Climate Change & Your Portfolio
Dear Clients & Friends,
SRI = Socially Responsible Investing
ESG = Environmental, Social, & Governance
For this weekend’s reading, I’d like to share with you an excerpt from an article a good friend and colleague of ours recently wrote about climate change and the prevalent economic risks it presents. Peter Essele was actually the first investment analyst I worked with for exclusively socially responsible investment analysis many years ago. Everyone knows that socially responsible investing and environmental stewardship are factors that occupy a meaningful portion of our research and due diligence here at MORWM. It’s not only something we think about deeply, but it’s also part of our formal investment philosophy and research process.
We use several research providers to compile a massive amount of information pertaining to SRI and ESG. Providers include those such as Sustain Analytics and Robeco Sam, who provide research exclusive to social responsibility, as well as Bloomberg and Thomson Reuters, from which we obtain both economic/investment research as well as SRI/ESG research.
Although I have never formally surveyed our clients, my guess is that 60% of our clients are adamant that we include ESG research in our process, 20% prefer that we do it, and the other 20% don’t care much, but are pleased that we do it and enjoy watching us get excited about it.
In some ways, environmental sustainability is as much about investment risk as it is about being a good steward of Mother Earth. Businesses that are consistently burdened by discrimination lawsuits, pollution lawsuits, labor lawsuits, etc., simply have higher, and unnecessary, business costs. In addition, generations of Millennials, Gen Z and Gen X consumers, who are all far more socially aware than previous generations, are quickly making up the majority of consumers. These consumers are much more sensitive to how companies approach environmental and social concepts.
(P.S.- Millennials aren’t kids - they turn 40 this year.)
It starts to become clear why environmental considerations affect not only the natural world around us, but also the performance of one’s portfolio, as well as the economy at large. Peter’s article below discusses climate change specifically. Please read, no matter which generation you belong to.
As stewards of more than $12 billion in client capital (as of July 25, 2021), our job on the Investment Management team at Commonwealth requires a great deal of risk assessment—and there are many risks that require evaluation. But too often in our industry, the talking heads focus on the short-term ones like interest rate moves and market pullbacks. Most investors, however, have long time horizons. So, what we should be considering as an industry are the longer-term risks that match up with our clients’ goal horizons. One of those risks? Climate change.
As Brad mentioned in a previous post, climate change is a material risk that is having a pronounced effect on our daily lives, the global economy, and society as a whole. Take, for instance, the number of wildfires, droughts, and natural disasters that are occurring with more regularity. These extreme weather events pose significant financial risks for individuals, companies, and countries alike.
Regardless of where you stand politically on the issue, or what you believe to be the true cause, we should all acknowledge that the climate is changing. The changes coming forth in the years and decades ahead will have a significant impact on how we collectively live our lives and operate as stewards of capital.
NASA Says . . .
When looking for hard evidence and data on the topic, I turn to the same people who put us on the moon: NASA. NASA has constructed a user-friendly website that walks readers through the evidence, science, and ultimate effects of climate change. One piece of evidence—the atmospheric dioxide levels from the past 800,000 years—is illustrated below. I’d recommend giving the site a review if you’re looking to brush up on some of the facts and figures facing our world today.
Investors On Alert
Forward-looking investors are becoming increasingly focused on the impacts of climate change on their investment portfolios, including the negative effects on future economic growth or a company’s bottom line, business model, and financial standing. As a result, many investors are seeking investment solutions that intentionally mitigate climate-related risks or proactively embrace the race to net-zero carbon emissions. Other advocates are employing their shareholder rights to proactively engage with management teams and advocate for greater disclosure of climate-related business risks in their annual reports.
The Time to Consider Climate Risk Is Now
Alongside the demographic headwinds we face as a nation, climate change will be a key risk that companies, municipalities, and governments will be forced to contend with over the coming decades. Our expectation is that demand for sustainability-oriented strategies will continue to accelerate as the globe continues to grapple with an ever-changing climate, and the risks associated with that change become more pronounced.
As practitioners overseeing client assets, we, as an industry, have a fiduciary obligation to consider all risks. Turning a blind eye to this one will result in significant societal and financial damage over the long run if not acted upon now.
The best line in this excerpt is Peter’s comment about fiduciary responsibility. I am an Accredited Investment Fiduciary. That designation provides specialized knowledge allowing us to represent clients’ best interests at a higher level than someone like a stockbroker or fund salesperson. Part of our role as a fiduciary asset manager is to assess ALL risks on our clients’ horizons. In my humble opinion, it would be irresponsible to not consider environmental sustainability to be one of the most clear and present dangers to our present-day economy. Put more simply, I think firms that do not do so, are jerks. They are insensitive to the natural environment, and insensitive to the fact that our grandchildren will need to have air to breathe. Harshly said, but totally true.
In conclusion, these factors are deeply ingrained in our formal investment research process. So, when you take a deep breath this weekend, know that every single client of MOR Wealth Management is putting their money where their mouth is when it comes to environmental responsibility 😊.
With that being said - please sign up for paperless statement delivery!!!!!
-Your green friends at MORWM
Matthew Ramer, AIF®
Principal, Financial Advisor
MOR Wealth Management, LLC
1801 Market Street, Suite 2435
Philadelphia, PA 19103
P: 267.930-8301 | c: 215-694-4784 | f: 267.284.4847 |
601 21st Street, Suite 300
Vero Beach, FL 32960
email@example.com | www.morwm.com
The majority of this content was written and distributed MOR Wealth Management, all rights reserved. Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a registered investment adviser. Fixed insurance products and services offered through CES Insurance Agency.