Needless to say, 2018 was a crazy year. The chaos in the country’s politics, fanned virtually every day by our Chaos-in-Chief, finally caught up to the stock markets in the last quarter. The markets narrowly avoided their first bear market since 2008-09 and have begun 2019 with the longest shutdown of the U.S. government in history. The shutdown is causing more economic damage every day and unless some sanity kicks in somewhere to restart government services, this alone could tip the country into recession, accompanied by that long-awaited, and anticipated, bear market.
I closed off 2017 with an SRI Investing tradition, making two donations to honor you, my clients, in appreciation of the trust and confidence you place in us. Even more importantly, you care enough to invest your assets to help create a better world. The first donation went to Heifer International (www.heifer.org), helping to create financial opportunities in underserved communities worldwide. The second donation is to purchase carbon offset credits from Native Energy in Vermont (www.nativeenergy.com), to make our professional practice carbon neutral. Native Energy was founded in 2000 (the same year I started my SRI practice) and is now a leading provider of carbon offsets, renewable energy credits, and greenhouse gas consulting.
Protecting our identity, our data, and our assets from online hackers is becoming more important and more challenging every day. When one of the nation’s largest credit bureaus is hacked, we’re doubly reminded of the dangers.
Just in case you haven’t seen the news in the last couple of days, Equifax has experienced a major breach that has compromised company data (Social Security numbers, names and addresses) of an estimated 143 million U.S. consumers. The company has created a web site that is supposed to tell you whether Equifax believes your personal data was part of the breach. The company is also offering free credit monitoring for one year for all Americans, regardless of whether your data has been breached or not.
Younger Americans (often called the Millennial generation) are saving their money at a higher rate than their Baby Boomer counterparts at a similar age. Research from the Transamerica Center for Retirement Studies shows that nearly three-quarters of younger adults are saving for retirement at an earlier age than past generations. Half are putting away 6% of their income or more—a statistic that makes this generation the best cohort of savers since the Great Depression, despite having to carry record high levels of student loan debt. Those who participate in their workplace retirement plans are saving 7% a year, on average.
It’s been about two weeks since the election. I’m very thankful I could spend much of the first week with friends and colleagues at the annual SRI Conference in Denver. As a group, we grounded each other – enabling us each to “get a grip” on the implications of having Mr. Trump as our next President. We came away from the conference collectively believing that SRI is now more important than ever. My own reflections have me wanting to be more specific and articulate about why and how I think that is true.
In the coming weeks, I will be writing more often, focusing on three themes I believe are important as we continue our work together as SRI investors. Before I say more about that, let me comment more immediately on the markets. In the aftermath of the election, the markets have been amazingly calm, and that is a very good thing. At a moment when many investors might have reacted emotionally with their assets, as they often do when unexpected events occur, cool heads have prevailed so far. In my mind, this is only one more example of an investor maxim – we simply can’t predict how the markets will react to future events. That is true about near-term future events and longer-term future events. To say a Trump presidency portends uncertainty is an understatement, and how the markets will react in the coming years is even more uncertain. We can only predict the markets will move more in concert with the economy than with U.S. governmental action, and in this case that might also be a good thing. Fundamentally, though, nothing has changed yet to warrant investors changing their long-term investment strategies.
Back to the three themes I will be writing more about. The first is climate change, no surprise. On this issue, I agree with Paul Krugman of the New York Times, who wrote last week it is the thing that concerns (scares) him the most about a Trump presidency. Already, the President-elect has named a climate change denier to head the EPA. Time is growing short for the world to make the transition to sustainability, and the U.S. should be leading the transition. Yet all political signals right now are to the contrary. SRI investors will play an ever more crucial role in encouraging the move away from fossil fuel energy production and a faster conversion to alternative energy. And while investing directly in alternative energy companies has so far been a dicey proposition, the development and production of alternative energy has been accelerating in recent years as the costs of that development have come down dramatically. That trend, along with the advent of new investment options, will only continue despite the obstructionist policies of a Republican-dominated federal government.
The second theme I want to focus on is community impact investing, and this for me stems directly from the election results. It is well-documented that Trump’s electoral college victory was made possible through his effective appeal to a wide swath of mostly white, blue-collar voters from the geographical heartland of the country. “Make America Great Again” implies a prior fall from greatness, and roughly 60 million U.S. voters ratified that belief with their votes. It’s also apparent these voters put aside concerns about Trump’s evident narcissism, racism, and history of abusive treatment of women because they believe he will help them improve their lives financially. As an advocate for SRI, I think it’s important we pay attention to that, for it is true that so many of the people who voted for Trump are the same people who live in communities that have not recovered economically or financially from the Great Recession of 2008-09. When we as SRI investors engage in community impact investing, we are directing capital in the U.S. specifically to these same communities, creating more opportunities for economic flourishing. This election tells me we haven’t done nearly enough on this front, and so I will be highlighting more community investment opportunities in future articles.
Finally, I believe in and am professionally committed to SRI because I believe SRI investors are helping to bring about a better world. At the unexpected dawn of a Trump presidency, many Trump opponents now feel a better world will be less attainable, if attainable at all. But do we have a clear picture of what that better world will look like? Yes, we say, it will be a more just, compassionate, and sustainable world, but can we see clearly what it will take to get us there? What are the concrete details, and the specific public and economic policies that will bring about and comprise a just and sustainable economy? I want to explore those questions more fully going forward because if SRI investors want to direct their capital to bring about a better world, it makes sense we will do so more effectively if we can more clearly envision that world.
The future beckons. SRI will continue to be an important part of it.
It surely isn’t news to SRI investors that our world is in for trouble unless we make significant changes in how our global economy produces the energy it needs to function. Indeed, investing in and for a sustainable planet overall is a primary SRI objective. Yet, global climate reports tell us that even if we shift totally over to clean energy tomorrow (not likely), the troubling warming trend—and polar ice melts, flooding of coastal areas, and increasing droughts, hurricanes and severe winters—will continue to accelerate for the next 30-50 years. The damage has already been done.
But is it irreversible? An ideal solution would not just reduce carbon dioxide and other greenhouse gas emissions, but remove some of what has already been pumped into the atmosphere.
There are two interesting developments along this front. First, researchers from Columbia University’s Lamont-Doherty Earth Observatory in Iceland are perfecting a technique which would mix carbon dioxide captured from the smoke stacks of a power plant with water and hydrogen sulfide, and then inject the mixture into basalt rock—a substance which makes up about 70% of the Earth’s crust. The result: 95% of the carbon solidifies into stone, due to a reaction between the various ingredients. In effect, carbon dioxide has been turned to stone and stored away securely—more or less forever. Currently, in Iceland, the local energy utility has been pumping 5,000 tons of carbon dioxide a year into underground rock formations.
Of course, that’s a small drop in a very large bucket: currently our various industrial processes release more than 30 billion tons of carbon dioxide into the atmosphere each year. But if each power plant had its own recapture facility, that figure would come down dramatically.
Meanwhile, a company called Global Thermostat* is testing a carbon capture unit in Silicon Valley that could suck carbon dioxide directly out of the air, reducing our global carbon footprint and potentially reversing greenhouse gas concentrations in the atmosphere.
The unit, which looks like a giant dehumidifier, would be attached to a power plant or factory, and be powered by the residual heat of the facility itself. Large pipes would bring the power plant’s emissions into the unit, while external intakes would suck in the outside air. The carbon is captured from both sources, rendering the plants “carbon negative,” reducing carbon dioxide in the nearby atmosphere—and cranking out a pure enough form of carbon to be sold at a profit for industrial uses, including plastics, manufacturing, bio-fertilizers, biofuels and soda factories. All but the fuels would keep the carbon sequestered and out of the atmosphere.
The test unit can extract up to 10,000 tons of carbon per year, which means the world would need roughly 3 million of them to offset the current level of emissions, and many more if we want to start scrubbing the atmosphere and addressing those scary future projections. The company envisions attaching these units to power plants, and also creating farms of them in remote locations to start the long, difficult process of undoing the environmental damage of our energy economy.
Developments like these, along with the fact that the cost of producing usable solar energy has come down dramatically in recent years to become truly competitive with producing fossil fuels, provide hope that our planet might recover and reasons to believe that SRI investing in sustainability will be profitable.
*Mention of specific securities should not be considered an offer to buy or sell that security. For information on the suitability of any investment for your portfolio, please contact your investment adviser.
Adapted from a Bob Veres draft with permission.
In case you hadn’t noticed, the S&P 500 index reached record territory yesterday (July 11), and the Nasdaq briefly crossed over the 5,000 level before settling back with a more modest gain. At 2,137.6, the S&P 500 finished above the previous high of 2,130.82, set on May 21, 2015.
SRI investors want to make a positive difference with their money, but they also want to experience some positive gains financially, so it’s nice to see the markets recover. We’ve waited more than a year for the markets to get back to where they were before the downturn this January, before Brexit, before a lot of uncertainties in the last 12 months. But a market top can suggest a different uncertainty; after all, many investors regard market tops warily. When stocks are more expensive than they have ever been (so goes the thinking) it might be time to sell and take your profits. However, if you had followed this logic in the past and sold every time the market hit a new high, you’d probably have been sitting on the sidelines during most of the long ride from the S&P at 13.55 in June 1949, which was the bull market high after the index started at 10. New highs are a normal part of the market, and it is just as likely that tomorrow will see a new one as not. In fact, the Dow is approaching another all-time high of its own right now. Overall, the market spends roughly 12% of its life at all-time highs.
We all know the next bear market will start with an all-time high, but we can never know which one in advance. Market highs do not necessarily become market tops. The smart advice for SRI investors is the same whether the markets are up or down. Save, invest your savings in potentially profitable businesses that might also improve society and the environment, and stay invested for the long term. So yes, let yourself relax and celebrate the highs when they come.
Information about market indexes was obtained from sources we believe to be reliable, but we cannot guarantee its accuracy. Indexes are unmanaged groups of securities and are not directly available for investment. Past performance does not guarantee future results.
Adapted by Gary Matthews from a Bob Veres draft, with permission.
WASHINGTON, DC, June 29, 2016 – Sustainable, responsible and impact investors have influenced the investment industry, companies, governments and other actors to address environmental, social and governance (ESG) challenges in four major areas, according to The Impact of Sustainable and Responsible Investment, a report released today by the US SIF Foundation.