Essex Global Environmental Opportunities Strategy (GEOS) May 2022 Update
Global equity market volatility abated a bit in the month of May 2022, yet concerns remain regarding inflation, and the resulting interest rate cycle as monetary policy tightens. For the Essex Global Environmental Opportunities Strategy (GEOS), first quarter 2022 earnings were constructive overall. The fundamentals for environmental investing – solving climate change and associated environmental challenges are strengthening we believe, despite weak investor sentiment the past several months. The world is amidst multiple catalysts currently that will continue to reinforce the need for global economies to lower operating costs to maintain economic growth. The economic cycle is extended, with generally increasing global interest rates, and nationalism is exacerbating trade frictions. Extreme weather events are stressing electrical grids from Texas to Tokyo, and droughts in Africa are illustrating that climate change has the greatest impact on the underserved. We rest assured in the solutions to these dire and increasing problems and believe companies addressing these environmental challenges will have solid, above market growth in coming years.
ESG critiques are running amuck lately, the result of gotcha criticisms from long-standing critics and academics alike. We believe some of the criticism is warranted, as we have witnessed aggressive ESG and climate solutions branding the past few years, with little under the proverbial hood of some products. ESG funds have grown assets above market the past several years, but as we have stated for years, the emphasis has been on investing towards corporate behavior – rather obtuse, versus driving capital to solutions, whether net zero, the U.N Sustainable Development Goals (SDGs), or ESG. The urgency to invest in solutions is reaching a crescendo, and the messengers are governments, academic institutions, NGOs, corporates, and, most importantly, citizens. Whether renewable energy for all, food distribution, or reaching net zero commitments, the alarms are sounding with increasing volume that we all need to move now. We concur with some of the critiques centered on greenwashing, if the fund sponsor is merely investing in the same large stocks held by the indices. In fact, we strongly believe asset owners are over indexed. The markets are sanitized and in no way reflect the urgent needs today which can be solved by companies addressing problems, making a difference. It is time for asset owners to better know what they own. It is also time for the companies addressing these problems to tell their stories to the market. It is for this reason we have been working with the SDGs the past several years as they enable progress to be illustrated by the companies making a difference. We believe these companies are best positioned relative to the broad markets.
We took note of an article recently, mentioning a theory developed by an MIT economist, named the Dornbusch law: a crisis takes a much longer time coming than one thinks, yet happens much faster than imagined. To say we are amidst trying times, would be an understatement. With the crisis in the Ukraine, increased state nationalism in the face of resource shortages, the shuddering starts and stops of the pandemic – all are placing massive stresses on our global economic cycle. Current commodity price pressures, and physical risks are being exacerbated by nature, which is forcing climate change upon us, unconcerned with geopolitical and economic cycles. Food inflation, exacerbated by war and geopolitics should worsen this year, given crop yield issues in most regions of our globe. All very dire.
What keeps us focused, is continuing to manage GEOS as we can rest assured, we are investing in companies that are addressing and solving these complex, related and vast environmental and social challenges. We also believe the capital markets are overly focused on the direction of inflation and economies and have lost focus of long-term investment opportunities. As asset values amidst our universe and Portfolio have been lowered the past several months, the opportunities have increased – the fundamentals are intact. Regarding these massive global problems, GEOS has exposure to technologies that assist with resource efficiencies in the face of greater economic stresses. Enabling economic productivity is the very essence of our definition of clean technology – doing more with less. Agricultural productivity is a key theme for GEOS, as is power technology – enabling a more efficient way to move, store and manage electricity. As we have been emphasizing, the solutions are at hand, and we urge the markets to embrace the companies making a difference.
This commentary is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. The opinions and analyses expressed in this commentary are based on Essex Investment Management LLC’s (“Essex”) research and professional experience and are expressed as of the date of its release. Certain information expressed represents an assessment at a specific point in time and is not intended to be a forecast or guarantee of future results, nor is intended to speak to any future periods. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties.
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