ESG IN THE NEWS
Net Zero Asset Managers Initiative Gains Support. Financial institutions have an important role to play in mitigating climate change. Commitments to net zero alignment among investors have reached 220 signatories, representing $57 trillion of assets under management. Portfolio managers across equity, fixed income, and other asset classes will seek investments that support the net zero goal. This means owning companies that are taking steps to decarbonize by using more renewable energy or buying carbon offsets. Net zero investors can incorporate a consideration of material climate risks and opportunities in the investment process and engage with companies that are climate change laggards.
COP26 Takeaways: Somewhat Disappointing. The recent UN Climate Change Conference, or COP26, held in Glasgow, featured more anger and outrage from youth activists and smaller island countries suffering from climate change. Overall, members made no major commitments as the world’s largest countries continue to disagree over the urgency of climate action and how to pay for decarbonization initiatives.
United States. The U.S. is backtracking on planned climate commitments as it makes compromises in order to secure the support of moderate House democrats. Methane emissions has become the new centerpiece of the US climate plan, which aims to cut output by 50% from 2023 to 2035 and would institute a “methane fee” starting at $900/ton in 2024, ramping to $1,500/ton in 2026. The U.S. also joins over 100 other countries in a pact to end deforestation by 2030, replacing a failed 2014 accord.
Europe. Europe leads the world in climate action, with a commitment to cut emissions 55% by 2030. The European Union called on G20 countries to make credible decarbonization commitments to reach net zero emissions by 2050. Current pledges will only reduce carbon emissions by 7% to 8% by 2030 vs. the 45% reduction needed under a science-based target.
China. China is the world’s largest emitter of greenhouse gases. Chinese President Xi Jinping did not attend COP26 in person. Through a written statement, China confirmed its emissions would peak before 2030 and then be cut to “net zero” by 2060. The country will also expand wind and solar capacity to 1,200 gigawatts by 2030. The Chinese statement did not contain any new commitments on climate action.
VALUES IN ACTION
Earth: Coca-Cola Announces 2021 ESG Progress. On Nov. 3, Coca-Cola (NYS-KO) announced a sustainability strategy focused on environmental issues, including water usage, packaging, and GHG emissions. The company has a goal to replenish 100% of its direct water usage. In packaging, the company’s goal is to use 100% recyclable packaging by 2025, avoiding 3 million metric tons of virgin plastics each year. Lastly, Coca-Cola has a science-based target to reduce GHG emissions 25% by 2030. At this time, Seeds has no direct exposure to Coca-Cola (KO).
People: American Airlines Focuses Diversity Progress on Black Employees. American Airlines (NYS-AAL) recently filed its latest corporate sustainability report. In the past year, the company has held many townhall discussions to engage its employees on diversity issues. AAL has also held inclusion training workshops for about 70% of its employees. This year’s focus is on advancing black employee representation. The company has set a goal to increase black directors by 50% and black senior managers by 20%. Black employees represent 17% of the US employee base, with white employees at 54%. Seeds does not own AAL stock because of the company’s large carbon footprint.
Corporate Integrity: Duke Energy Expands Sustainability Bond Program. Duke Energy (NYS-DUK) is one of the largest electric utility companies. Approximately 60% of the company’s generating capacity is in oil, natural gas, and coal. Nonetheless, the company will finance its five-year $59 billion capital plan through sustainability bonds. To provide an independent assessment of the plan, Duke engaged S&P Global Ratings, which scored the plan as “satisfactory,” or one notch above “not aligned.” Seeds does not own DUK stock but does have modest exposure to other electric utilities including Consolidated Edison (ED) and Eversource Energy (ES). Seeds Core Fixed Income Portfolio also may have exposure to Duke sustainability bonds through its underlying mutual fund holdings.
With $14 billion sales, Trane (NYS-TT) is a new core holding in certain Seeds portfolios. Trane is a global industrial company that provides heating and cooling products and services for homes and buildings. The company’s Thermo King unit provides refrigerated trucks to protect food and other perishables through distribution. Trane has a leading sustainability program, with board-level oversight and executive compensation tied to sustainability goals. The company is focused on the “gigaton challenge” – to help customers reduce greenhouse gas (GHG) emissions by 1 billion metric tons by 2030. This can be achieved by upgrading old HVAC systems, using Trane’s more energy efficient products, and switching to more eco-friendly refrigerants. Refrigerants represent roughly 40% of the company’s GHG emissions. So far, Trane has helped customers reduce GHG emissions by 7.7 million tons in 2020 and cut its own emissions by 7.3% since 2019. The company is also working to roll out a fully electric refrigerated truck by 2023. Lastly, Trane also focuses on supply chain sustainability and diversity & inclusion with its workforce.
Many advisors don’t introduce ESG options to their clients or ask clients about values, thanks in part to a perceived lack of demand. Yet, 77% of investors familiar with ESG choose to take that approach in their investment decision-making, according to a Harris Poll. In other words, when investors know they have the option to bring values into their portfolio without hurting returns, they are more than likely to opt in. Advisors taking a passive, reactive approach to introducing ESG and values-aligned investing to their clients could soon face a reckoning, while those who take a proactive approach have a massive opportunity to deepen their value proposition, stand apart, and grow their business. Read more in ThinkAdvisor: 3 Steps Advisors Must Take To Capture ESG Opportunity.
• Recently at Carson Group’s Excell 2021 Conference, Seeds won the top tech award voted by financial advisors, "Best In Show," as a platform that "not only causes disruption and provides value, but differentiates itself among its peers to drive change in an advisor’s practice and improve their ability to provide advice."
• On the Millennial Investing Podcast, Adrian Grenier and Zachary Conway speak about impact investing and their partnership between DuContra and Seeds.
• The LifeBlood Podcast hosted Zachary Conway, Seeds CEO, to discuss how aligning your personal values with your investment strategy is more possible than most people realize.
• Luminary featured Kristen O'Grady, Seeds COO & Head of Product, and Zach Conway, Seeds Founder & CEO, in a fireside chat to discuss the steps you can take to empower yourself by knowing that what you invest today is actually working towards the future world you want to live in.