A US stock market with very concentrated sources of return can pose risks or opportunities to investors who use environmental, social, and governance criteria in building their portfolios. If their ESG criteria excludes or underweights some of the magnificent seven, it is likely these exclusions posed a headwind for the investor in the second quarter. These same inclusions may benefit ESG portfolios if some of the market enthusiasm for these concentrated index positions wanes in future quarters.

Recent US Supreme Court Decisions Signal That Impact Investments are Needed More than Ever 

Many in the Veris community hold strong objections to decisions of the US Supreme Court over the last 14 months. Several of those decisions directly conflict with our impact focuses including climate change mitigation, community wealth building, advancing racial and gender equity, and sustainable and regenerative agriculture. These include restrictions to reproductive freedom, reduced protections against discrimination for LGBTQ+ people, reinforcement of longstanding barriers to higher education through the abolishment of affirmative action, and limits on government enforcement of environmental protections. Some of these interventions pose additional risks to the growth of our economy.

Student Debt Relief Decision

In June, the Supreme Court ruled that the Biden plan to forgive portions of student debt is unconstitutional. Outstanding student debt owed to the US government has an estimated value of $1.7 trillion or over 6% of the US GDP.³ In 2019, prior to the temporary relief from student loan payments implemented during the pandemic, annual payments on these loans exceeded $70 billion. Studies of older student debt relief programs suggest that debt relief benefited people with a range of outcomes including more flexibility to seek better employment opportunities that might require relocation and greater opportunities to get married or have children.⁴ This relief joined a collection of other government benefits introduced during the last 6 years that significantly increased the ability of individuals to spend money on goods and services, which has supported economic growth despite expectations of a recession in 2023. 

Tax cuts introduced in 2017 (that are scheduled to expire at the end of 2025), direct COVID related stimulus to taxpayers in 2020 and 2021, and benefits to a large portion of Americans through COVID emergency student loan relief along with a promise of significant loan forgiveness have all contributed to high consumer spending. Each of these economic stimulants, collectively increasing funds available to individuals by an amount exceeding 5% of annual GDP.⁵ Continued GDP growth since the beginning of the COVID pandemic has been largely attributed to consumer spending, reinforced by each of these tax reductions, rebates, and debt relief. While extension or expiration of tax cuts are in the hands of congress, removal of student debt relief as decided by the Supreme Court, are likely to impair spending and decision making for workers with student debt. According to the Federal Reserve, Black and Hispanic borrowers are more likely to be behind on their student loans payments than white borrowers and the student loan repayment relief helped improve their repayment status._⁶

Decision to End Affirmative Action

We believe that the Supreme Court’s decision to end affirmative action for college admissions highlights the need for investments in excluded communities and investments geared to reduce biases and disrupt the economic implications of long-standing structural racism. 

EPA Decision and Climate Change

Recent high temperatures across much of the US have long term economic implications, also impaired by the 2022 Supreme Court decision in West Virginia vs the Environmental Protection Agency (EPA). This decision prevents the government from intervening to shift energy creation from coal and other carbon intensive sources to clean energy sources,⁷ a move necessary to limit climate change. 

Meanwhile, June of 2022 was the hottest June on earth.⁸ In addition to catastrophic threats to life from this type of heat, there are economic implications. Extreme heat events limit economic activity through reducing consumer spending on travel and outdoor events.⁹ It also reduces the productivity of workers who work outside. In the US, an estimated 32 million workers spend a significant portion of their time working outside.¹⁰ 

During extreme heat, workers must take additional breaks to hydrate and reduce body temperatures or they face potential life-threatening health events. A global study conducted from 1992 to 2013 estimated extreme heat to impair GDPs of high-income regions by 1.5% and to reduce GDPs of low income regions by 6.7%.¹¹ With heat in recent years much higher than the periods of this study, the cumulative expense of neglecting climate change has likely only grown.

We believe the current restrictive stance of the Supreme Court offers several calls to action for impact investors. Despite EPA constraints on protecting the environment, clean energy jobs grew in all 50 states in 2022.¹² Private and public investment in recent decades have led to technology improvements and economies of scale so that wind and solar projects are now cheaper sources of energy than coal, gas, and oil.¹³ 

A Note of Gratitude to Our Clients

With our dual mission of helping clients have a positive impact with their investments while meeting their financial goals, Veris again is grateful to our clients for their dedication to this mission. The return to a bull market is a perfect opportunity to reassess spending goals and be sure that spending plans are protected in your portfolio. We are proud and honored to do this work with you.