Explore the Thinking behind our investment approach

The last several weeks have been very busy ones for us, and we apologize for being out of touch, but given the time since our last communication, we have several interesting things to share. Firstly, in early September, Jeff was interviewed about the growing chip industry and the energy demands needed to keep pace with it. As we’ve spoken about previously, as the A.I. sector expands, we believe the need for sustainable infrastructure, water, and climate adaptation strategies will also continue to grow. As A.I. data centers require increased power to run as well as increased water to cool, we feel that water and grid infrastructure are great potential defensive strategies to hedge against the volatile A.I. trade. And as sustainable infrastructure and utilities are somewhat interest rate sensitive, with interest rates coming down, we also feel it also bodes well for each of these sectors. Secondly, as many of you know, Climate Week NYC took place in New York City last week, and Jeff spoke at Morningstar’s NYC Headquarters at 4 World Trade Center at the Shifting Trillions Event on The Addition Economy, and also led a panel at our yearly Climate and Capital Conference at the NYSE, which we again co-hosted with ICE, Accenture, and fintech.tv, titled “The Role of Private Markets and Philanthropy in Addressing Climate Risk.” This year’s Climate and Capital Conference focused largely on carbon accounting, measurement, and pricing, as well as how we can further drive catalytic capital into the impact and climate space via public policy, private-public partnerships, and philanthropy. We look forward to sharing a complimentary replay of the conference with all of you soon. Lastly, Hurricane Helene is estimated by some to leave behind between $95 billion and $110 billion in damage and economic loss. The storm wreaked havoc in places as far inland as Tennessee and North Carolina, affecting several populations that have not previously considered a strong need for flood insurance. As Jeff notes, “insurance underpins our entire economic model. The only way to build most things in this country is if insurance underlies the investment.” As the insurance industry increasingly finds itself unable to cope with the frequency and intensity of extreme weather events, what will this mean for us as a society? This is one of several reasons why we believe climate resilience, adaptation and mitigation strategies to be so important during this time.

There are a wide range of potential economic consequences due to global warming, including its impact on unemployment rates. A December 2023 study from ScienceDirect noted that countries between 20 – 40 degrees latitude will likely experience the most significant rise in unemployment due to global warming. Additionally, middle-income countries appear to be most susceptible. As climate change policies take center stage, the potential for labor market disruptions becomes a crucial factor to consider. We believe that it is important for investors to evaluate how these trends might affect specific industries, demographics, and geographical locations within their portfolios. Understanding the evolving dynamics between global warming and unemployment can inform more strategic investment decisions in a changing world. To help mitigate these potential risks, the study also highlights potential policy interventions, including: Global efforts to reduce carbon emissions through clean energy adoption, technological advancements, and carbon pricing mechanisms. Targeted support for middle-income countries to help them manage the impact of climate change on employment. Development of regional strategies that help promote circular economies, low-carbon practices, and improved agricultural technology in vulnerable areas. Proactive government measures to enhance urban infrastructure resilience, protect agricultural land, and manage economic risks associated with climate change. By acknowledging the evolving relationship between global warming and unemployment, we believe that investors can better navigate the challenges and opportunities that lie ahead. Hear more about what Jeff had to say about this in his most recent interview from our NYSE studio:

Especially when considering climate, active management differs from passive investing in many ways. While both approaches can include negative screening and passive strategies, the active approach we take with our Climate UMA Solutions offers several potential benefits. Our carefully selected managers leverage multiple data sources and vast experience to select securities, with research going beyond top-level scores and quantitative data, offering us the ability to invest in undervalued stocks and sectors, capture potential upside as conditions change and capitalize on newer opportunities. To learn more, please feel free to check out our most recent brochure:

Meeting the Markets Where They Are by Adam Bernstein, Impact Analyst Over the past few years, many people in the investing world have been talking about what is sometimes referred to as a transition economy. This is where a country or region looks to undergo a comprehensive shift from relying on traditional fossil fuel systems to more renewable forms of energy. The implications of a transition economy may also involve broader economic changes, including investments in new technologies, changing industrial / manufacturing practices, and broader regulatory and social adjustments. Yet, we feel that what has unfolded over the past several years more closely resembles what we would call an addition economy. This is a scenario where, despite the increasing integration of renewable energy sources, overall energy demand has continued to rise, in part due to such factors as new technologies and changing consumer and industrial behaviors. So, while interest in renewable energy sources like wind and solar is accelerating, as total energy consumption grows, the global energy system’s dependency on fossil fuels isn’t decreasing proportionately. Fossil fuels still account for a large share of the global energy mix due to the expanding overall energy demand driven by economic growth, AI, EV adoption, and increased electrification. We feel that it is important for investors to have a meaningful dialogue about what this means for the market and how we translate it into our investments because it has real asset allocation implications.

We strongly believe that the dramatic climate changes and increasing extreme weather events we are experiencing will greatly affect the financial markets and cause corporations and institutions to rethink their climate mitigation and adaptation strategies in the years to come. We have been talking about the implications of climate change on the financial markets and insurance industry for many years, in part due to our interactions with Spencer Glendon, Founder of Probable Futures and former Partner and Director of Investment Research at Wellington Management. What will it mean for corporations and the financial markets as insurance premiums continue to rise and insurers increasingly pull out of high-risk areas? Hear what Jeff most recently had to say about this as much of the country and many other parts of the world increasingly deal with a wide array of extreme weather events:

As most of you likely know, the U.S. Supreme Court recently overturned Chevron Deference, a decades long practice of federal courts deferring to federal agencies’ interpretations of ambiguous statutes. The implications of this decision may potentially affect a multitude of future issues with regard to the financial sector, environment, food and drug safety, healthcare, and other industries. Hear Jeff’s thoughts about this decision, particularly with regard to how it may potentially affect legal challenges with the SEC and EPA: