TIA’s custom portfolio implementation enables us to provide our clients with a specialized portfolio that uniquely reflects their choice of socially responsive goals.
Socially Responsible Investing
TIA is pleased to be able to offer its clients highly sophisticated investment filters that readily accommodate a wide variety of personal preferences in their portfolios. Clients with socially responsible investment (SRI) goals may elect to opt out of or into specific companies, types of companies or business sectors. TIA’s quantitative yet flexible investment process formalizes these filters and systematically adjusts your portfolio to take into account the choices you make. In the process, we maintain your asset allocation, structure, diversification, and continue to tax manage your account to maximize your after-tax return. For those concerned about the impacts of climate change, we provide the following more specific portfolio design options.
Many investors are not merely investing their money wisely so that they have what they need: they are also investing for the benefit of their children, grandchildren and future generations. We know that carbon dioxide emissions and other greenhouse-type gases are trapping heat within the atmosphere at an enormous rate, which is warming our climate and posing enormous risks to that future. Investors are legitimately concerned about how this problem will impact not only their investments but, more importantly, the world that their children and grandchildren will need to inhabit. Increasingly, investors want to find ways to invest in the clean economy that can impact our ability to address this issue. We have designed the Future Generations portfolio as a way to enable our clients to not only divest from those companies and products which worsen carbon emissions but to replace those securities with those of companies pro-actively generating clean energy.
California’s AB32, The Global Warming Solutions Act, was landmark legislation signed in 2006 by Governor Arnold Schwartzenegger that requires California to develop programs that reduce carbon emissions. The law fights global warming by establishing a comprehensive program to reduce greenhouse gas emissions from all sources throughout the state, with a goal to reduce the state’s greenhouse gas emissions to 1990 levels by 2020 and to 80 percent below 1990 levels by 2050. This legislation marked a watershed moment in California’s and possibly America’s history and sets the stage for the country’s transition to a sustainable, low-carbon future, by “aiming to improve the environment and natural resources while maintaining a robust economy.”
A component of AB32 involves the implementation of California’s Cap & Trade program, which was formally launched in 2012 as one of the strategies California employs to reduce the greenhouse gas (GHG) emissions that cause climate change. Under the cap-and-trade, an overall limit on GHG emissions from capped sectors and facilities was established and those entities subject to the cap were required to purchase permits in order to emit carbon or equivalent emissions. Starting in 2013, regulated entities were able to trade permits (allowances) to emit GHGs and to purchase those they needed at public auctions. More recently, California joined the Western Climate Initiative to collaborate with British Columbia, Ontario, Quebec and Manitoba to implement a uniform cap and trade program that is both cost-effective and broader ranging at reducing emissions. The WCI coordinates administrative and technical support for its participating jurisdictions’ emissions trading programs. By the end of the 2014 season, proceeds raised under California’s Cap & Trade program were under $100 million. By the end of 2018, just four years later, more than $8 billion had been raised by the cap and trade program and proceeds allocated by the California Air Resources Board to a range of abatement programs, despite the fact that carbon emissions continued to trade at the low price of about $15/ton.
In response to this carbon pricing mechanism, TIA designed a special “carbon-priced” investment filter for those clients that would like to design their portfolio to reflect the likely implementation of carbon pricing throughout the market. TIA calls this filter the Future Generations™ strategy and it applies a price of carbon filter to the selection of securities for clients’ separately-managed portfolios. If one believes that we are on the threshold of a monumental shift in the energy sector, where the costs of carbon emissions will no longer be externalized for free and those emitting carbon will be forced to pay for the costs that they extract on our communities, then one can protect their portfolio from that by electing to implement this filter for some or all parts of their portfolio. Click here to learn more about implementing a Future Generations portfolio design for your account.
TIA’s Implementation of Clean Energy
Tiemann Investment Advisors has been investigating the challenges for investors who seek to divest from carbon-emitting energy securities and to invest in alternative forms of clean energy. While it is relatively easy to identify those companies that are predominantly responsible for sales of carbon-emitting fossil fuels, it is a far harder task to build up a portfolio of companies that are responsible for building up our sources of clean energy. Yet, this is necessary because to implement a quantitative approach to building a sustainable portfolio, one cannot merely exclude the undesirable securities: one must also include other securities so as to provide adequate coverage of the energy sector, which comprises nearly 10% of global GDP and constitutes a $10 trillion dollar annual market.
The traditional approach utilized by many types of green funds merely excludes fossil fuels. We have found that endeavoring to invest in public equities of companies involved in “renewables,” namely wind and solar production and projects is not that easy. Many of these projects remain in private hands and the companies that are involved are predominantly Chinese, leaving insufficient selections for a completely balanced energy sector portion of the portfolio. This resulted in a multi-year effort to study and learn more about where existing sources of clean energy come from. It turns out that renewable energy sources constitute a very small percentage of our total clean energy and almost 60% of clean energy comes from our nuclear power plants, with the next largest source being hydropower. Wind and solar power produce very little of the “renewable” energy we use. Biofuels, biowaste and biomass (ie burning trees, plants and other organic material) account for the biggest chunk of what is called “renewable” sources of energy. While we initially dismissed the idea of investing in nuclear power, our researched unearthed the fact that a very broad array of NASA, IPCC, National Academy of Science and academic experts urge broader support for the expansion of nuclear power in order to best tackle of CO2 problems. This convinced us to take a further look at nuclear energy. Surprisingly, we learned quite a lot about this 70 year old industry and its sixty year-old technology, which, despite several decades of opposition, gets little credit for providing 55-60% of the carbon-free energy produced in the U.S. Between 2010 and 2014, TIA was able to learn enough to provide a more diversified approach to clean energy investing for clients interested in eliminating carbon emissions from their public equity portfolio.
TIA’s “nuclear-inclusive” clean energy research led it to places where few investment professionals go: nuclear industry conferences. Through those experiences, we have learned quite a lot about the state of the nuclear power industry and, in particular, about the state of innovation in nuclear energy technologies. While we are encouraged by what we know about the nuclear industry and how it sees its responsibilities to the public, we are extremely excited about what is happening with innovation towards the next generation of nuclear technology. It seems there are dozens of companies working to develop advanced technologies that bring nuclear power into the 21st century, making it safer, cheaper, more flexible and more functional. This nascent industry is called the Advanced Nuclear industry and, in the last three years, it has seen a lot of growth. In response to what we are learning, we are exploring further options for investors. Click here to learn more about what we think is the future of energy.