At a time when oil prices are soaring, Toyota has pioneered Australia’s first hybrid car with plans to build 10,000 petrol-electric Camry models each year in Melbourne from 2010.
This might not be the long term solution to rising petrol costs and greenhouse gas emissions, but it’s a good first step and could be the tipping point for a boom in green car technology in Australia.
You might be wondering what all this has to do with financial planning? After all, this news is only relevant to tree-hugging, truck-driving hippies, who are up in arms about the cost of fuel and see this as a chance to kill two birds with one stone, right? Wrong.
With so much talk and innovation around sustainable investment it’s only a matter of time before retail investors start to question the benefits clean technology could have on their portfolios.
David Klug, senior asset consultant at MLC, believes capturing emissions and power from various sources will break the stranglehold of oil on the transport industry. He says investment opportunities from carbon awareness and climate change are already evident in world economies; weather hedges, for example, are the fastest growing derivatives market.
Super funds have been buying into the rhetoric being churned out by consultancies like Watson Wyatt and Mercer, whose studies show sustainable investment can materially impact investment performance. According to Watson Wyatt, a record 15.2 per cent of net investments in equity funds in Europe went into clean technology or environment funds in the first seven months of 2007.
In Australia, demand is more muted but recent research by Van Eyk suggests the tide is turning. Growing investor demand prompted the research house to review environmental, social and governance (ESG) funds for the first time as part of its latest Australian Equities Review.
Nigel Douglas, head of investment research at Van Eyk, says retail demand for ESG strategies is growing “off a very low base”.
“Clients are more interested in this sector and there’s been an increase in the number of funds out there,” he says. “Funds under management in the sector are still low relative to other sectors. What marketshare are they going to take in a tougher environment? We’re looking at this closely.”
Louise O’Halloran, executive director of the Responsible Investment Association Australasia, believes the introduction of a carbon trading scheme in Australia will further drive clean-technology investment and interest from retail investors.
“There’s a quiet, growing need for advisers to start addressing this issue because clients will be asking them how it affects them and their investments,” she says. “As we start to get a price on carbon and a link to environmental outcomes, people will start asking their advisers about environmental funds.”
There are, however, a couple of disincentives that could prove a barrier to growth in the area.
ESG equities strategies are vulnerable to under-performing in the short term given their relatively limited opportunity sets, and there is no tax advantage to putting your money in an ESG fund.
According to Van Eyk, the fees are also higher than traditional funds – largely due to the fact that fund balances are still small, and screening does not come free – although fees will reduce as inflows increase.
If the hysteria around petrol prices is any indication, motorists will embrace the hybrid with open arms. Whether investors will do the same is another question.
