Earth Day and Portfolios

Interest in Earth Day parallels evolution in environmentalism—and increased integration of environmental, social and governance factors (ESG) into businesses and investment portfolios. This week’s guest writer, Ingrid Dyott, draws on her 20-year tenure with Neuberger Berman’s SRI team in exploring these themes.

Started in 1970, Earth Day (Saturday, April 22) is an annual observance in many countries highlighting a shared interest in the natural environment. The event aims to elevate awareness that individual actions can—and do—collectively make a difference in promoting clean air, land and water in our communities globally.

As part of its mission, Earth Day must address the difficult and growing challenge posed by the effects of climate change. The scientific consensus points to the need to reduce greenhouse gas (GHG) emissions so that global temperatures—which have been rising over the last several decades—stay within tolerable limits, typically viewed as an increase of two degrees Celsius from pre-industrial levels.

Initial Progress

While commitment is needed globally, some progress on emissions reduction is evident. Just last month, the International Energy Agency (IEA) found that energy-related CO2 emissions (a GHG) remained flat globally in 2016, for the third straight year, even as the economy expanded. The IEA cited the primary factors as the growth of renewable power generation, movement from coal to natural gas, improvements in energy efficiency in a wide range of applications, and structural changes in the global economy.

These factors point to where commitments and actions could be focused—and increased—to have a more meaningful chance of shifting the temperature trajectory. Investments aimed at these factors are likely available across all sectors of the global economy.

An Investor’s View

This brings us to the perspective of an investor. As consumers and communities become more aware of the environmental consequences of their day-to-day actions, there has been a growing awareness of the value proposition inherent in products and services that meet these underserved needs. The willingness of consumers to have these factors be part of the price-to-value tradeoff embedded in each and every commercial transaction is being increasingly recognized by companies. In other words, sustainability can be a driver of both risks and opportunities over the near and long term.

Consumers are increasingly seeking products with “sustainable” characteristics, such that environmental issues are viewed as being relevant across industries and supply chains, and as having a material impact on businesses and communities. Many environmental issues are linked to social and public health concerns, such as pollution control and water usage. Some products embed energy efficiency within the context of greater convenience—“smart” thermostats, for example. Companies that are proactive in addressing a range of environmental issues relevant to their business operations and supply chains, and across their products can enhance the value proposition to their chosen customer demographic, solidify the social license to operate and, from an investor perspective, potentially deliver advantaged returns on capital.

More Reporting, More Transparency

According to the Government and Accountability Institute, more than 81% of S&P 500 companies now publish sustainability reports and provide more transparency on how they are managing environmental issues and are meeting targets and goals that many have put in place. In our view, the notion that “what gets measured gets managed” continues to give us optimism that best-in-class companies will continue to explore how environmental efficiencies in their day-to-day operations can translate into a competitive advantage in the marketplace while reducing their overall environmental footprint.

We believe that while positive developments can arise with the collaboration of governments, corporations and other stakeholders working together toward common economic and environmental goals, identifying and opportunistically investing in such companies can be, and is, an attractive investment proposition.

In Case You Missed It

  • U.S. Producer Price Index:  -0.1% in March month-over-month and +2.3% year-over-year

What to Watch For

  • Monday, 4/17:
    • NAHB Housing Market Index
  • Tuesday, 4/18:
    • U.S. Housing Starts and Building Permits
  • Friday, 4/21:
    • U.S. Existing Home Sales

– Andrew White, Investment Strategy Group

Statistics on the Current State of the Market – as of April 13, 2017

Market Index WTD MTD YTD
Equity      
S&P 500 Index -1.1% -1.3% 4.6%
Russell 1000 Index -1.1% -1.4% 4.6%
Russell 1000 Growth Index -0.9% -1.1% 7.7%
Russell 1000 Value Index -1.3% -1.6% 1.6%
Russell 2000 Index -1.4% -2.9% -0.5%
MSCI World Index  -0.6% -1.0% 5.5%
MSCI EAFE Index 0.1% -0.6% 6.8%
MSCI Emerging Markets Index 0.2% 0.5% 12.1%
STOXX Europe 600  0.0% -0.6% 7.0%
FTSE 100 Index -0.2% 0.3% 3.9%
TOPIX  -1.4% -2.9% -2.4%
CSI 300 Index -0.1% 1.7% 6.2%
Fixed Income & Currency
Citigroup 2-Year Treasury Index 0.2% 0.2% 0.4%
Citigroup 10-Year Treasury Index 1.3% 1.5% 2.3%
Bloomberg Barclays Municipal Bond Index 0.4% 0.8% 2.4%
Bloomberg Barclays US Aggregate Bond Index 0.8% 0.9% 1.8%
Bloomberg Barclays Global Aggregate Index 0.8% 0.9% 2.7%
S&P/LSTA U.S. Leveraged Loan 100 Index 0.0% 0.2% 1.0%
BofA Merrill Lynch U.S. High Yield Index 0.0% 0.3% 3.0%
BofA Merrill Lynch Global High Yield Index 0.1% 0.2% 3.3%
JP Morgan EMBI Global Diversified Index 0.4% 0.8% 4.7%
JP Morgan GBI-EM Global Diversified Index 0.9% 0.6% 7.1%
U.S. Dollar per British Pounds 1.0% 0.1% 1.3%
U.S. Dollar per Euro 0.1% -0.7% 0.7%
U.S. Dollar per Japanese Yen 1.4% 2.0% 6.8%
Real & Alternative Assets
Alerian MLP Index -1.8% -1.1% 2.8%
FTSE EPRA/NAREIT North America Index 1.1% 2.1% 2.5%
FTSE EPRA/NAREIT Global Index 1.3% 2.5% 6.0%
Bloomberg Commodity Index 0.6% 1.1% -1.2%
Gold (NYM $/ozt) Continuous Future 2.5% 3.0% 11.9%
Crude Oil WTI (NYM $/bbl) Continuous Future 1.8% 5.1% -1.0%

Source: FactSet, Neuberger Berman.

This material is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Information is obtained from sources deemed reliable, but there is no representation or warranty as to its accuracy, completeness or reliability. All information is current as of the date of this material and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Neuberger Berman products and services may not be available in all jurisdictions or to all client types.

This material may include estimates, outlooks, projections and other “forward-looking statements.” Due to a variety of factors, actual events or market behavior may differ significantly from any views expressed. Investing entails risks, including possible loss of principal. Investments in hedge funds and private equity are speculative and involve a higher degree of risk than more traditional investments. Investments in hedge funds and private equity are intended for sophisticated investors only. Indexes are unmanaged and are not available for direct investment. Past performance is no guarantee of future results.

This material is being issued on a limited basis through various global subsidiaries and affiliates of Neuberger Berman Group LLC. Please visit www.nb.com/disclosure-global-communications for the specific entities and jurisdictional limitations and restrictions.

The “Neuberger Berman” name and logo are registered service marks of Neuberger Berman Group LLC.