During our most recent RIA Channel ESG Playbook, David Callaway agreed with Jeff Gitterman that financial assets face repricing as climate change becomes better understood by the markets. The asset management industry is already adapting by creating new investment products that reduce risks and provide exposure to solutions. Ever-improving data sets and metrics will help advisors and investors determine the utility of certain products over others, further refining the outcomes.

As advisors begin to engage more with these new products and tools, they will play an increasingly larger role in helping to educate and position their clients with respect to the retirement implications of climate change. Once the “average portfolio” incorporates climate change, repricing really takes hold.

If you’ve yet to consider how climate change will impact your portfolios, please book a call with us to talk about our SMART Climate UMA models and how we’re thinking about climate change more broadly.

Responsible Water Investing

We regularly talk about water as it is a key theme in our SMART Investing Solutions. During last week’s event we heard from Alexandra Russo, Global Thematic Equity Product Specialist for the Virtus AllianzGI Water Fund, which is one of the holdings in our SMART Managed Mutual Fund Models.

Water scarcity is inextricably linked to climate change and is exacerbated by a growing global population with rising living standards. Higher protein diets, electrification, and clothing production, among many other products and services, all rely on water as a key input.

Source: AllianzGI; Water Footprint Network (2008); Ecolab, Closing Keynote Presentation from the Financial Times Water Summit from Doug Baker, CEO of Ecolab (October 2015)

Another key challenge relates to the proliferation of contaminants. This is a significant domestic issue, in addition to being a global problem. Chemicals enter drinking water supplies from agricultural fertilizers, as well as other sources such as chemicals used to melt snow or put out fires. The probability of exposure to dangerous chemicals, which can lead to serious disease and birth defects, is heightened by an aging infrastructure. In the U.S., core municipal water infrastructure can be over a century old in some areas, unable to meet the needs of larger populations and potentially containing a myriad of new pollutants. Municipalities with insufficient funding to replace pipes and water treatment facilities may turn to private capital to upgrade the systems, providing opportunities for investors.

Alexandra sees the water theme as a way to generate “environmental and social alpha” given its link to a multitude of other fundamental aspects of human wellbeing. The increasing attention on water infrastructure in the U.S. from the Biden administration, as well as in other jurisdictions such as the E.U., will likely result in water investing becoming even more topical over the next decade. Other factors that may stimulate this investment theme include increasing soft commodity prices, which provide funds for farmers to invest in water efficiency, as well the growing focus on the impact of climate change on the hydrological cycle.