Explore the Thinking behind our investment approach

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:

A.I. is likely going to increase productivity in a myriad of ways, and yet the International Monetary Fund (IMF) warns that it will also likely disrupt jobs and widen income inequality. At what speed this may happen is uncertain, and even though we are at the early stages of the A.I. story, we are already seeing how it may impact the energy system, with future energy demands potentially outpacing our ability to transition from the fossil fuel system. Jeff refers to this increasing need for energy, largely fueled by the tech and A.I. sector, as the addition economy, and believes that the increasing energy needs of data centers may need support from a number of different sources, including renewables, coal, natural gas, new battery technologies, and nuclear power. Hear more about what Jeff has to say in this 7-minute clip from our NYSE studio:

There is an enormous need for affordable housing in the United States. According to Jonathan Rose, CEO and founder of Jonathan Rose Companies, over 20 million U.S. families pay over 50% of their income for housing, while he believes that they should be paying no more than 30% in order to have enough money for other things, such as food and health care. Jonathan Rose Companies raise investment funds that buy existing affordable housing units, and also develop and manage affordable housing communities throughout the country. They also actively work to make their properties more environmentally friendly, while also bringing social, health, and educational programs to their residents. With companies like Blackrock, Blackstone, and Nuveen now investing in affordable housing, Jonathan believes these companies have come to increasingly understand the value of these assets, but that making them affordable as well as socially and environmentally friendly is also a crucial part of the equation. Jeff recently sat down with Jonathan to discuss his company and the measurable impact they are having:

As artificial intelligence continues to become a greater part of our lives, the demand for energy needed to drive it is also on the rise, creating an increased drain on utilities and the grid throughout the United States. The increasing energy demand we are currently facing is something Jeff refers to as “the addition economy.” As our grid is not currently set up to handle this additional payload, where will this energy come from, and from what sources? And how are we to balance this increasing need for energy against the effects of climate change? Hear what Jeff has to say: This is one of the reasons why we include themes such as utilities, water, sustainable infrastructure, and climate adaptation in our portfolio solutions.