Topic Tags: Sustainable Investing

It’s Getting Hot in Here

If global temperatures rise more than 1.5° Celsius the planet and its inhabitants could face severe consequences as a result of climate change. In 2022 — using temperatures from 1951–1980 as a baseline — the average global temperature rise was 1.4° Celsius, pushing the planet close to its tipping point. We are already experiencing more frequent and severe heatwaves, droughts, floods, and storms as well as rising sea levels and melting ice sheets. In fact, 2015–2022 were eight of the warmest years on record. The effects of rising temperatures are impacting people, ecosystems, and economies around the world and will only intensify in the coming decades unless we can bend the emissions curve and stabilize global temperatures.

To do so, the Intergovernmental Panel on Climate Change — a scientific body established by the United Nations and comprised of hundreds of climate scientists — has urged immediate, rapid, and large-scale reductions in greenhouse gas emissions. This would require systemic changes and large investments across all sectors of the economy, especially within energy, agriculture, transportation, heavy industry, and buildings.

For investors who are so inclined, there are a variety of methods to assist the cause, particularly for reducing portfolio-level climate risks as well as leveraging assets to foster society wide-decarbonization that aligns with a net zero future. Approaches can include engaging high-emitting companies to set science-based emissions reduction targets and create climate transition plans, increasing investments in “climate solutions” such as renewable energy infrastructure, assessing portfolios and assets for exposures to physical and transition-related climate risks, and subjecting a portfolio to climate-related stress tests and scenario analysis. Of course, all of these approaches involve trade-offs between risk, return, and impact; investors will ultimately have to decide the appropriate balance among these principles based upon overall portfolio and organizational goals.

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Source: See IMF data on annual surface temperature changes

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Livestream Videos: 2022 Investment Symposium

The presentations by our research team from Marquette’s 2022 Investment Symposium livestream on September 23rd are now available. Please feel free to reach out to any of the presenters should you have any questions.

View each talk in the player above — use the upper-right list icon to access a specific presentation.

 

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. Past performance is not indicative of future results. For full disclosure information, please refer to the end of each presentation. Marquette is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Marquette including our investment strategies, fees and objectives can be found in our ADV Part 2, which is available upon request.

Go Green or Go Home

Accelerating energy innovation is proving to be a key driver of decarbonizing the economy and mitigating climate change and may also expand the opportunity set for infrastructure-focused investors. President Biden signed the Inflation Reduction Act of 2022 (“IRA”) into law on August 16th, 2022. The legislation is projected to raise $737 billion in revenue, require total investments of $437 billion, and reduce the deficit by more than $300 billion.¹ The IRA bill aims to help offset long-term inflationary pressure via targeted spending in clean-energy renewables and decarbonization initiatives over the next decade-plus. In addition, the bill will utilize tax credits and government subsidies to encourage household and commercial renewable energy purchases, clean-energy manufacturing, and decarbonization of domestic industries. As private equity and infrastructure investors digest the impact of the new legislation, we expect electric utilities and clean hydrogen production to be key beneficiaries of an increase in capital deployment. Infrastructure-focused strategies can provide exposure to these tailwinds while being ESG-friendly and more broadly helping to diversify a portfolio, provide a hedge against inflation, and generate attractive long-term risk-adjusted returns.

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¹ Inflation Reduction Act of 2022, Investopedia

Sustainability Briefing – 3Q 2022

Sustainable investing is not new to Marquette. Ranging from mission-driven screening to minority-owned investment manager utilization, Marquette has been partnering with clients for over thirty years to implement investment strategies that address a myriad of environmental, social, and governance (ESG) themes. But something has shifted over the last few years, bringing ESG to the forefront of client discussions and manager presentation decks. To help clients navigate this evolving space, we will be sharing quarterly briefings that highlight trending topics surrounding sustainable investing.

In this edition:

  • Greenwashing and increased regulatory scrutiny by the SEC
  • ESG and sustainability-themed ETF flows
  • The SEC’s recent proposed rule, File No. S7-10-22: The Enhancement and Standardization of Climate-Related Disclosures for Investors
  • Business impact of increasing interest and attention to ESG themes:
    • Electric vehicle adoption
    • Unionization efforts
    • ESG disclosures by corporate issuers

Read > 3Q22 Sustainability Briefing

 

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

High on Lithium

Electric vehicle (EV) sales have seen significant growth over the past several years. Recently, elevated demand has contributed to a rampant increase in lithium prices, a primary input to the batteries that power EVs. As the global transition to a clean energy economy continues, the demand for lithium is expected to rise exponentially, to the point of creating a supply shortage in the coming years. While the metal itself is not in short supply, there are limitations to the extraction process and investment in the space has yet to catch up with the rise in demand.

In the last two years, lithium prices have soared more than 700% as sales of EVs have hit record-breaking numbers. Demand for lithium, according to McKinsey & Co., is expected to increase more than sixfold to 3.3 million metric tons in 2030 from 0.54 million metric tons in 2021. Supply is currently projected to reach 2.7 million metric tons by 2030, leaving 0.64 million in demand unaccounted for. The lithium mining industry today resembles an oligopoly, with only a handful of companies responsible for the majority of global supply. Going forward, this could change as further investment is made into the space, which could in turn help normalize price levels. While mining is often thought of as the polar opposite of sustainability, lithium mining actually helps further green energy initiatives, and lithium-related investments may serve ESG-focused investors well over time.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Defined Contribution Plan Legislative Update – 2Q 2021

This legislative update covers the Secure Act 2.0, provides an update on the Department of Labor’s enforcement of its final rules on ESG investments and proxy voting by employee benefit plans, reviews best practices for investment committees coming out of the disruptions caused by COVID, and examines growth and integration of Health Savings Accounts (HSAs) as offerings in defined contribution plans.

Read > 2Q 2021 DC Legislative Update

 

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Sustainable Investing Among Equity Asset Classes

Sustainable investing continues to grow in both size and relevance among institutional investors and asset managers. As a matter of background, sustainable investing is a term that encompasses three broad approaches: ESG Integration, Socially Responsible Investing, and Impact Investing. As elaborated on in Marquette’s Sustainable Investing video series, the definitions of each of these terms are:

  • ESG Integration: Returns-focused investing that incorporates long-term sustainability factors (Environmental, Social, Governance) into the investment process.
  • Socially Responsible Investing (SRI): Investments driven first by ethical values.
  • Impact Investing: Investments with the specific intent to create and measure social and/or environmental impacts alongside financial returns.

While SRI and Impact Investing are more targeted strategies driven by underlying initiatives and/or beliefs, ESG integration has allowed portfolio management teams of more traditional approaches to consider social and environmental issues in a more tangible way than in the past. As ESG factors are more ingrained in the investment processes, there will be more investment options that contribute, directly or indirectly, to some of the ideals sought after in SRI and Impact portfolios. As shown in the above chart, investors have options across the global equity universe for both ESG integrated funds as well as dedicated SRI/Impact Investing funds. The proportions of each are likely to expand as sustainability investing trends accelerate globally.

Along with this growth comes an increased emphasis on measurable impact and standardized reporting, both of which have been a challenge in the sustainable investing space. We have started to see investment managers adopt the United Nations Sustainable Development Goals (UN SDGs) as a framework for expressing the sustainable intent or reach of their portfolio. For instance, there is a growing contingent of investment managers that have mapped their portfolio holdings to one or more SDGs based on whether the firm’s product or service aided or harmed the stated end goal. We have also seen many investment managers become signatories of the UN Principles for Responsible Investment (PRI) over the last three years. The UN PRI are comprised of six foundational principles that work to support and encourage ESG investing. Another sustainable investing reporting metric that has become more readily available is carbon intensity measures. While there have been many positive developments in recent years, investors should be cognizant of potential greenwashing — disingenuous or misleading attempts to present strategies as more ESG-focused than they actually are.

Overall, sustainable investing is moving in the right direction as more allocators and investment managers realize that returns need not be sacrificed in pursuit of positive change. In fact, a fundamental concept of sustainable investing is that firms with better ESG practices tend to fare better over the long run due to a reduced likelihood of litigation, increased diversity, and capitalization on emerging sustainable technologies, among others. Marquette continues to monitor these developments and stands ready to assist clients in pursuing their sustainable investing goals.

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eVestment Universes
U.S. Large-Cap: “US Large Cap Equity” 1,129 Products
U.S. Mid-Cap: “US Mid Cap Equity” 289 Products
U.S. Small-Cap: “US Small Cap Equity” 640 Products
International Large-Cap: “EAFE Large Cap Equity” 219 Products & “ACWI ex-US Large Cap Equity” 142 Products
International Small Cap: “EAFE Small Cap Equity” 101 Products & “ACWI ex-US Small Cap Equity” 67 Products
Emerging Markets: “All Emerging Markets Equity” 654 Products

 

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Defined Contribution Plan Legislative Update – 4Q 2020

While legislators have been focused on negotiating the next round of stimulus and dealing with the implications of the recent election cycle, the U.S. Department of Labor (DOL), as the primary regulator of the Employee Retirement Income Security Act (ERISA), has been fairly active with issuing proposed changes and final rules that may impact many of our defined contribution plan clients in the past several months.

This legislative update covers recent communications regarding private investments in defined contribution plans, proxy voting guidelines, ESG considerations (an update to an earlier Proposed Rule), and 2021 contribution limits.

Read > 4Q 2020 DC Legislative Update

 

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

 

ESG AUM Continues to Grow

Over the past five years, there has been a substantial increase in assets under management (“AUM”) for ESG (environmental, social, and corporate governance) mandated funds, as investors are placing greater emphasis on environmental and social issues while realizing that performance is not a tradeoff for sustainable investments. Since 2015, there has been a 147.5% increase in AUM for ESG-mandated funds, specifically looking at U.S. Equity, U.S. Fixed Income, Global Equity, and Global Fixed Income.

Going forward, we expect to see a larger increase in ESG investing as the COVID crisis further unfolds against the backdrop of other significant environmental and social issues. The recent inflows into ESG funds are a combination of new funds and the restructuring of old non-ESG funds. During the first half of 2020, over 20 new ESG funds have been launched in the U.S., making it the sixth consecutive year of 20+ new launches, and the U.S. is expected to set a new record by the end of the year. Clearly this is a trend that is gaining momentum across the investment universe and bears watching in future years. For more information on sustainable investing, reference our Sustainable Investing Video Series.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Sustainable Investing Video Series

Our Sustainable Investing video series introduces the concepts and best practices of sustainable investing to trustees, staff, and other investors. Over the past two decades, investor interest and demand for purpose-driven investment opportunities — including various movements such as socially responsible investing, ESG integration, and impact investing — has grown significantly, and Marquette now advises on over $81 billion invested¹ with some form of sustainable approach. The three videos in this overview are presented by Linsey Schoemehl Payne, who serves as vice-chair of Marquette’s Sustainable Investing Group and works with clients directly to implement and monitor sustainable investing programs.

The series covers:

  • Tackling Terminology, an introduction to the terms and concepts investors may encounter when thinking about sustainable investing;
  • Initiating Implementation, an overview of the process of implementing a sustainable investment program; and
  • Compliance & Reporting, a summary of the various methods used to evaluate manager compliance and report on the impact of sustainable investments.

View each episode in the player below— use the upper-right list icon to access a specific presentation.

For further coverage on sustainable investing, reference our recent newsletter, Sustainable Investing in a Post-COVID World, and white paper, The Future of Investing: Sustainability and ESG Integration.
For more information, questions, or feedback, please send us an email.

 

¹As of June 30, 2020. A sustainable investing client is defined as a client that has one or more SRI/ESG/Impact investment.

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. Marquette is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Marquette including our investment strategies, fees and objectives can be found in our ADV Part 2, which is available upon request.