Weekly Investment Strategy

Key Takeaways

  • Shareholders encouraging firms to take climate action
  • Greenwashing on the minds of SEC regulators
  • Favorable environmental scores a positive for info tech

Yesterday was Earth Day, and with more than 1 billion people across 192 countries participating in the celebrations each year, the holiday is the largest secular observance in the world! While the COVID-induced lockdowns were implemented to save lives, the human impact on the environment was realized during this time too, as pollution and water quality improved and rare wildlife reemerged, at times in some unexpected places (e.g., pink dolphins off the coast of Hong Kong, wild coyotes in the streets of San Francisco). These realizations benefitted the already surging wave of ESG (Environmental, Social, and Governance) investing that we highlighted in our Ten Themes presentation, and we stand by our expectation that this wave will not crest any time soon. With ESG investing garnering a substantial amount of attention since the start of the year, we want to focus on some of the progress we have seen in regard to the environmental component in honor of Earth Day.

  • Companies Planting Seeds For A Better Tomorrow | Headlines related to corporate climate initiatives have seemingly been released on a daily basis, with announcements not limited to certain sectors or industries. Some firms are finding ways to reduce their carbon footprint (e.g., Amazon purchasing 100,000 custom electric delivery vehicles and using them to deliver ~20 million packages in 2020), some are phasing out products that are not environmentally-friendly (e.g., GM eliminating gasoline and diesel light-duty cars and SUVS by 2035), some are transitioning into new business segments that are better aligned with climate goals (e.g., Exxon Mobil investing $3 billion through 2025 to launch a new lower carbon emissions technology business unit), and some are committing to projects to benefit the environment rather than their profits (e.g., Verizon’s goal of planting 20 million trees by 2030). The reasons firms are undertaking these actions vary (e.g., reputation, cost savings), but regardless, shareholders are encouraging both transparency and action. At the end of the 2020 proxy season, 90% of S&P 500 companies had published some type of ESG report, up from 20% a decade ago. As it relates solely to the environmental component, ~200 firms have referenced ‘climate change’ in their conference calls over the last six months, a number that had been consistently below 50 until 2019.
  • Biden Administration Renewing The Focus On Climate Change | Since inauguration, the Biden administration has taken steps to acknowledge our nation’s impact on the environment and climate change. They include the US rejoining the Paris Climate Accord, a freeze on the Department of Labor regulation that discouraged the inclusion of ESG-related investments in retirement plans, the US Treasury appointing a climate czar, and the proposed $2.25 trillion infrastructure plan including environmentally conscious components (e.g., retrofitting of buildings, solar technologies, electric vehicle charging stations). On Earth Day, President Biden pledged to reduce US emissions by at least 50% by 2030—more than double the target previously set under the 2015 Paris Climate Agreement. The virtual summit he held on Earth Day included 40 world leaders proactively discussing concrete climate action, and countries such as China, India, Japan, and Canada all outlined plans to reduce their carbon footprint as well.