Why we invest in climate solutions
by Verve Money
Updated: August 28, 2023
The quick version
- Every time you spend, save or invest money, it has an impact on the world — positive or negative.
- Climate solutions investing helps to fund companies that are trying to halt climate change by reducing CO₂ emissions.
- It’s a relatively new investing approach that has the power to change the world.
- We seek to invest 20% of each of our portfolios in climate solutions.
For too long investing has been about making money at any cost. Verve is here to fix that.
We want you to be truly inspired by your investing journey. To look back one day and be proud of how you invested. To be proud of how you chose to build wealth for a brighter future.
That’s why Verve Money’s three investment options are invested ethically.
Our investment objective is to strive for strong returns for our members by making investments which aim to contribute towards a future world that is sustainable and equitable, with thriving communities and a healthy planet.
It’s why we screen out investments that we believe to be harmful or contrary to our investment objective (i.e. we don’t directly invest in fossil fuels, nuclear energy, weapons, gambling, or tobacco).
It’s why we invest for a positive impact in carbon leaders, sustainability leaders, and green bonds.
And most importantly, it’s why we invest 20% of each of our portfolios in climate solutions.
Here’s how we do it and why.
What is climate solutions investing?
Solutions to the climate crisis are being developed in laboratories, universities, and the halls of government. But they can also be found in boardrooms, the stock markets, and your very own investments – including your superannuation and share investment apps like Verve Money!
Verve considers “climate solutions” to mean activities that reduce or avoid carbon dioxide (CO2) emissions, like renewable energy, green transportation, and sustainable products. CO2 emissions in the atmosphere lead to planetary warming, causing climate change. We believe a significant reduction in CO2 emissions is required to solve the climate crisis.
Climate solutions investing, simply put, is the mobilisation of capital towards investments that mitigate climate change in alliance with the goals of the Paris Agreement. In other words, it’s investing in companies or projects that are working towards reducing and avoiding CO2 emissions.
It isn’t climate philanthropy or climate gifting. It is about investing in solutions to help a faster transition while providing investors with a financial return.
Why does Verve invest 20% of each of our portfolios in climate solutions?
Before launching Verve Money, we surveyed circa 500 people to ask them about their values and what types of investments were important to them.
Investing in climate solutions was one of the most consistently important areas that our community wanted to invest in. One of our community members summed up our why more eloquently than we ever could:
“I am investing to build wealth. But how can I live a truly wealthy life if the world around me is collapsing…. I want to look my children in the eye one day and tell them that as a family, we built our wealth in a way that benefited everyone – that we did what we could to invest in a brighter future.”
Why not invest 100% in climate solutions?
The Verve Money Fund is primarily designed to support anyone in achieving their money goals through ethical investing.
While it is possible to create a fund that invests only in climate solutions, this would limit the level of diversification in each of the investment options, meaning that there is a potential for higher risk without higher expected returns – and this could negatively impact the ability of people to achieve their goals.
In addition, we know that our investors also care about a broad range of sustainability and social impacts in addition to climate. That’s why we also seek to invest in sustainability leaders in other industry sectors – even if those companies or projects are not focused primarily on reducing global CO2 emissions. That way our social and environmental impact is broader than just climate, and our diversification is also stronger.
So how exactly does Verve invest in climate solutions?
Climate solutions can be divided into five key segments. These are the areas where action needs to be taken, and that are most likely to benefit from the large flows of capital towards decarbonisation initiatives.
- Renewable or green energy – i.e. solar or wind energy companies
- Efficient or green transport – i.e. electric car companies
- Water and waste improvements – i.e. water purification companies
- Decarbonisation enabling solutions – i.e. electronic communications companies that minimise reliance on printing or travel
- Sustainable products – i.e. low toxin cleaning product companies
Ref: This chart is taken from the betaShares ERTH portfolio, which shares a similar philosophy to Verve Money.
A company or asset that derives, or is expected to derive, at least 50% of its revenue from activities that avoid or enable a reduction in CO2 emissions in one or more of these five key segments, qualifies for inclusion in our list of investments classified by us as contributing to “climate solutions”.
* Note: A company may be a pure play decarbonisation company (which means it’s focused on a single line of business which is central to driving revenue), or it may be a company enabling the transition of others across the entire value chain.
Remember, to be included in our investment portfolios, a company or asset classified as contributing to climate solutions must also pass through our negative and positive screens, which address broader environmental, social, and governance (ESG) concerns. For more information, see our blog How Verve Money Invests Ethically.
What are examples of some of the climate solutions investments in Verve’s portfolios?
Our investment portfolios are invested in a range of alternatives, bonds, fixed interest, direct holdings in equities, and Exchange Traded Funds (ETFs). Our investments in climate solutions can span all of these types of investments.
The below investments form part of Verve Money’s Investment Universe, meaning that at any one time you may be holding some or all of these investments as part of your investment in Verve Money.
1. Alternative Impact Investments
Alternatives are generally private investments that are obtained directly from their source or issuer and are not tradable on public exchanges like the ASX.
Kilter Rural Murray-Darling Basin Balanced Water Fund
The Murray Darling Basin Balanced Water Fund has an objective to secure water for agriculture and restore threatened wetlands across the Murray Darling Basin. Investment in water rights and water allocations provide an opportunity for low-risk exposure to a growing global demand for agricultural commodities via the supply of the key limiting resource in Australia, water. Kilter has donated over 10GL of water to 30 wetlands across Victoria and New South Wales since 2015, and these donations are thought to be the largest private water donations in Australian history.
Plenti offers green loans to consumers so that they can fund solar, home battery and clean energy installations. Plenti has a Provision Fund which can be used to pay back investors like Verve if individual borrowers can’t repay loans. The Provision Fund has a 100% track record of protecting investors.
2. Australian Equities
Australian Equities are investments in Australian companies listed on the ASX 200 and ASX 300.
Duxton Water Limited
Duxton Water owns and manages a portfolio of water entitlements, providing the irrigation community with a broad range of water supply solutions. This encourages more sophisticated water strategies and proper pricing of the resource, which in turn encourages efficient use.
Meridian Energy Limited
Meridian Energy is a New Zealand power company that generates electricity through 100% renewable sources – wind, water, and sun. They are New Zealand’s largest electricity generator.
3. Fixed income
Fixed income broadly refers to investments that pay investors fixed interest or dividend payments until their maturity date.
Artesian Green and Sustainable Bond Fund
The Artesian Green and Sustainable Bond Funds invests in global green and sustainable corporate bonds and cash. The investment manager has made a commitment to provide data about the carbon outcomes (e.g. carbon abatement) of the fund, as well as additional case studies where appropriate.
What can investors hope to gain from this approach?
Firstly, an incredible sense of “I’m doing something”. Of course, we can’t ‘invest’ our way out of the climate crisis, we need broad-based political and social change. But we can all take one additional step to help make a positive difference in the world.
There’s also an intended financial return to these investments that feeds into the overall targeted returns of Verve Money’s investment options.
Our commitment to transparency
Our aim is to be transparent about our investments so that you can decide if we’re living up to your values or not.
The Verve Money Investment Universe is a list of companies, funds and assets that have passed our ethical screening methodology. This means that at any point in time, the Verve Money Fund may be holding some or all of these investments.
This article is published by Verve Money Pty Ltd (ABN 71 653 669 366, AFS Representative No. 001294184), a Corporate Authorised Representative of True Oak Investments Ltd (ABN 81 002 558 956; AFSL 238184), as the Manager of Verve Money. A friendly reminder that all the financial information contained in this article is general in nature and does not take into account your personal financial objectives, situation or needs. It’s important to do your own research and consider getting in touch with a professional adviser to access specific information tailored to your unique situation.
You should read the Product Disclosure Statement, Investment Guide, Target Market Determination and Financial Services Guide before making a decision to acquire, hold, or continue to hold, an interest in the Verve Money Fund. Visit www.vervemoney.com.au/documents to view these documents.
Interests in the Verve Money Fund (ARSN 662 622 899) are issued by Melbourne Securities Corporation Limited (ACN 160 326 545, AFSL 428289). When considering financial returns, return of capital is not guaranteed and past performance is not indicative of future performance.