Align Client Event Recap: Can Public Markets Investing Be Sexy?
On June 7th, Align Impact hosted a Public Markets Manager Spotlight and educational event to discuss the role of public markets in impact investing, focusing specifically on shareholder activism and the low-carbon transition.
The event began with a brief commentary on current market conditions, followed by a presentation from the Align research team detailing the different tools investors can leverage through their public portfolios - primarily focusing on negative screening, ESG integration, and engagement while also considering the asset manager’s overall alignment and impact reporting. This framework allows Align to get to the core of each manager’s unique value-add from an impact perspective and serves as a foundation for our advisors as they build portfolios that match our clients’ values.
These initial comments flowed into the first panel on shareholder engagement featuring Kristin Hull, founder and CEO at Nia Impact Capital, Emily Chew, the Chief Responsible Investment Officer at Calvert, and Yusuf George, managing director at Engine No.1.
The panel highlighted some of the different approaches that ESG managers can take to drive positive change within their portfolio companies. Emily described how Calvert, now part of Morgan Stanley, has combined its multi-decade leadership role in the ESG industry with the weight of a major institution, allowing the firm to take its engagement and advocacy work to the next level. Yusef commented immediately that, “Everything we do is rooted in driving long term economic value for shareholders, but it is also rooted in creating value for stakeholders,” which put a nice bow around how we think about ESG strategies more generally.
As the conversation developed, Kristin shared about some engagements Nia has had with Apple and Tesla. In March, they won at Apple (feeling like David against Goliath in the fight). Apple told Nia and the SEC that they were not using concealment clauses, and yet there were employees coming forward showing their concealment clauses. For those still learning the shareholder engagement lingo, concealment clauses are any employment or post-employment agreement, such as arbitration, non-disclosure, or non-disparagement agreements that employees are asked to sign which limit their ability to discuss unlawful acts in the workplace, including harassment and discrimination.
As Kristen noted, “To be clear, when Apple’s coming out with a new iPad or new technology, we agree there needs to be concealment clauses on their IP, but when it comes to our own experience as employees, we need to be able to talk about any kind of harassment that’s happening and how we can be part of the solution.”
Shining the spotlight on Tesla, Kristin shared that Nia is in year three of engaging with the company and that they actually removed Tesla from their portfolios due to the risk but “will stay engaged because [they] have a right and responsibility to all the staff and employees [they’ve] met.” According to Kristin, Tesla has a pretty significant track record of racial discrimination and they aren’t addressing it, so Nia will stay involved until they make change.
The second panel explored a variety of innovative approaches to invest for a low-carbon economy, with a compelling dialogue between Jennifer Grzech, the Director of Responsible Investing at Nuveen, a large institution with a long history of ESG investing, Luke Oliver who is the Head of Climate Investments at KraneShares, and Justin Campeau, one of the portfolio managers of the Kayne Anderson Renewable Infrastructure fund.
Luke described how KraneShares provides clients with fully liquid exposures to alternative climate solutions like carbon allowances and offsets, while Jennifer discussed how Nuveen, being a large institution, offers clients a variety of “flavors” of ESG screening to allow clients to choose what they are comfortable with, for example whether or not to include fossil fuels in the portfolio.
Justin helped us understand why traditional energy companies have drastically outperformed the market in general and renewable energy companies in particular over the past 12-18 months, despite the pressing need to decarbonize the global economy. His message was that although traditional energy companies are making a lot of money for their investors today, it is a highly cyclical industry that responds to shifts in global supply and demand for energy. The higher returns from fossil fuels simply reflect the higher risk taken to invest in an industry in secular decline, whereas the behavior of clean energy companies in the public markets tend to be much more defensive. Justin summed it up by saying, “Investing in renewable energy is not about beating traditional energy, it’s about generating steady, stable, inflation-protected cash flows from renewable assets and slowly compounding your capital over time.”
Overall, the event was engaging, educational, and challenging as we think about potential untapped societal and environmental value sitting in our public portfolios. The managers’ comments brought several strategies to life and detailed not only the impact of each but also the strategic role of each in a well-balanced portfolio.
Align’s research team is consistently scanning and monitoring the whole universe of managers and strategies to deliver best-in-class portfolio recommendations to our clients that meet their financial goals while helping move the needle on the issues they care most about. We believe values-alignment is an important part of the overall wealth management process. Please reach out if you’d like to discuss more strategic ways to leverage your portfolio for impact and stay tuned for more upcoming events from the Align team!