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Net zero government rollbacks - 3 fund ideas to make a difference

The road to net zero has gotten a little bumpier following wide-ranging rollbacks. We look at what’s changed and share three fund ideas that could help to make a difference.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Tara Clee and Joseph Hill

Published on 28 September 2023

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

Rishi Sunak has weakened the UK’s environmental commitments to net zero.

The rollbacks include:

The ban on the sale of petrol and diesel cars being pushed back from 2030 to 2035.
Regulatory action on household energy efficiency has been weakened by watering down the phasing out of gas boilers. The energy performance certificate (EPC) targets for landlords has also been scrapped.
Reiteration that oil and gas drilling in the North Sea won’t be banned.

The prime minister described his new approach as more pragmatic and realistic, focusing on policies that directly impact consumers. While this policy shift might save consumers pennies in the short term, in the long term, the hope is that green policies will unlock more sustainable cost savings.

When it comes to electric vehicles for example, the initial cost might be more than a petrol or diesel car, but you’re saving money in the long run. They’re currently exempt from road tax and ULEZ zones, and a full charge averages between just £17-26.

For household energy efficiency, one estimate suggests delaying the requirement for properties to meet a certain energy-efficiency level by two years could cost private renters as much as £1bn in higher energy bills.

While the government backpedals on the UK’s green policies, investors are still committed to investing in the opportunities that come with the net-zero transition.

A recent survey of HL clients (February 2023) revealed that 70% of investors consider climate change extremely or very important.

Since 2020, the amount UK investors have put into responsible investment funds has grown 73% with strong demand from investors of all ages – not just younger investors.

How investing can change your carbon footprint

Here are three responsible investment fund ideas that could put your money to better use.

This article isn’t personal advice. If you’re not sure an investment is right for you, ask for financial advice. Investments and any income from them will rise and fall in value, so you could get back less than you invest. Past performance isn’t a guide to the future.

Remember, investing in funds isn't right for everyone. You should only invest if the fund's objectives are aligned with your own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.

Legal & General Future World ESG Developed Index

Legal & General Future World ESG Developed Index aims to track the performance of the Solactive L&G ESG Developed Markets Index and invests in the same companies as the index.

The index invests more in companies that score well on a variety of ESG criteria – from the level of carbon emissions generated, to the number of women on the board and the quality of disclosure on executive pay.

It also invests less in companies that score poorly on these measures.

The fund won't invest in persistent violators of the UN Global Compact Principles (a UN pact on human rights, labour, the environment and anti-corruption). It avoids companies involved in tobacco, controversial weapons (like cluster munitions, anti-personnel mines and chemical and biological weapons) or civilian firearms.

It also won’t invest in companies that earn more than 20% of their revenues from thermal coal and oil sands.

It’s being managed to achieve at least a 7% reduction in carbon emissions per year until 2050. The aim is to align the fund with the Paris Agreement, which aims to limit the temperature rise caused by global emissions to 1.5°C above pre-industrial times.

Investors should note the fund invests in smaller companies, which adds risk.

FIND OUT MORE ABOUT LEGAL & GENERAL FUTURE WORLD ESG DEVELOPED INDEX INCLUDING CHARGES

LEGAL & GENERAL FUTURE WORLD ESG DEVELOPED INDEX KEY INVESTOR INFORMATION

Stewart Investors Indian Subcontinent Sustainability

Stewart Investors Indian Subcontinent Sustainability is managed by Sashi Reddy and David Gait. It mainly invests in Indian companies, though it can also invest in Pakistan, Sri Lanka, and Bangladesh.

Stewardship and sustainability form a core part of the team’s investment strategy. Reddy and Gait focus on companies they think could benefit from and contribute to the sustainable development of the countries they're based in.

Once they understand the sustainability of each company, they like to actively engage with their senior management teams. They believe this can enhance returns and reduce risk.

They recently engaged with Indian bank HDFC to make sure that the risks posed by climate-induced flooding are being adequately considered within its lending requirements.

Ultimately, the managers believe analysing ESG information helps them understand more about the quality of companies. They think their long-term investment horizon makes sustainability even more important.

This fund invests in emerging markets, which are generally less well-regulated than the UK. It can sometimes be difficult to buy and sell investments in these areas. Political and economic instability is also more likely. This makes this fund higher risk than those investing in more regulated and developed markets.

This fund also invests in smaller companies, which are more volatile and sometimes more difficult to trade than larger companies, increasing risk.

FIND OUT MORE ABOUT STEWART INVESTORS INDIAN SUBCONTINENT SUSTAINABILITY, INCLUDING CHARGES

STEWART INVESTORS INDIAN SUBCONTINENT SUSTAINABILITY KEY INVESTOR INFORMATION

Guinness Sustainable Energy

The Guinness Sustainable Energy fund is managed by Jonathan Waghorn and Will Riley. They invest in companies in the solar, wind, hydro, geothermal, biofuels, biomass, and energy efficiency sectors.

The managers start by looking at around 250 sustainable energy companies. They look at the good ESG behaviours of these companies to help them define the future value of the company.

This might include whether the company has strong risk management and long-term planning, is allocating capital wisely, or integrating well with the communities they operate in. The fund invests in a concentrated portfolio of under 30 companies, which adds risk.

It currently invests in the solar panel maker First Solar. The company’s technology reduces emissions by up to 89-98% compared with conventional energy generation.

The managers think the company is pioneering new solar technology and operates a sector-leading approach to the manufacture and recycling of its solar modules.

As this is an offshore fund, you’re not normally entitled to compensation through the UK Financial Services Compensation Scheme.

This fund focuses on sustainable energy companies. This means the fund can be more volatile, and its fortunes are heavily reliant on the success of one sector. Specialist funds should form just a small part of a well-diversified portfolio.

FIND OUT MORE ABOUT GUINNESS SUSTAINABLE ENERGY, INCLUDING CHARGES

GUINNESS SUSTAINABLE ENERGY KEY INVESTOR INFORMATION

LEARN MORE ABOUT RESPONSIBLE INVESTING

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Our fund research is for investors who understand the risks of investing and that investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.