As readers will know, I am increasingly concerned
about climate change. The environmental risks dominated the recent World Economic Forum Global Risk Report 2019 (pdf). The authors of the report were so concerned they said "of all the risks, it is in relation to the environment that the world is most clearly sleepwalking into catastophe".
The report from the IPCC last October made clear that if we allow global warming to rise above 1.5C, it could be far more dangerous than we thought just a few years previously. Over recent months I have started to make a few changes to my portfolio to reflect my concern about these issues and have been exploring a few 'green' investment options.
The report from the IPCC last October made clear that if we allow global warming to rise above 1.5C, it could be far more dangerous than we thought just a few years previously. Over recent months I have started to make a few changes to my portfolio to reflect my concern about these issues and have been exploring a few 'green' investment options.
We have just seen the hottest month on record in
Australia followed by unprecedented flooding in Queensland.
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Average over 30C in January |
In Canada and US
there has been extreme cold weather from a polar vortex caused by warming of
the Arctic region.
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Minus 60C in Chicago in January |
If nothing much changes, we are currently on track to reach
1.5C by 2040 and then 2.0C by 2060. We clearly need to make some big changes over
the next decade to avoid a worst-case scenario. The global community is starting
to implement some of these changes and businesses and governments are
responding to the challenges so I remain optimistic.
On a personal level, I introduced a couple of
green funds to my portfolio last year and I intend to increase the green allocation of my portfolio to at least 10% by the end of this year. However, both are equity based so I would like to
have a little more balance so I have been considering green bonds, also
referred to as climate bonds.
What Are They?
Much like conventional bonds, it is a bond which
generally offers a fixed rate of return for a specified period of time however
with the green bonds, the money raised is specifically earmarked for
climate-related projects. These could be for projects to support a range of
green initiatives such as energy efficiency, renewable energy, sustainable
agriculture, cleaner transport, protection of ecosystems and environmentally
friendly technology.
They are typically issued by large institutions
such as the World Bank or European Investment Bank or by governments -
sovereign green bonds - and to qualify for the tax advantages they offer, they
need to have green bond status which involves verification from a third party
such as Climate Bond Standard Board.
The London Stock Exchange introduced a dedicated
green bonds section in 2015.
Popularity
These bonds have been around for over a decade and
are mostly only available to institutional investors such as pension funds. In
2012 these bonds issued around $2.6bn however in recent years there has been a
huge surge in demand and by 2017 this had increased to $162bn. In 2018, over
1,500 were issued raising $167bn for green projects. The forecast for the
coming year is $200bn.
This is just a drop in the ocean however as the
IPCC calculated that we need to spend $2.4 trillion EVERY YEAR to 2035 to
tackle climate change.
What's Available?
Access to these bonds is still mainly for
institutional investors such as the large insurers and pension funds. However a
couple of exchange traded funds have been launched for the UK retail investor
in the past year or so.
iShares Green Bond Index (IE) which has ongoing
charges of 0.22%
Lyxor Green Bond ETF (CLIM) with charges of 0.25%
VanEck Vectors Green Bond (GRNB) based on US
market.
So today, I dipped a toe in the water with
an initial purchase of the offering from Lyxor for my ISA. This has been funded from a sale of my holding in City of London trust. I am sure more green bond funds will be made available to the retail investor over the coming year or two
so will hold back for a while and just see how I go with this for the time
being.
Returns have not been so good over the past year for these bonds - maybe 1% or 2% but that was probably a little better than for global equities generally. They may not provide the same longer term returns as equities
but I guess not all profit is quantifiable. Many investors are increasingly aware
of the importance of tackling climate change but translating that awareness
into concrete investment decisions can be challenging. The bonds offer me some
diversity combined with the knowledge that my money is helping to hopefully change things
in a positive way.
Further reading:
As
ever, this article is merely a record of my personal investment decisions and
should not be regarded as an endorsement or recommendation - always
DYOR!
another option is to invest in trusts like Greencoat Wind (UKW) which invests in wind power in the UK.
ReplyDeleteI've invested in a few community green energy projects precisely for the green credentials and for the tax breaks (no longer available).
Abundance Generation is also an option for those who enjoy P2P.
Yes, I covered these options in an article last November
Deletehttp://diyinvestoruk.blogspot.com/2018/11/investing-for-green-future-part-1.html
One drawback is the hefty premiums to net assets at present for most of the sector but certainly on my watchlist. In the meantime I do have some indirect exposure to this sector via my Capital Gearing trust.