Climate change is here to stay - and so are a new breed of investment funds that back companies trying to lighten their environmental footprint
A tipping point on global warming awareness, precipitated by the Stern report on the immediate dangers of an overheating planet, has focused the minds of millions of consumers and investors - and forced many companies and organisations to think again about how they can do better business in the 21st century.
Virgin Money is one of those leaders prepared to think afresh and take the growing consumer concern into account to make a difference; to this end, it is launching the Virgin Climate Change Fund.
Better for your pocket, better for the planet
Designed to appeal to investors who want the 'green holy grail' - returns that are both environmental and profitable - it will put money into companies that have the lightest environmental footprint in their industry sector and in companies who are engaged in services or products whose sole aim is to tackle - and solve - environmental ills. Critically, it will position itself to take advantage of new thinking from researchers like Trucost Plc which suggests that companies taking steps today to cut their environmental impact will - in the future - have an advantage over their less 'green' rivals. As regulatory, Government and public pressure forces companies to carry the costs of their environmental damage, these early movers will be much better placed to put in a more profitable performance over the longer term. Trucost estimates that such costs could amount to as much as 3.4% of a company's own market capitalisation.
A winning combination
Virgin Money has teamed up with GLG Partners, a fund manager based in the UK and US that has - until now - reserved its management expertise for institutional investors and high-net worth individuals. GLG have a proven track record of benchmark beating performance and it's this partnership which Virgin believes will deliver outstanding returns with a much lower environmental footprint.
GLG will pick and vet the 'green-ness' of the best-performing sector stocks as well as environmental solution companies so that the Virgin Climate Change Fund can deliver growth through the prism of an environmental strategy. Crucially, GLG already runs its own Environment Fund that has beaten its sector average - the MSCI Europe Index - since its launch in March 2007.
One of the most important investment themes of the 21st century
"The environment will be one of the most important investment themes of the next 20 years, and millions of ordinary investors need to know that you can invest your money in a green fund and not have to sacrifice returns," said Jayne-Anne Gadhia, chief executive of Virgin Money. "The Virgin Climate Change Fund is the answer:
Our strategy is to simply back those companies who are either solely focused on helping to sort out existing environmental problems, or who are taking steps to make sure that they are limiting their environmental footprint." Greater interest from ordinary investors can be a powerful force for change. As more consumers demand environmentally responsible behaviour from companies, and legislators respond by forcing them to foot the bill for their environmental damage, all companies will have to adapt to greener commercial practices to win the backing of shareholders and large fund managers - helping to drive up their share price and create new levels of investment for the future.
No doubt plenty of fund managers will be taking ever greater account of the risks, the costs - and, indeed, opportunities - climate change brings. And it's expected that the estimated near £7bn of retail funds managed to 'green', SRI or ethical mandates will balloon over the next few years. The Virgin Climate Change Fund is well-placed to outperform its rivals and put both the environment - and client expectations of returns - first; and here's how:
A three-layered investment approach
The Clean European Equity strategy puts the constituents of the existing GLG European Equity Fund through the GLG green filter. Typically this will account for 75% of NAV. The Solution Adopters strategy points out companies that are world leaders in seeking and adopting best practice to minimise their footprint. This may account for 10%-15% of NAV. The Solution Providers strategy highlights companies that develop cutting edge green technologies. These companies include Alternative Energy stocks. As these clean technology stocks are highly volatile, exposure is limited to 10% of NAV.
How the first strategy and the 'green' filter work
The first strategy will apply the GLG proprietary green filter to the constituents of the current GLG European Equity Fund to sift through the less environmentally-friendly companies; leaving only the 'greenest in class'. These companies have also been selected for their management quality and superior economic performance potential.
GLG's green filter uses data supplied by Trucost to measure over 700 factors including CO2 emissions; acid rain precursors; and water abstraction, among others. In the past, many green funds have struggled to grow because of a deliberate decision to put every ounce of emphasis on the environment - shunning the super-profitability of companies with a hefty carbon footprint, specifically excluding sectors such as oil operators, airlines and petrochemical operators.
The Virgin Climate Change Fund will invest in the best in class and not miss out on these performance boosters. It is not an exclusion fund and does not have a negative screening. And since GLG's pool of stocks is always changing, the GLG proprietary green filter will continue to monitor the performance of those companies that meet its standards - and those that don't - and check to make sure their environmental performance doesn't change. If it does, the company can expect to be ejected from the green basket. This basket of companies - which in December 2007 included companies such as car makers Porsche and Renault, Xstrata and BG Group - will make up 75 to 100 per cent of the fund.
How solution adopters and providers are selected
The second approach, and making up to 15% of the Virgin Climate Change Fund, is to pick those companies that have adopted environmental best practice to minimise their footprint. For example, a business like mobile manufacturer Nokia has introduced pioneering production processes that deliberately reduce energy consumption and waste. They also recycle much of their materials.
And last, and most definitely not least, is to put some of the fund's cash into companies that are engaged in finding solutions to counter global warming - wind farms, solar panel companies and green technology companies. These companies offer excellent growth potential but their inherent volatility means it's also prudent to restrict them to a maximum of 10 per cent of the fund.
GLG is already established as a dynamic manager of alternative assets. They are the largest independent alternative asset manager in Europe, and one of the largest in the world. As of September 2007 they managed gross AUM of around $23bn.
Rewards that last a lifetime
To launch its Climate Change Fund, Virgin has set up a unique partners scheme for investment advisers. It's a passport to offers from one of the world's most inventive and successful superbrands. Offers such as discounts on the private dining room at Babylon at the Kensington Roof Gardens, or on fine wine, can be used for the adviser's own benefit or to entertain or reward clients.
All advisers registering for the scheme will also be automatically entered into a monthly 'Fragile Earth' prize draw, offering the chance to win one of 12 experience of a lifetime trips to some of the world's most unique destinations, such as Richard Branson's own private game reserve. You don't actually have to do business to be in the 'partners scheme' - any investment adviser can simply go to the Virgin Money website and join.
More information about the Virgin Climate Change Fund can be found by visiting www.virginmoney.com.
