Greater awareness in all things green is leading to further developments in socially responsible investment funds. Emma Howard Boyd reports
Earlier this year, the UK Social Investment Forum, the influential membership network for socially responsible investment (SRI), celebrated its 10th anniversary with a reception at the House of Lords ' and there is clearly much to celebrate in the rapidly expanding market for SRI.
In the UK, retail SRI funds have grown to £3.7bn in little more than a decade. Recent pension fund legislation, requiring pension fund trustees to disclose whether they take account of social, environmental and ethical issues, has also given the industry a boost. All over the City, teams are being set up, or expanded, to take account of the increasing interest in this area.
This summer also saw the FTSE4Good Indices, a new family of indices covering the UK, Europe and the US, go live ' once again raising the profile of SRI. The objective of the indices is to identify companies with strong records of social, environmental and human rights performance.
As the criteria for inclusion will be enhanced over time, the indices could become an effective driver for companies to improve their environmental and social performance.
We have already heard from some companies that the indices have been powerful in leveraging board level support for corporate social responsibility.
Another clear indicator that SRI is becoming more mainstream is the emerging market for successful environmental solution providers, particularly those relating to alternative energy. Growing concerns about the environment, fluctuating oil and gas prices and the security of energy supplies have all led to a greater emphasis on new, renewable capacity and the potential for companies involved in these technologies to deliver strong financial performance.
With just 2.9% of British electricity coming from renewable sources, primarily hydroelectric schemes, the Government has set itself an ambitious target to supply 10% of the UK's power from renewable sources by 2010. However, there are positive signs that the UK is now on the way to achieving this: in March this year, the Prime Minister signalled his interest in the area by making a commitment to invest £100m of new money in renewable energy.
Plans for two 'green' electricity schemes were also planned and launched. Npower, the retail division of Innogy, has gone into partnership with Greenpeace to launch Juice, a scheme to generate electricity from a 30-turbine wind farm, producing 90mw, off the coast of north Wales. Juice will initially be marketed to 50,000 domestic customers and will produce the equivalent of 1.5% of Welsh electricity demand. Scottishpower has also set out plans for a £150m wind farm south of Glasgow, generating 240mw, which will provide enough energy for 150,000 homes.
Despite these initiatives, there are few opportunities for investment in UK companies directly involved in alternative energy. However, because of the widespread availability of government funding to startup technology companies, North America has been an excellent source of alternative energy technology.
Concerns have been voiced recently that by abandoning the Kyoto protocol, President W Bush would set back the development of alternative energy schemes in the US. However, his National Energy Policy recommends that about $5bn of tax credits be extended to renewable sources such as the use of solar and wind power, providing a much welcome boost to this sector.
Fuel cell technology is a key future development that is now getting closer to mass market commercialisation. While there are different types of fuel cell, the basic principle behind the technology is that hydrogen and oxygen are reacted to create electricity, heat and water. This makes fuel cells cleaner, quieter and more fuel-efficient than the internal combustion engine. Typically, the technology can achieve 50%-60% efficiency levels, rising to 70%-80% efficiency with co-generation. This compares with efficiency levels of 15%-20% for the internal combustion engine.
Fuel cells can be put into a range of applications, from stationary power to car engines. Fuel Cell Energy is extensively testing its fuel cells, which are expected to be sold commercially from 2002, while Ballard is moving towards the launch of its first portable power unit in conjunction with Coleman Powermate, in the second half of this year.
Daimler and Ballard have also received an order to supply nine European cities with 30 fuel cell buses, as part of an EU-funded programme. Bus operator FirstGroup will take delivery of three of the buses towards the end of 2002 and will operate them in London as part of the programme.
The US has also produced some of the leading solar energy companies, including Astropower, which recently signed a deal to supply housebuilders with solar systems for new homes being built in San Diego. Evergreen Solar, which listed on Nasdaq in November 2000, has been awarded a three-year $2m contract from the Advanced Technology Programme of the US Department of Commerce to assist the development of its technology.
Although the US is seen as one of the key areas for growth for installed wind power, the key players in the industry come from Europe.
The largest three, which account for about half of the market, are Danish companies Vestas Wind Systems and NEG Micon, and Spanish company Gamesa. Another player, Nordex, recently floated on the German stock exchange.
Green funds derive their competitive advantage from spotting trends in environmental technologies at an early stage ' and alternative energy is just one example. Also promising are companies developing new water treatment processes ' recently, delegates at the annual Stockholm Water Symposium were told that as many as 2.7 billion people, almost one-third of the world's population, will live in regions facing severe water scarcity by 2025.
We expect socially responsible investment to continue to develop in important directions. We also anticipate that a number of the principles behind SRI will emerge to become mainstream investment issues, bringing greater benefits for the environment.
• SRI funds have grown to £3.7bn in the UK.
• FTSE4Good indices focusing on social, environmental and human rights issues, go live.
• In March, the UK Government pledged £100m of new money in renewable energy.
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