Updated: Apr 26, 2019
By Ann Owen, CFA, Director of Impact Investing
I used to love the smell of wood smoke. It triggered memories of skiing and s’mores and beach vacations with my daughters. But in 2018, my relationship with wood smoke changed. More on that in a bit.
In early 2019, the CFA institute formalized integrating material ESG (Environmental, Social and Governance) factors into investment analysis. Considering ESG factors when making an investment decision allows the investor to explore how well companies may navigate societal change (including climate change). A recently published MSCI report discusses how “companies with higher ESG ratings, on average, had lower frequency of stock-specific risks, avoiding large drawdowns.” For example, investors considering these types of companies may have avoided the negative impact from owning a stock like PGE:
The above graphic shows the the dramatic fall of Pacific Gas & Electric stock (ticker PCG). Analysts estimate the company faces an after-tax liability of up to $13 billion from the Camp Fire in Northern California.
Why are we talking about PG&E?
It has been suggested that PG&E’s equipment or infrastructure may have contributed to the Camp Fire in the fall of 2018 (LA Times 1/29/19). In early 2019, PG&E filed for bankruptcy protection in expectation of legal action related to the Northern California fire.
WIth 24/7 access to information, we can become desensitized to news items and no matter how horrific, think somehow catastrophe cannot reach us. I was forced out of this pattern of thinking during a visit to CA which coincided with the devastating fires last year.
Our hosts for this trip included a forester who helped to further educate us about climate change and its impact on the surrounding forests. He conveyed how his home had been threatened, and that devastation and smoke was everywhere.
That California smoke reminded me of Portland, in late summer last year, when my neighborhood swimming pool closed due to dangerously high particulate matter caused by forest fires in the region. When driving around Portland, the city was enshrouded by smoke.
There were days in August when Portland’s air quality ranked among the most polluted on the planet. I realized I certainly don’t love the smell of wood smoke. Then it dawned on me, I could be part of the change that ensures integration of ESG factors into portfolio construction.
At Pure, we believe that understanding and mitigating risk is an important part of the investment process.
We want to be part of the change that considers material ESG factors when making investing decisions. Not just because we are passionate about it, but because the data increasingly supports it.
We have had considerable interest from our clients regarding impact investing. Please let us know if you’d like to discuss how we can structure your portfolio to reflect your values.