Over the past year, I have been involved in a variety of different projects. One specific new project was to delve into “Sustainable Investing” and create investment portfolios that maintain investment veracity and reflect certain values. Instead of delving into definitions and concepts, let me tell you the story on how I jumped into this.
At a Kansas Land Trust meeting I was asked to explore ESG (Environmental, Social and Governance factors) for their portfolios. As I knew this would be a learning curve, I logged some hours with industry experts to gain insight and came to understand a few things. Most relevant point is to understand the values that the client holds dear. It is my job to support those passions, whatever they may be.
With the help of Jerry Jost, KLT’s executive director, we identified that protecting the environment and curbing carbon emissions distinctly expressed their core values. Thereafter I accessed an ESG rating tool that measures carbon emissions as a result of specific investment exposures on a fund level. Here are some key metrics:
A USD 1,000,000 investment in a sample portfolio tracking the MSCI ACWI Index was associated with emissions of 192 metric tons of CO2, equivalent to the emissions of approximately 40 passenger vehicles per year.
KLT’s portfolio, just about $1m, produced an estimated 176 metric tons of CO2.
My next step was to see if we could reduce the carbon footprint and NOT reduce the veracity of the investment. Keeping the process simple, I started with my current model portfolios and managers as they were well vetted and added a few other managers from Raymond James ESG research to seek solutions to plug some gaps. KLT’s new portfolio:
An estimated 64 metric tons of CO2 emission per $1m of investment. This is analogous to 13 passenger vehicles’ emissions per year or a two thirds reduction.
The ESG/Carbon friendlier portfolio showed equal historical return, risk and efficiency of return metrics; all the while reducing the carbon emission. This part had to be true. Both I and the board are fiduciaries.
Currently I have 5 ESG model portfolios screened for Carbon Emissions ready to go. I am excited with the progress. I am committed to continue the path and learn far more. This is a big topic and I thought I would share my progress thus far.