunday. Penny Shepherd, chief executive of UKSIF, made the point that upwards of 50% of consumers make ethical consumer choices every day at the shops, but that to date this is not followed up with their investments. The financial crisis has not helped the development of this market, but the panel felt that it was a question of time. It was when, rather than if…

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