When I finally retired at the end of 2016, much to everyone’s relief, I had to make some financial decisions. In the UK there are a couple of options–I could take the nice retirements set up for me by former employers and treat them as an annuity, or I could take all that money and put it somewhere else. If somewhere else, this meant I could take the whole shebang as a lump sum and buy a Maserati or something, or I could put it into something called a SIPP (a self-invested personal pension.) In either case the first 25% is tax-free, with the rest taxed as income when it’s drawn down. The latter is clearly preferable, for a couple of reasons. First, it defers the taxation until I actually start drawing down some funds. Secondly, I can choose where I want those funds invested.
This seems to be a great idea. I’m knowledgeable about this stuff, I have worked in finance, including fund management, for three decades, and I should be able to navigate around this landscape pretty well. Clearly, there’s a lot I don’t know, about the mechanics of, say, tax implications across different countries–but there are people who do know that, and I can just ask them. But the main thing was that I could put this money into a big “green” pot and feel virtuous. Well, it’s a bit more than that. I actually do believe that investments in scale do matter–consider the implications of the boycott of South African goods on the eventual collapse of the apartheid state. Money matters.
Plus, I know that there’s this huge trend in Green investing going on right now, and has been for several years. I know this because everyone is telling me this. I continually encounter articles in the financial press about this big investment swing that’s going on, from “brown” industries to “green” industries. Everyone–by which I mean major fund managers, who actually manage funds that people invest in–is starting a Green Bond fund. Five or six have been started up this past year alone. Is there anyone on the planet who hasn’t heard of Green Bonds at this point? Doubtful. Plus the even bigger thing in investing the past couple of years has been incorporating ESG issues–Environmental, Social and Governance. Everyone is now committed to good environmental stewardship, not killing too many employees and promoting women, and not breaking the law.
Cool, all good stuff. So finding funds that actually invest as if all this matters should be easy. I’ll just check a bunch of fund platforms and see what sorts of climate-oriented funds are out there, and then make some selections. Imagine my surprise when, after many hours of diligent internet trawling, the best I could come up with was about a dozen funds available to me as an investor, a few specifically addressed at climate change, but most calling themselves “ethical” or “sustainable” funds. Actually, there’s a much higher number than that, but most of them are American or European, and not available to me as a UK investor. (US SIF publishes a list of such funds in the US–over 200 of them.) If I lived in the US, the range of product available would be much higher.
This is very frustrating. It has to be said that much of this can be laid squarely at the feet of the fund management industry itself. I can find funds that invest in all sorts of things. The ”funds supermarkets” that I can choose from at various places where I can actually invest in funds ranges from 2000 to 4000 funds, depending. That’s a lot of funds. And yet it’s here that the biggest problems in availability arise. Everyone has Schroder funds–and Schroder has a lot of funds. Including something called the Schroder Global Climate Fund. Which looks like it’s exactly what I want. Except no one offers it. I get offered literally dozens of other Schroder funds, but not this one. I can get it directly from Schroder, apparently, and I might, but that’s extra work, something else to track.
Nor is this the only example of the paucity of investing opportunities for individuals. Of the at least 4,000 funds available to me as an individual investor, not one offers me the opportunity to invest in Green Bonds. Let me repeat that–there isn’t a single Green Bond fund on offer to me from any fund platform in the UK. Why is this? I guess if I lived in the US I could by the Fidelity Green Bond fund there–assuming it’s even available to individual investors. There are some major fund managers starting up Green Bond funds–Black Rock, Fidelity, Natixis (through subsidiary Mirova), several Dutch fund managers, Allianz, AXA–but not a single one is available to me here, in London, the world’s financial capital, in one of the world’s wealthiest countries.
It could be a jurisdictional thing–none of these Green Bond funds is offered by a UK asset manager, and they’re mostly continental or American. But I can get all sorts of Allianz and Axa funds through fund providers here–why not the Green Bond funds? Pictet, a French fund manager, has two interesting funds, a New Energy Fund, and an Environmental Opportunities fund, and I can get them both here (and do–I have the latter in my SIPP.) So why not an Axa or Allianz Green Bond fund–to say nothing of the Schroder fund mentioned above?
Yes, yes, I know, first world problems. But this is symptomatic of the schizoid and deeply compartmentalized relationship we in the financial community have with climate change. The fund management industry is full of bright and enterprising people, who mostly pay attention to what goes on in the world–they have to, or else they’d be losing money all the time. I’m sure none (or at least very few) hang around with climate deniers–and if they do, they probably don’t admit it at work when the CEO has recently had the company sign up for the Principles for Responsible Investment. I’ve worked with these people.
And yet, as we see everywhere else these days, there is this huge disconnect between reality and our response to it. There is a desperate need, as the World Bank, the OECD and IMF, and the UN keep telling us, for massive amounts of investment for an orderly transition to a lower carbon, more resilient economy. And this requires, yes, investment. Which means providing opportunities for that investment to as broad a spectrum of investors as possible. Insurance companies and pension funds alone won’t get the job done.
So where is the fund management industry in all of this? Of the 4000 plus funds available to me at present, there are probably about two or three dozen “green”/”ethical”/”sustainable”/”responsible” fund opportunities–and these terms have such broad meanings across managers (like everyone else) that there often is wide disagreement about what actually constitutes Sustainability. This is actually pretty pathetic when you think about it. But it’s an industry that moves slowly–fund managers are a fairly conservative lot–they’re paid to be. This is particularly true for bond fund managers, who aren’t so much paid to make money as they are to not lose it. And since no one–well, no investor, anyway–has really lost money yet from climate change–with the possible exception of some property owners on the Florida coast–what’s the rush? (Tropical island residents are another story.)
There’s lots of talk from leaders of the financial community about the need to move more rapidly to a transition economy. What’s needed, at the very least, are a broader range of options for engagement, including options for individual investors. I’m a committed investor. But the fund industry currently offers me very little to choose from in terms of investment options. There are literally hundreds of funds I can choose from if I want to invest in emerging markets, or government bonds, or technology–especially technology. How come I can count the number of funds addressed at climate change that I can actually buy in the single digits? That’s just laziness.