By Anders Ferguson, Partner
Over the past few years, it feels like “climate change deniers” have won the day – or at least were gaining the upper hand. But then weird weather produced billions of dollars of damage, large ice flows melted and raised the seas, and a growing number of businesses and governments said enough was enough.
At the same time, ordinary people are continuing to suffer from the negative effects of climate change, while still others are seeing the positive effects of the rapid growth in the renewable energy economy.
Change is never easy. It requires a faith in the future and the willingness to change our mind. But when we do, we produce the energy and power we each need for both optimism and action. Lately, there has been a lot of reason for faith and reasonable optimism. Let’s take a look.
Europe and China Lead the Way
That the Trump administration pulled the U.S. out of the Paris Accord 2016 wasn’t surprising. What was surprising was the groundswell of global support for climate change solutions.
The response from hundreds of cities and other entities that signed onto protocol agreements to uphold the Paris Accords’ goals was both catalytic and encouraging. Side by side, American and global businesses are marching ahead in decarbonizing. Lacking American presidential leadership, Europe and China are leading the way. The U.S federal government has surrendered moral and policy leadership, but that has empowered the private sector to lead the decarbonization of the economy. American people are taking action.
The Good News
There is plenty of reason for optimism. Around the world, the private and public sectors are taking meaningful steps to address climate change. The following are just a few recent examples:
Renewable energy sectors are transforming transportation, buildings and electric power generation. By some estimates 90% of decarbonization is likely to unfold in renewable energy, and all three of these sectors are changing because of it. International Renewable Energy Agency
The Administration wants to reduce CAFE mileage standards for cars, but even auto companies are not asking for this. California and other states currently have high CAFE and environmental standards. They push the entire country in continually raising the bar. They are initiating numerous lawsuits to stop the Trump administration. Automotive News, 2/4/19
Electric vehicles in the U.S. represent less than 4% of total auto sales in 2019. By 2030, they are estimated to reach 30% to 40% of sales. The major global auto companies like VW are retooling for a future centered on electric vehicles. China is currently the largest market of total numbers of EV’s. It’s widely accepted that the coming boom in self-driving cars is dependent on fleets of electric vehicles for operational and engineering fundamentals. International Energy Agency, Global EV 2018 Outlook
In Calgary, our northern neighbor’s oil capital, oil company offices are being converted to apartments due to the exodus of oil companies and job losses. In part, this is attributed to failure to get new pipelines built south through the U.S. and east through Canada. Bloomberg, 6/10/2019
The sunset of the oil age is actually occurring. One notable example is Shell Oil’s decision to spend down its oil reserves and prepare the company for a “lower carbon future.” This shift includes Shell’s increased commitments to the Paris Accords. Shell is the fourth-largest petroleum company in the world.
The New Green Deal is motivating political candidates and activists to think bigger. Apparently, some oil companies are doing the same. Four major global oil companies, including Shell and BP, announced their active support for a carbon tax. LittleSis, 5/28/2019
The nuclear era is winding down and renewables are taking its place. Connecticut, over the next 10 years, will replace a 2000MW nuclear plant with 2000MW off-shore wind farm integrated with energy storage. The wind farm operators expect to significantly increase system efficiency via the rapidly expanding energy storage systems emerging. CleanTechnica, 6/6/2019
Carbon Sequestration. We know that plants and trees remove carbon from the air. U.S. estimates for forests is 10-20% of total carbon emissions sequestered. Soil is less clear on a national level, but getting increasing attention in Regenerative Agriculture. Forest Service, USDA
The Big Picture
What does this all mean?
Driven by innovation and change, we are moving rapidly to a whole new decarbonizing economy. This is the beginning of an enormous economic and societal transformation. Business and the marketplace are the change agents.
This realignment of the world’s power infrastructure is inspiring entrepreneurs, business and governments to dream and build a new future without fossil fuels. Just as importantly, it is inspiring average people to take positive actions, which in this case only reinforce themselves. Home insulation to PV on the roof to an electric vehicle. “I am inspired and my risk taking is encouraging my neighbor. Critical mass sprouts.”
For success, we need greater government support in building a low-carbon economy. Only governments can mandate these rapid changes, which must be implemented to make a difference in climate change on our world and all its beings.
Anders Ferguson, Partner and Co-founder of Veris Wealth Partners, is a long-time champion of climate change solutions.
By Patricia Farrar-Rivas and Nicole Davis
One of the most rewarding aspects of working with clients is the opportunity to share ground-breaking ideas that benefit people and society.
We believe that Regenerative Agriculture is one of them – like gender lens investing – that has the potential to redefine climate change solutions. The concept has been around for decades, but it has gained momentum in the past few years. The reason is that Regenerative Agriculture is likely a better way to grow crops and raise livestock, but is also emerging as one of the most effective ways to reduce atmospheric carbon.
We wanted to share our enthusiasm for Regenerative Agriculture, along with the latest research and thinking about the topic. Our hope is to promote a broader dialogue with investors who want to align their wealth with their values.
Regenerative Agriculture – The Magic of Photosynthesis
What is Regenerative Agriculture?
One insightful definition is from Regenerative International, “Regenerative Agriculture is a holistic land management practice that leverages the power of photosynthesis in plants to close the carbon cycle and build soil health, crop resilience and nutrient density.
Regenerative Agriculture improves soil health, primarily through the practices that increase soil organic matter.” Such practices include no till farming, rotational grazing, use of cover crops, and the application of compost.
In its recent white paper, the organization notes that Regenerative Agriculture increases soil biodiversity and health, while increasing biodiversity both above and below the soil surface. In turn, that increases the water holding capacity of the soil and captures carbon. The anticipated result: harmful carbon is sequestered, soil structure is improved and human-caused topsoil loss is reversed.
Rodale Institute has been another thoughtful proponent of Regenerative Agriculture. In its white paper, the organization highlights the potential for controlling carbon emissions through Regenerative Agriculture.
“Simply put, recent data from farming systems and pasture trials around the globe show that we could sequester more than 100% of current annual CO2 emissions with a switch to widely available and inexpensive organic management practices, which we term ‘regenerative organic agriculture.’ These practices work to maximize carbon fixation while minimizing the loss of that carbon once returned to the soil, reversing the greenhouse effect.”
A Better Way
In essence, Regenerative Agriculture practices can prevent the release of soil carbon, and vacuums up environmental carbon, depositing it into the soil. In addition to the carbon sink benefits, Regenerative Agriculture can play an important role in the resiliency of our food system. The healthier soil created by Regenerative Agriculture is better able to reduce crop loss from climate change including flooding-rains and drought.
Experts say transitioning to Regenerative Agriculture will take time. Or will it? Maybe the answer is rethinking the current allocation of capital to climate change solutions.
Today, approximately 80% of investment in climate change solutions is for wind and solar. Just 20% goes for soil health and biodiversity. Perhaps these percentages should be switched, or at least balanced through the allocation of additional investment in soil health.
In order to create widespread adoption, it’s important that capital is used to create economic incentives for regenerative practices. While many such mechanisms are utilized only on a small scale, the results are promising.
Pay for regenerative practices programs have been rolled out for cover cropping, but more practices need to be included. The reason is that the benefits of a holistic system go far beyond the sum of its parts. On a recent tour with Dirt Capital of regenerative farms in the Hudson Valley, a number of Verisians learned about the Hudson Carbon Project. We visited the Churchtown Dairy, the location of one of Hudson Carbon’s monitoring sites, which seeks to measure and verify some of the ecological benefits of regenerative practices.
The work of Hudson Carbon and their partners at the Woods Hole Marine Biological Laboratory, lay important groundwork for the establishment of a soil carbon protocol that could be used by farmers to sell carbon credits, and reap monetary benefits for their role as carbon farmers and ranchers.
As impact investors, we have learned many times that innovation and education can overcome vestigial thinking and entrenched interests. The impetus for that change is often individual investors. The unimaginable growth of impact and sustainable investing in the past decade wasn’t initiated by institutional investors. It was championed from the bottom up by individuals who believed another way was possible.
We believe that now is the time for all of us to think about Regenerative Agriculture. It’s a rare twofer: An opportunity to feed the world more intelligently and possibly stop climate change in its tracks.
We recently attended one of the regenerative learning sessions at Paicines Ranch in California. Sallie Calhoun, also known as the Queen of Soil, created the No Regrets Initiative whose goal is to encourage the expansion of regenerative agriculture through education, impact investing and on the “ranch” experimentation.
As Sallie would say “at the ranch we are creating balance, by regenerating ecosystems while growing healthy food.” For more information about Regenerative Agriculture, please visit this very informative site, the No Regrets Initiative, which is a compendium of research and perspective on the topic.
Veris Guest Blog: By David Richardson, CFA
The theme of the UN’s annual World Water Day last month was “leave no-one behind.” This sentiment is applicable to both emerging markets and the developed world, while offering opportunities for investors in water.
The sixth sustainable development goal (SDG) from the UN is clean water and sanitation for all by 2030. The UN celebrates this day each year to call attention to this global priority and to advocate for sustainable management of freshwater resources.
While the need to develop water infrastructure in the developing world is understood, access to clean water, as the ongoing 2014 Flint, Michigan water crisis illustrates, is an issue for the developed world too.
My firm, Impax Asset Management, has been researching and investing in listed water related companies since 1999, running a dedicated strategy since 2008. In recent years, we have seen the universe of investable companies increase and an acceleration in the growth of many of its constituent companies. Climate change, pollution and a growing, increasingly urban population all drive demand that innovation and technology can help fulfil.
Governments, public bodies and private industry are all investing in new and upgraded infrastructure, and the investment momentum keeps gaining pace.
Access and changing preferences
Leaving no one behind in emerging market regions, like China, India and Sub-Sahara, largely requires the development of water infrastructure where it previously did not exist.
It is a positive development driven in no small part by urbanization, growing populations and changes in consumption patterns that demand higher standards of living. This isn’t just about access to clean water and water treatment. Many items taken for granted by urban dwellers require a significant amount of water to produce. A hamburger, for instance, requires 460 gallons (2,090 liters) of water to make.1
A great deal of the infrastructure in the developed world is outdated, inefficient and/or struggling to meet modern water demands. This was exemplified by the Flint’s water crisis, where cost-cutting led to insufficient water treatment and lead leaching into the water supply. The project to replace the lead pipes, which commenced in 2016, continues with costs running into hundreds of millions of dollars.2
Climate change is impacting water security. In recent years there have been a number of severe periods of drought and water shortages that have impacted farming yields, industrial productivity and meant loss of revenue for workers, such as the 2012–16 California and the 2014-2017 Brazil droughts.
Most recently, South Africa’s second largest city Cape Town, with a population of about 4 million people, suffered its own water crisis. Rainfall well below historical levels meant the City’s main reservoir was close to empty in March 2018. Cape Town residential water use was cut from about 120 liters per person per day in 2015 to 50 liters at the start of 2018.
For officials and residents in these regions, the long-term impact of climate change on water supply requires investment in a range of measures, including conservation and leak detection. Examples of other extreme weather events, like storms, represent a different priority, where protection and clean-up can be more pressing.3
An abundance of opportunities
The investment opportunities in water are surprisingly diverse and resilient. Risk characteristics are comparable to equity markets, and water runs through the global economy, across markets, sectors and regions. Water also provides attractive opportunities through the economic cycle, encompassing both defensive and cyclical businesses.
Technology and innovation play key roles in reducing water consumption. Smart meters, for example, can help utilities manage the supporting infrastructure more efficiently, and provide an early warning sign of and location of leaks. Public entities and private industry globally are investing in upgrading their infrastructure and this investment momentum looks set to continue.
David Richardson, CFA®, is Executive Director of Impax Asset Management, which has more than $16 billion in assets under management.
Veris Guest Blog: By Timothy P. Dunn, CFA
Pacific Gas & Electric (PG&E) Corporation, California’s largest investor-owned utility, which serves roughly 5.2 million households in central and northern California, filed for bankruptcy and is facing an estimated $30 billion of potential liabilities stemming from its equipment’s role in the historic 2017 and 2018 wildfires.
PG&E’s bankruptcy is indicative of how our changing climate presents real economic and financial risks for companies and investors. Prior to the wildfires that burned over 240,000 acres, PG&E included warnings that weather-related disasters could weigh on or disrupt its operations in its regulatory filings. In a statement, the company noted that the state’s most recent climate assessment “found the average area burned statewide would increase 77 percent if greenhouse gas emissions continue to rise,” and that “prolonged drought and higher temperatures will triple the frequency of wildfires.” Further, PG&E performed extensive water risk assessments, water management was integrated into its business strategy, and the company spent hundreds of millions of dollars every year in fire prevention, including pruning or removing thousands of trees. This awareness and action, though necessary and important, was not enough.
In an environment that continues to be challenged by climate change, PG&E’s situation could be a harbinger of the economic toll of spatially-related climate risk. “California is now a riskier place to do business,” said the Environmental Defense Fund’s Michael Colvin, a former adviser to the California Public Utilities Commission. “This is a statewide problem.”
The bankruptcy not only points out the danger that warming poses for many companies, it also underscores how difficult it is for investors to analyze risks linked to climate change compared to conventional business challenges. It is becoming increasingly clear that economic damage from climate change will affect a variety of sectors, and even companies regarded as forward-thinking might not be able to directly prepare for all the externalities associated with this systemic global problem.
Source: Seeking Alpha
Terra Alpha first purchased PG&E in 2015 based on the fact that it was a leading US regulated power provider with solid fundamentals and a strong record of shifting to lower carbon power generation. Nearly 80% of the electricity that PG&E delivered in 2017 was a combination of renewable and GHG free. Accordingly, PG&E was well-positioned to benefit from increased regulatory action in California aimed at furthering the shift toward renewable energy.
We sold our shares of PG&E in mid-October of 2017, after PG&E’s equipment was linked to the start of several wildfires. We had determined that the risk profile for the stock had dramatically worsened and it was no longer prudent to own. We felt that its exposure to such enormous liability, coupled with CEO Geisha Williams’ concerns about the growing financial risk for PG&E from forest fires, intensified by a changing climate, and California’s unique inverse condemnation laws, represented material undiscounted financial risk.
While PG&E may represent the first climate change bankruptcy it likely won’t be the last. Investors need to learn how to account for long-tail climate risk in their portfolios.
Timothy P. Dunn, CFA, is Founder, Managing Member and Chief Investment Officer of Terra Alpha Investments, LLC, a global equities asset manager.
*The information presented by Mr. Dunn is not an endorsement of Terra Alpha Investments by Veris Wealth Partners.
By Helene Marsh, Veris Client
Climate change can be an overwhelming topic for any individual or community. So how can anyone make a meaningful difference?
That’s the question my friend, Sarah Loughran, and I had been asking ourselves for several years. Today, supported by a concerted community effort, we’ve succeeded in helping eight Marin County municipalities reduce greenhouse emissions by purchasing 100% renewable energy for their government facilities.
At the same time, we’ve helped raise awareness about how individuals can support the renewable energy market in their community by purchasing energy from renewable providers for just a few dollars more a month.
As an impact investing client of Veris, I wanted to share my experience to hopefully inspire others to think boldly and creatively in addressing climate change.
Sarah and I met while serving on the Marin County Civil Grand Jury in 2013. Fast forward four years, and we were together again taking the signature Master Class of Environmental Forum of Marin, a local leader in training environmental advocates for the last 45 years.
We soon learned that the passage of climate change legislation in California requires communities to meet specific greenhouse gas emission reductions over the next 30 years. That law requires each community to produce a climate action plan that details how these goals will be achieved.
When we looked at how Marin County municipalities were meeting the intent of the law, we were surprised by what we found: Each of the climate action plans, for the 12 Marin municipalities, included residents and municipalities purchasing 100% renewable electricity as options for reducing greenhouse gases. Only 4 municipalities made the switch to clean energy for their own operations.
With the support of 19 environmental groups and members of the community, Sarah and I launched a campaign to change this in 2017.
Working together, we convinced eight of the 12 Marin jurisdictions – Corte Madera, Larkspur, Novato, San Rafael, Ross, Mill Valley, Tiburon and the County of Marin – to make the switch to using 100% renewable electricity for government buildings, facilities and streetlights.
The four other Marin jurisdictions – Fairfax, Belvedere, San Anselmo and Sausalito – had already made the switch prior to the start of our campaign.
The upshot: Marin County leads the way in California and across the country in purchasing 100% renewable power for its municipal accounts.
The whole process took only ten months!
We met with every town or city manager and many council members to understand the challenges they faced. We wrote reports and talking points to make the case for 100% renewable energy. We gathered supporters in each jurisdiction to attend public hearings. We kept jurisdictions informed of progress across the country and sent follow-up correspondence. In total, we attended 17 council meetings.
The positive results speak volumes about the effectiveness of citizen power and democracy.
How You Can Buy 100% Renewable Energy
So how did Marin County source the renewable energy?
Through the local “Community Choice Aggregation,” MCE. The non-profit company is one of many Bay Area companies providing clean energy that can be purchased by households, businesses and government agencies. (See below for a list.)
While it’s true that 100% renewable energy is more expensive than non-renewable energy, the difference is minimal. On a $200 power bill, 100% renewable electricity is less than $10 a month more.
Many of the Community Choice Aggregation companies listed below provide comparisons of buying renewable vs. traditional power sources.
MCE: Marin, Napa, Solano and Contra Costa Counties. The 100% renewable option is called Deep Green.
Clean Power SF: San Francisco. The 100% renewable option is called Super Green. Peninsula Clean Energy: San Mateo County. The 100% renewable option is called Eco100.
Sonoma Clean Power: Sonoma and Mendocino Counties. The 100% renewable option is called Evergreen.
Silicon Valley Clean Energy: Santa Clara County. The 100% renewable option is called Green Prime.
East Bay Community Energy: Alameda County. The 100% renewable option is called Renewable 100.
Sarah and I are continuing to advocate for the purchase of clean energy to reduce our carbon footprint. Our work and experience demonstrate what can be done by those committed to having impact in their communities.
* * *
About Helene Marsh
Helene Marsh is a clean-energy advocate who lives in Tiburon, California. In addition to co-leading the effort to transition Marin County municipalities to 100% clean energy in government buildings, Helene built one of the first LEED certified homes in the country and sells power to the grid from solar panels on her house. She is also an MCE Deep Green customer and drives an all-electric vehicle to further reduce her carbon footprint. Helene earned a Bachelor’s degree in Engineering and Visual Arts from Harvard University and a Master’s degree in Environmental Science & Management from University of California, Santa Barbara.
By Jessica Lowrey, Director of Research
This perspective first appeared in Investopedia’s Impact Investing section.
Impact investing continues to be one of the fastest-growing segments of the wealth management business. The reason: More individual and institutional investors understand that it’s possible to achieve market-rate financial performance, while having positive impact with their wealth.
This epic shift in investor behavior is increasingly fueled by innovation, especially as it applies to climate change. The progress we’re seeing in delivering climate change solutions to the world is largely the result of technology and process improvement. Today more than ever, sustainability equals innovation and vice versa. This momentum has been further propelled by the historic Paris climate agreement and recognition by institutional investors of the risks of climate change.
In 2018, we expect even more capital to flow to breakthrough solutions that promote sustainability. In this first “Impact Trends” update we focus on Energy as it relates to climate. Clearly there are more key environmental issues affecting climate and ecosystems to be covered in later updates. Among the key trends we’re watching this year:
Market Movers Join Sustainability Revolution
In 2017, the world’s largest money managers began pressuring fossil fuel companies by supporting climate-related shareholder proposals. Vanguard, BlackRock, and Fidelity voted for the first time in favor of climate resolutions. They joined PIMCO, Goldman Sachs, and State Street, which have stepped up their support for climate change engagement in recent years. As a result, ExxonMobil, Occidental Petroleum, and PPL were forced by shareholders to disclose risks associated with climate change.
In a related move, BlackRock CEO Larry Fink sent a letter to the 300 largest U.S. companies declaring that “every company must not only deliver financial performance, but also show how it makes a positive contribution to society.” Fink, whose firm manages $6 trillion in assets, asked firms to communicate their role in the community and their impact on the environment as well as the diversity of their leadership and workforces. In 2017, BlackRock also launched a suite of impact ETFs that favor companies with low-carbon footprints and support the UN Sustainable Development Goals.
Strong Signals From Nations
The global fossil fuel divestment movement picked up steam in 2017. Norway’s $1 trillion sovereign wealth fund, the largest state-owned fund in the world, indicated it would begin divesting from all fossil fuels. Sweden pledged to phase out all greenhouse gas emissions by 2045. France stopped granting new permits for oil exploration and will end oil and gas production by 2040. Fifteen of the largest global insurers have divested $20 billion. China canceled construction of over 100 coal plants and worldwide coal plant construction declined 62% last year. Twenty nations have signaled intent to end coal-use altogether while over 125 multinational companies have committed to sourcing from 100% renewable energy.
And despite U.S. withdrawal from the Paris Climate Accord, more than 2,500 business, state and local policy leaders, controlling $10.1 trillion of the U.S. economy, remain committed to the agreement. Considered collectively, these entities (which are outside the U.S. federal government) represent the third-largest party to the Paris agreement and would have a GDP greater than Japan and Germany combined.
More Clean Energy On The Way
The cost of generating electricity from wind and solar power declined 25% in 2017 and 70% from 2010 to 2016. China installed 54 gigawatts of solar last year, more than any country has in a single year. Total U.S. solar capacity has grown at an average annual rate of 68% over the last decade. Storage and distribution continues to improve. Battery producers for Electric Vehicles (EV) and solar stand to profit from the surge in demand.
In part from off-grid renewables, 1.2 billion people have gained access to electricity since 2000 – keeping the lights on for commerce, school, and family. In the U.S., job growth in the solar industry has been 17x faster than the overall economy and solar now employs more people than oil, coal, and gas combined. Energy use in buildings accounts for 39% of carbon emissions and there are now 32,000 buildings and plants in the U.S. certified by the EPA’s Energy Star program.
At the same time, more automakers are building zero emissions vehicles. GM, Volvo, and Volkswagen declared they would eventually end production of combustion-engine vehicles and shift to all-electric. EV adoption surpassed 2 million in 2017 and sales grew 30%.
Investor demand and energy economics will continue to drive development of sustainable investment products. According to Bloomberg, global issuance of green bonds rose 67% to $163 billion in 2017. Along with increased adoption of Environmental, Social, and Governance (ESG) factors in security analysis, this has expanded the opportunity set for sustainable fixed income investment. Green bond issuers include corporations like Apple and Starbucks as well as states, municipalities, and Development Finance Institutions such as the World Bank.
More fund managers across all asset classes will continue to incorporate ESG factors, divest fossil fuels and invest in innovative environmental solutions. Companies working in pollution control, water management, energy-efficiency, non-toxic chemistry, sustainable transport, packaging, agriculture, and forestry should attract more capital. Meanwhile, new technologies such as Blockchain could enable distributed energy trading thereby reducing transaction costs, creating smarter energy grids and accelerating renewable energy investment.
The transition to a low carbon economy is not without challenges, but companies that embrace their role in the evolution will prosper from the emerging ethos of long-term sustainability.