As we start the new year, we wanted to share some thoughts and tell you how very grateful we are to be working with our clients, investing together in a more socially responsible future.
Given the current political and environmental circumstances, for many it can be tough to imagine progress being made toward a more “socially responsible future” during the next four years.
However, the markets may have more impact on policy than anything else, and socially responsible investors are not going away anytime soon. In fact, in 2024 we saw several encouraging trends take shape including the adoption of Artificial Intelligence into ESG investment selection and due diligence processes.
Just this past year, early in 2024, a report from Willis Towers Watson found that some 76% of S&P 500 companies had already incorporated at least one ESG metric into their executive incentive plans. Later in the summer, a Deloitte Survey found that nearly 90% of executives want compensation tied to human sustainability metrics. These statistics are important because they tell us that, for various reasons, the majority of people who run companies are asking their organizations to implement more socially responsible and environmentally sustainable policies. That’s a sea change.
Simultaneously, the cost of energy production has reached parity, and it is now cheaper to produce energy from wind and solar, than it is from fossil fuels. Federal policies may morph these market realities to some extent, but states are implementing their own energy policies that will continue to drive the growth of renewables over the coming years, even in the absence of leadership in Washington. Did you know that Texas produces more renewable energy than any other state? Or that on June 17th, 2024, Vermont became the thirteenth state to codify a goal to reach 100% clean or renewable electricity? This trend we expect will continue.
Environmental, Social and Governance (ESG) factors are simply data points that correlate with financial risks and rewards. That’s true despite what policies are put in place and as socially responsible financial advisors in the space with over 75 years of combined expertise in managing socially responsible investment portfolios, our team is prepared to meet this moment.
Nonetheless, according to the Global Impact Investing Network (GIIN), 2024 was a banner year for impact investing. Commitments grew both in number and scope. In the Netherlands, the pension fund manager PGGM pushed forward with alignment to impact goals across their 257 billion euro portfolio. The California Endowment committed their $4 billion USD to investments aligned with their values. Allianz, FMO, Skandia and the John T. and Catherine T. MacArthur Foundation worked to mobilize $1.1 billion USD in blended finance capital through the SDG Loan Fund.
All that said, it’s also true that ‘ESG’ does not mean ‘Sustainable’ and greenwashing is a real problem in our industry that won’t improve until the SEC issues clarifying rules, which we do not expect these next four years. Quite the contrary, there will likely be a more aggressive stance from corporations and legislatures against activist shareholders who ask for anything too ‘woke’ like reducing carbon emissions, for example. You may be aware that in 2024, Exxon Mobil sued an activist investment firm in an unprecedented move that was later tossed out of court. We expect to see Exxon and other corporations repeat similar moves in the coming years, perhaps seeking Supreme Court approval to ignore shareholders altogether.
Long term, we face quite soberly the reality that without major course corrections in energy and food policies, society will experience more and more instability as we head toward environmental overshoot. The timing of this scenario depends on how our institutions weather this surging political storm. Either way, as prudent investors we ask, “What investments will profit through such times and how can we best prepare your portfolio for this possibility?” These are some of the big questions our investment committee is asking as we consider your holdings going into 2025, which we look forward to reviewing with you throughout the pivotal year ahead.
In the meantime, your investments with us are well-diversified across industries and sectors, in quality large corporations which ultimately seem to be running the show, while the stock market is having a field day. For better or worse, as an asset owner you are currently poised to profit in 2025 from a potential growth period of expected deregulation and tax cuts.
In any case, we recognize you for your leadership and commitment to investing for sustainable and responsible profits. As we go forward, we feel sincerely grateful to be in community with you.
Wishing you a very uplifting and prosperous New Year.
