By AGUSTIN CRUZ, Leaders in Energy member, Executive Director, ArlingtonGreen
On Tuesday, June 14, 2016, Leaders in Energy examined the topic of sustainable investing and its role in helping to drive clean energy and related sustainability business.
Janine Finnell, Founder and Clean Energy Ambassador, Leaders in Energy, welcomed the attendees and noted that these events tend to get a particularly good turnout when the topic is on money! For example, in January 2016 the topic was on Green Finance and developments related to green banks in the DC region. From identifying loans and grants for green technologies through government-sponsored initiatives to learning how to manage personal investments to make an impact, there’s a lot to explore.
Janine served as the moderator for the panel discussion. Janine thanked Leaders in Energy member, Leila Peck (and panel speaker) for her support in spearheading this topic and facilitating the event logistics. Janine also thanked all the Leaders in Energy members who helped to make the event possible. She discussed the mission of the organization, which is to build a community of leaders to enable solutions for a sustainable energy system, economy, and world. A moment of silence was held in memory of the Orlando shooting victims.
When it comes to the question of whether or not there is a “performance penalty” for sustainable investment vis-à-vis other investment vehicles, David Loehwing, Director of Sustainability Research at Pax World Management commented: “That debate is over.”
Mr. Loehwing was one of three expert panelists taking part in June 14’s program “Perspectives on Making an Impact Through Sustainable Investing”. Joining Mr. Loehwing were Leila Mathur Peck, Vice President & Financial Advisor for Morgan Stanley, 7500 Old Georgetown Road, Floor 10, Bethesda, MD 20814; and Markus Walther, Sustainability Analyst for Calvert Investments.
In turn, each speaker expanded upon why and how sustainable investments continue to gain currency. In fact, according to Mr. Loehwing, in the not too distant past, U.S. Department of Labor (DOL) guidelines discouraged investors from considering environmental and social factors in their analysis. New guidance from the DOL in October 2015 instead states: “Environmental, social, and governance issues may have a direct relationship to the economic value of the plan’s investment. In these instances, such issues are not merely collateral considerations or tie-breakers, but rather are proper components of the fiduciary’s primary analysis of the economic merits of competing investment choices.”
Mr. Loehwing’s role at Pax is helping portfolio managers assess how environment, social, and social governance (ESG) factors can affect the overall risk of investment decisions. Pax is a pioneer in the field of sustainable investing and manages the oldest SRI mutual fund in the U.S., the Pax Balanced Fund. Mr. Loehwing pointed out that sustainable investing is now widely accepted as a modern approach to portfolio management, evidenced by its uptake among mainstream investment firms, and the availability of ESG data on investment research platforms like Bloomberg.
Through his and his colleagues’ work, Mr. Loehwing’s analysis attempts to identify companies that are best in class in relation to ESG. They analyze the sector-specific risks, such as those affecting energy companies that perform fracking. Waste management, water availability, access to land, and emissions are just a few of the many elements that go into the ratings of companies. Those that do well are able to identify those inherent risks and take steps to mitigate their effects as much as possible. In sum, Mr. Loehwing emphasized that companies including ESG considerations in their business decisions aren’t perfect; but by trying to get better, everyone benefits. In terms of providing better information, he highlighted the role of the Carbon Disclosure Project in increasing the availability and rigor of the data companies provide about their carbon emissions, and the related risks and opportunities climate change poses to their business.
Ms. Peck has a long history in the investment and financial advisory world but is a relative newcomer to SRI. Much of her motivation to get involved came from clients who increasingly specified industries or companies they wanted to support or not support. Morgan Stanley picked up on this increasingly popular topic and started its own Institute for Sustainable Investing in 2013. Morgan Stanley Wealth Management established the Investing with Impact platform in 2012, and has committed to raising $10 billion in client assets dedicated to Morgan Stanley Wealth Management established the Investing with Impact platform by 2018.
Morgan Stanley’s approach is composed of two interrelated parts. First, it offers a variety of products, such as green bonds. A green bond is a tax-exempt bond that is issued by federally qualified organizations and/or municipalities for the development of brownfield sites. Second, a “framework” helps potential investors guide their decisions about how they want to make investments. For example, are they interested in ESG investments or Impact Investing? Are there particular thematic exposures they want to avoid? Implementing these tools allows Ms. Peck to help her clients create portfolios that in her words are “a patchwork quilt of [their] values”. Morgan Stanley offers over 130 sustainable investments. Examples of themes are investment vehicles that focus on renewable energy or exclude exposure to coal mining or animal testing.
Mr. Walther works to identify companies that are being considered for inclusion in Calvert Investments. The company has 26 funds with $12 billion under management. Calvert invests only in companies that meet minimum sustainability requirements specific to every industry. According to Mr. Walther, Calvert also looks at the overall industry of a company; if it’s too risky, it won’t invest even if a specific company is performing well.
As he analyzes a prospect, Mr. Walther pays special mind to the key performance indicators of every industry. For example, greenhouse gas emissions for energy concerns; human rights and labor conditions for manufacturing companies in textiles.
Questions and Answers
The question and answer portion of the program was as informative as the panelists’ discussion. In response to an attendee wanting to know who is investing in SRI companies, Ms. Peck noted that women control some 38% of investments and tend to be more interested in SRI. This may be due to the fact that on average women live longer than men.
Mr. Loehwing supported these observations by noting more than 70% of active investors are interested in sustainable investing , while far fewer financial advisors are offering services in these areas. On this point, the panelists and several audience members speculated that inertia among older, established advisors keeps them from considering strategies such as ESG and SRI that were once considered to be on the fringes.
On the question about how to balance between impact and sustainable investing, the panelist noted the continued difficulty of objectively measuring “social impact”. It was also noted that in many instances, perceived risks are themselves opportunities for change and improvement. Shareholder activism, the divestment movement largely made of universities divesting investments in securities with fossil fuel exposure, and organizations such as the Carbon Disclosure Project show that potential investors are indeed taking to heart ESG and SRI considerations as much for their financial well-being as for the good of the planet. Mr. Walther may have said it best when he advised those trying to make sense of SRI and ESG investment decisions, saying “[Think about] your philosophy and what you want to accomplish, and then ask your advisor for funds that match your views.”
One Leaders in Energy member commented that these events provide an excellent forum for attendees to discuss various opportunities for innovation and sustainability.
The next Leaders in Energy event will be Green Jobs in August. Details are forthcoming.
For more information:
“Demystifying Sustainability Analysis,” by Julie Fox Gorte, Pax World Investments.
“Sustainable Reality” by The Morgan Stanley Institute for Sustainable Investing
Photographs courtesy of Elvin Yuzugullu.
More information on Leaders in Energy is available at https://www.leadersinenergy.org and in the Leaders in Energy Research, Communication, Policies & Analysis (LERCPA) LinkedIn group. The mission of Leaders in Energy is to build a community of leaders to enable solutions for a sustainable energy system, economy, and world.
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