The climate crisis is fueling a human health emergency. Numerous climate-sensitive health risks are scientifically established:
- Heat waves can cause illness and death;
- Smog, ozone, and allergenic pollen cause respiratory and cardiovascular illnesses;
- Disasters such as extreme weather events can trigger both physical and mental damage;
- Infectious diseases such as vector borne illnesses are on the rise;
- Interruptions to the food supply chain from extreme weather, drought, flooding and warming seas creates food security risk and contributes to malnutrition.
The human and economic costs of these increased risks to health are potentially enormous. The current coronavirus pandemic is just one stark reminder of the toll a disaster can take on society. Climate change has become a determining factor in the likely health outcomes for populations in a variety of locations and socioeconomic groups.
From an investment perspective, assessing portfolio risk from climate change has become critical. How are sectors, regions and companies responding to current threats? What preparations are they making for future extreme weather events or infectious disease outbreaks in terms of supporting their employees, customers and other stakeholders (and, of course, protecting their bottom line)? Institutional investors are increasingly considering such analysis as part of their fiduciary duty to clients and beneficiaries – and those who are not, we would argue, are not doing their jobs properly.
In this report, we discuss the relationship between climate change, socioeconomic status and health. We highlight the primary categories of climate impact, the populations most affected, and how investors may play a role in funding solutions.
In outlining potential investment solutions, we take a holistic approach given the interconnectedness of contributing factors. We focus on investment strategies that address specific climate-related interventions. Ultimately, however, solving the root causes of climate change and the subsequent effects on human health will require a comprehensive approach, one that considers the interplay of relevant issues: health, climate, transportation, education, financial stability, among others.
Download Climate Determinants – Human Health
During Climate Week NYC 2020, Cornerstone Capital Group hosted eminent climate scientist Sir David King, Founder of the Centre for Climate Repair at Cambridge University. The Centre is a cross-disciplinary research institution, aiming to develop and understand the solutions that will safeguard our planet from the disastrous consequences of global warming. Climate Week NYC, the annual climate summit held in association with the United Nations and New York City, brings together business and government leaders to share developments in climate action and find areas of future collaboration.
Sir David possesses a wealth of experience in climate science, having served as the UK’s Special Envoy on Climate Change, and as the UK Government’s Chief Scientific Adviser. He has published over 500 scientific papers, covering policy, climate change, and physical chemistry.
Cornerstone CEO Erika Karp hosted this opportunity to hear from one of the most distinguished leaders in the field. Chief Impact Strategist Katherine Pease shared perspectives on how to embed climate action as a component of one’s investments.
Cornerstone Capital Group Founder and CEO Erika Karp addresses the state of impact investing, offering a clear distinction between impact investing, ESG analysis, and sustainability. No matter what labels are used, someday this will all simply be called “investing.” Note: This video originally appeared on cornerstonecapitalfunds.com.
Clean Water and Sanitation UN Sustainable Development Goal 6: Clean Water and Sanitation recognizes that access to clean water and sanitation can materially improve the living conditions of even the world’s poorest citizens while preventing millions of unnecessary deaths annually. A lack of access to clean water affects people’s lives in myriad ways including their access to nutritious foods, levels of health, and ultimately, their financial well-being. SDG 6 is further refined by targets that can be more readily translated into actions. These targets highlight the interconnected nature of the goals: For example, strategies to support Clean Water and Sanitation also promote progress toward SDG 1 (No Poverty) and SDG 3 (Good Health and Well-Being). Below are a series of synergies that can come from providing access to products, services and systems that address Clean Water and Sanitation.
Invest in Access to Clean Water, Including Sanitation & Hygiene
Water scarcity, poor water quality and inadequate sanitation negatively impact food security, health, housing, and educational opportunities for poor families across the world. At the current time, more than 2 billion people are living with the risk of reduced access to freshwater resources and, by 2050, at least one in four people is likely to live in a country affected by chronic or recurring shortages of fresh water. Drought afflicts some of the world’s poorest countries, worsening hunger and malnutrition.1 Fortunately, there has been great progress made in the past decade regarding drinking sources and sanitation, whereby over 90% of the world’s population now has access to improved sources of drinking water. However, as the negative effects of climate change grow, previously available water sources are becoming scarcer, jeopardizing some of the improvements that have been felt by communities around the world. Women and girls are disproportionately experiencing the impacts from limited water supplies, as they are responsible for water collection in 80% of households without access to water on premises.
Invest in Access to Adequate Housing and Living Conditions
Approximately 2.4 billion people lack access to basic sanitation services, such as toilets.2 In 2015, 892 million people practiced open defecation, and only 27% of the population in less developed countries had basic handwashing facilities.3 Even in densely populated urban areas with run-down housing and high rates of poverty, water piped directly to households and piped sewage systems have been shown to result in significant improvements in the quality of living conditions.4
SDG 6: References
On May 20, we hosted a video webinar with Cornerstone’s Katherine Pease and Craig Metrick, who provided an overview of our new impact measurement framework, the Access Impact Framework. Katherine and Craig provided background on why Cornerstone created the framework, our rationale for basing our framework on the UN Sustainable Development Goals, and described our methodology.
In our recent report Sustainable Protein: Investing for Impact at the Nexus of Environment, Human Health and Animal Welfare, we pointed out that in developed countries, diet-related health concerns and less- or no-meat lifestyles have sharply reduced consumption of red meat. Flexitarian, vegetarian and vegan preferences have been driven, in part, by animal welfare and climate change concerns.
Today, a flexitarian diet – one that doesn’t adhere to a specific eating style and may combine plant-based and meat-based dishes – is now practiced by 31% of Americans, with another 13% subscribing to a specific eating lifestyle such as veganism or vegetarianism. In the U.K., almost 13% of the population is now vegetarian or vegan, with a further 21% identifying as flexitarian, according to a 2018 survey of British consumers. Our report also highlighted a preference by consumers for fresh and organic products.
On February 21, Kraft Heinz announced that it was writing down the value of some of its best-known brands by $15.4 billion which, according to a Bloomberg article was “an acknowledgment that changing consumer tastes have destroyed the value of some of the company’s most iconic products.” Subsequently, the stock price of Kraft Heinz plunged 21%.
Another Bloomberg article observed that “all the old guards of the supermarket aisles are struggling as consumers opt for fresher, less-processed and more on-the-go food items from upstart businesses.” In our report, we pointed to rapid growth in the organic yogurt, almond milk and protein bar categories in recent years, with many of the leading companies being relatively young start-ups. While Kraft Heinz attempted to respond to these trends, its efforts haven’t been enough. As Bloomberg observed, the company “has tried to spruce up a tired suite of brands — from organic Capri Sun to natural Oscar Mayer hot dogs.”
Our report concluded that, reflecting the shift to sustainable protein, opportunities exist in alternative proteins, organic foods, new agricultural technologies, sustainably managed farmland, and sustainable fisheries and aquaculture.
 Kraft Heinz Falls Near Record Low on $15.4 Billion Writedown, 2019-02-22
 Kraft Heinz’s Financial Recipe Turns Sour, 2019-02-22
Advances in agricultural technology, changes in human diet, and rising awareness of the environmental destruction caused by factory farming are accelerating the rise of sustainable protein.
Investors can target a number of outcomes — access to a sustainable food supply, lower greenhouse gas emissions, more plentiful and cleaner water, and a reduction in animal cruelty — through sustainable protein related investments. Opportunities exist in alternative proteins, organic foods, new agricultural technologies, sustainably managed farmland, and sustainable fisheries and aquaculture.
In this report we outline how a confluence of behavioral, technological, and regulatory changes have fueled the trend toward sustainable protein; identify emerging developments in the “alternative protein” space; and highlight ways to consider sustainable protein investment across asset classes.
This article originally appeared in Investment News on December 13, 2018.
Sustainable and impact investors are set to intensify their decades-long support for action on climate change on the heels of a recent report from the Intergovernmental Panel on Climate Change and the Fourth National Climate Assessment, issued by the U.S. government.
The U.S. government notes that unless urgent action is taken, climate change could shrink the U.S. economy by hundreds of billions of dollars every year in direct costs. Consistent with these findings, the IPCC’s alarming (and unsurprising) conclusions are that urgent global economic transformation is needed to head off catastrophic damage to ecosystems, communities and economies beginning within a quarter century.
Many investors now understand that climate change is not merely an environmental issue but a material economic risk for long-term portfolios. However, investors should avoid a single-minded focus on climate change that ignores the relationship between ecosystems and human development.
The IPCC report stresses that an effective fight against climate change must include efforts to achieve sustainable development goals such as gender equality, the eradication of poverty, and food security.
In other words, how we fight climate change matters. Even the most optimistic scenarios will require substantial human adaptation to changed ecosystems, which will be especially challenging for poor or marginalized communities. Achieving sustainable development goals will strengthen the ability of poor communities to adapt to inevitable change and complement more direct efforts to mitigate climate change. However, these climate mitigation efforts by themselves may either help or hinder progress towards the sustainable development goals.
For example, mitigation strategies such as reforestation or biofuel development may reduce the land available for agriculture at a time when crop yields are already declining because of rising temperatures and water stress. The resulting increases in food prices have the effect of reducing buying power and possibly destabilizing civic and political cultures in developing countries.
Conversely, sustainable agricultural strategies, conducted with attention to social equity, can increase food security and counteract some of the negative effects of climate change on drinking water, biodiversity and income inequality, while reducing greenhouse gases associated with intensive farming practices.
The empowerment of women can also support and reinforce both climate change mitigation and adaptation. Improving the quality of cookstoves available to poor women has the direct effect of reducing fuel use and deforestation. It also reduces asthma rates, which improves educational outcomes, and empowers women by freeing them from the labor-intensive “drudgery” of traditional cooking methods.
Numerous studies have also shown that as women gain education and empowerment, they earn more income and often choose to have fewer children, which is associated with reduced poverty and lower greenhouse gas emissions.
The introduction of modern technologies such as cookstoves into poor households would have an undeniably positive effect on quality of life for the poor and the resilience of their communities. However, the resulting increase in the demand for energy could undermine the intended climate benefits unless these strategies are accompanied by investments in renewable energy and energy efficiency — both of which come with additional benefits for income and energy access.
These and many other examples demonstrate the need for a holistic understanding of the connection between issues of climate and human development. Yet much of the financial capital flowing into climate mitigation today is motivated solely by opportunities for financial return arising from new public policies and the dramatic improvement in renewable energy technology.
These flows are important for achieving global scale for environmental solutions. However, a lack of attention to the social dimension of investment decisions may create a blind spot for unintended consequences that counteract environmental benefits.
The insights of sustainable and impact investment offer an essential complement to mainstream financial analysis. Integrating environmental, social and economic concerns into investment analyses can yield a more nuanced understanding of the complex interactions between climate and society. As part of this analysis, a commitment to stakeholder engagement will help investors incorporate the perspectives of local communities who will be impacted by investment decisions — because, as the IPCC report notes, climate change will impact people differently depending on geography, income and culture.
So what can investors who are concerned about climate change do? First, their investment policy statements should explicitly incorporate both climate change and key related social issues, such as gender equity, poverty, food security, and health. Second, the evaluation of investments or investment strategies intended to address climate change should integrate an analysis of their impact on broader sustainable development goals. Third, investors should use their voice to ask companies, governments and financial markets how climate change and sustainable development is incorporated into policy, planning and performance measurement.
An effective response to climate change will require the mobilization of every resource available to society, including governments, business, and civil society. Given the unique power of financial markets, investors can contribute to a long-term solution or exacerbate existing problems. Sustainable and impact investors have an opportunity to influence the outcome, if they choose to take it.
“Creativity & The Arts” is a relatively new theme for impact investors to consider, despite being embedded in every cultural and technological advancement that has occurred since the dawn of civilization. As illustrated in this report, many impact-focused development initiatives integrate arts and creative endeavors, even when not defined as such. This highlights the importance of establishing common frameworks of understanding when considering impact investing.
The UN Sustainable Development Goals (SDGs), though not originally designed for investment or philanthropic applications, have become an important frame of reference for sustainable and impact investors. We at Cornerstone Capital Group have been developing our own framework for supporting investors to incorporate SDGs into their investment process. Our efforts have focused on:
- identifying key SDG areas of interest for investors to target for their investment policy statements;
- developing an investment strategy due diligence process that assesses how proposed asset managers address various SDGs in their analyses and security selection; and, ultimately,
- creating a framework to measure and report on progress towards achieving the SDGs.
One challenge we face in considering the SDGs in an investment context is their interrelated nature. Performance or improvement in any one SDG will likely be highly correlated with performance across a range of SDGs. Similarly, one can make a case that “arts and creativity” are intertwined with almost every SDG.
Of particular relevance to this report are SDG 5: Gender Equality and SDG 10: Reduced Inequalities. Several of our contributors specifically reference the ways in which artists and creatives who are women and/or people of color and/or LGBTQ can be nourished and supported through affordable live/work art spaces. These are tangible examples of how art and creativity can be considered in the context of the SDGs – and specific investment opportunities.
As an example of the interrelated nature of the SDGs, affordable housing in a broader sense is responsive to SDG 11: Sustainable Cities and Communities. One can target SDG 11 as a matter of personal interest, while simultaneously considering SDG 5 and SDG 10, using art and creativity to connect the three.
In addition to creative culture serving to connect various impact investment goals—and more important—it is a bridge-builder between and among cultures. The arts can help communicate shared human experience in ways that transcend language and other societal structures and social norms. The arts offer amazing ingenuity, fresh and unique perspectives, and uses of media and tools from across every corner of the globe and every culture.
With this report, we hope to convey the numerous ways in which a focus on the arts and creativity can reveal meaningful and impactful investment opportunities. We can readily identify opportunities not only to support artists and creatives themselves, but also the spaces in which they live and work, the positive effects that they can bring to the communities in which their work is made and shown, shared experiences and bridging of cultures and communities, and improvements in the overall human condition.
At Cornerstone, we think of impact investment in a total portfolio context. This report shares perspectives from asset owners who are interested to find a fiduciary-level investment perspective on this issue. We hear from entrepreneurs using art and creativity as a driver of value in their business models. We also feature several managers currently offering diversified managed investment strategies in the private equity and fixed income asset classes, as examples of the creative thinking occurring in the finance arena. As the landscape of such opportunities continues to develop, Cornerstone will thoughtfully review the investment and impact goals of all such strategies.
Creativity and the arts are critical elements to finding the solutions to the systemic challenges that we face today. For those ready to participate in creating a better world through impact investing, we welcome the inclusion of arts and creativity as guideposts to our investment process, and an important new tool to creating the more sustainable world we want to build.
- In this report, we examine which trends may emerge to catalyze private water investing and how investors gain exposure to opportunities for investing in solutions.
- Water scarcity is an increasing area of concern for society, as crises like Cape Town highlight the fragility of certain regional water systems. Investors continue to be interested in how they can support a solution for increased water availability and quality.
- However, investors should proceed with caution. A bottom-up examination of water financing trends concludes that while private investing activity has grown since the early 2000s, attractive opportunities remain limited and recent interest has been concentrated in the intersection of water and technology.
- In the long term, a confluence of behavioral and demographic shifts, regulatory developments, and technology innovation is positioned to expand market opportunities.
- We provide an overview of potential water investment strategies by asset class. We also suggest engagement questions investors can use to understand how their asset managers are considering investing in water and to gain an understanding of the greater social and environmental impacts of water investing.
Areas with higher exposure to water-related risksSource: Aqueduct Water Risk Atlas
Download the full report here.
Sebastian Vanderzeil is Director, Global Thematic Research Analyst with Cornerstone Capital Group. He holds an MBA from New York University’s Stern School of Business. Previously, Sebastian was an economic consultant with global technical services group AECOM, where he advised on the development and finance of major infrastructure across Asia and Australia. Sebastian also worked with the Queensland State Government on water and climate issues prior to establishing Australia’s first government-owned carbon broker, Ecofund Queensland.
Craig Metrick, CAIA is Managing Director, Institutional Consulting and Research at Cornerstone Capital Group, where he oversees the firm’s manager review process and provides investment advisory services for our foundation, endowment and family office clients. Previously, Craig was Principal and US Head of Responsible Investment at Mercer; for nearly 15 years, he has consulted on implementing responsible investment principles and mandates. Craig serves as the Chair of the Board of the US Forum for Sustainable and Responsible Investment (US SIF).
Jennifer Leonard, CFA is Director, Asset Manager Due Diligence at Cornerstone Capital Group. In a career spanning microfinance, institutional financial services and impact investing, Jennifer has developed a unique skill-set in working to deploy capital for social and financial returns. Previously, she was vice president of impact investing at The CAPROCK Group, where she co-led the firm’s impact practice and helped clients build customized, impact-mandated portfolios. From 2009-13, she was a Latin America equity research analyst at Morgan Stanley.
Emma Currier is a Research Associate at Cornerstone Capital Group. Emma graduated with a Bachelors of Arts degree in Economics from Brown University in May 2016. While at school, she worked with the Socially Responsible Investing Fund and as a teaching assistant for the Public Health and Economics departments. She spent her sophomore summer researching differences between American and Indian educational styles in Arunachal Pradesh, India, and completed a summer investment bank analyst position with Citi in the Media & Telecom group in 2015.
We recently had the pleasure of hosting the webinar “Oceans in Peril: What Can Investors Do?”
Craig Metrick, Managing Director, Institutional Consulting & Research for Cornerstone, was joined by ocean health expert Karen Sack of Ocean Unite; Rolando Morillo of Rockefeller & Co, who is responsible for identifying and supporting the management of public equity investments for the Rockefeller Ocean Strategy; and Jason Scott, Co-Managing Partner of Encourage Capital, which specializes in investments to “solve critical environmental and social problems.”
The panelists engaged in a wide-ranging discussion of major ocean health challenges and ways in which investors can deploy their capital toward solutions.
Cornerstone Capital recently hosted water expert Will Sarni for a conversation about “The Data-Driven Future of Water.” Sebastian Vanderzeil, Director and Global Thematic Analyst, interviewed Will, covering questions such as:
- How has the “waterscape” changed over the past ten years?
- How should investors think about the myriad of opportunities and issues surrounding water, from utilities to software, water rights to water infrastructure development?
- How will data shape the future of water resource management?
- What can investors do to address the challenge of meeting our water resource needs?
Will Sarni has been providing consulting services to private and public-sector enterprises for his entire career, with a focus on developing and implementing corporate-wide sustainability and water strategies. He has worked with companies across a range of industry sectors in evaluating the technical viability and market potential of innovative water technologies, market entry strategies and supporting M&A programs.
Sebastian Vanderzeil is a Director and Global Thematic Analyst with Cornerstone Capital Group. Sebastian’s research spans a range of themes including climate, energy, income inequality, automation and technology. Previously, Sebastian was an economic consultant with global technical services group AECOM, where he advised on the development and finance of major infrastructure across Asia and Australia. Sebastian holds an MBA and was a Dean’s Scholar at NYU’s Stern School of Business.
On March 28, Silver Leaf Partners hosted a symposium titled “Water: an Institutional Investment for the 21st Century.” A series of speakers representing fields ranging from professional services and corporate finance to law discussed water investment. The speakers noted that there is an increasing imbalance between water demand and supply. Speakers also stated that solving this imbalance requires investing in opportunities beyond technology and specifically in industries that have high water usage, including real estate. Finally, private-public partnerships have an important role in expanding water supply.
Lauren Koopman, the director of Sustainable Business Solutions at PriceWaterhouseCooper, opened the event by discussing current water demand and supply. In emerging countries, the growing middle class is set to increase demand for water through changing habits and food preferences that require higher water usage. Many developed countries, including the US, need to replace existing supply infrastructure. The current supply of water will not meet these projected demand increases, and the global demand and supply imbalance is set to worsen.
The investor perspective was offered by Marc Robert, a partner and COO at Water Asset Management. He noted that water is often mispriced due to the monopolistic relationship between utilities and customers and to municipalities’ regulation of the market to keep water prices low. This low price of water results in slow uptake of new technology as customers do not face the real price of supply. Possible opportunities that are not dependent on raising water prices include large water utilities that are well positioned for future demand and data management for high water-usage industries such as agriculture.
Additionally, there are industries other than water that can reduce water usage and offer investable opportunities. Lisa Davis, the Director of Investor Relations and Specialty Investment Originations at Pembrook Capital Management, discussed a novel way to invest in water through urban real estate. Investing in affordable housing, for instance, enables more people to stay in cities, avoiding movement into highly water-intensive suburban living. Also, developers can increase water efficiency through simple upgrades such as low-flush toilets. Savvy investors can identify innovative opportunities for water impact in a range of sectors across the economy.
However, the final speakers noted that public investment will be insufficient to meet the water infrastructure needs of the US, while private investors can benefit from public sector support to manage the risks of long-life water assets. Public-private partnerships (PPPs) enable the merging of the knowledge and capital of the private sector with the resources of the public sector. Daniel Spitzer, a partner at Hodgson Russ LLP, introduced the importance of PPPs. Historically, there has been a lack of commitment from the federal government to boost water spending. PPPs can mobilize private investment and companies to fill this public need. Bar Littlefield, CFO of Poseidon Water, offered an example, describing the company’s PPP with San Diego County Water Authority on the Carlsbad desalination plant. This plant supplies San Diego county with 50 million gallons of desalinated seawater per day. Appropriately developed PPPs can enable effective risk-sharing between private and public entities and create incentives for increased water investment.
The world faces increasing water demand, which current supplies will be unable to meet. Investors can impact the water field through both traditional investment in companies that are directly involved in water delivery as well as those that are improving water efficiency. The private sector can coordinate resources with the public sector in addition to investing privately to avoid future water scarcity. The symposium concluded with a clear message that private investment has a critical role to meet the increasing water imbalance.
Emma Currier is a Research Associate at Cornerstone Capital Group. Emma graduated with a Bachelors of Arts degree in Economics from Brown University in May 2016. While at school, she worked with the Socially Responsible Investing Fund and as a teaching assistant for the Public Health and Economics departments.
Last week at the New York Stock Exchange, Ecolab hosted an event to unveil a new version of its Water Risk Monetizer (WRM) solution. WRM, a financial modeling tool, was developed through Ecolab’s partnership with sustainability data firm Trucost and in collaboration with Microsoft. The event focused on WRM’s new operating features.
Alongside the debut of the technology updates, the event featured a panel discussion amongst corporate leaders who discussed best practices and lessons in implementing water risk management strategies for their businesses. Also present were representatives from the financial sector to discuss the investor’s perspective on water efficiency strategies. Panelist included representatives from Microsoft, Marriott International, Coca-Cola, BASF, S&P Dow Jones Indices, CERES, and Cornerstone Capital’s own Sebastian Vanderzeil.
The opportunity for the WRM arises from regulation (or lack thereof), growing public pressure, and rising demand by investors for disclosure. WRM enables companies to understand the impact of water quality and quantity in their business, turning water risk into an actionable element of their overall strategy. The upgraded WRM can now provide comprehensive monetary analysis of the incoming and outgoing water risks, including the future cost of water, pollution and water treatment costs, the potential revenue at risk, and the enterprise risk.
Several key themes emerged during the panels and concluding remarks:
Water risk management has “arrived” as a strategic issue for corporates. Firms must consider both the operational role of water and the reputational consequences of mismanagement of water strategy. Creation of a “smart water culture” requires awareness of water efficiency and risk at all levels of the organization and the embrace of water management strategy.
Water risk is a multi-stakeholder issue, with engagement of local communities a key to successful risk management. Companies must understand the social and political issues relevant to water sources and uses and align their strategies accordingly.
Water is already an investment strategy, with both passive and active approaches possible. The creation of investment indices can serve to pressure companies to adopt more proactive water risk management practices. Managers may also face a push from “dark green” investors, who want to understand the material issues and emerging technologies.
Metrics are in the early stage of development. However, existing metrics, such as Global Reporting Initiative (GRI) standards, can help companies prioritize efforts; for instance, by assessing the materiality of water relative to other environmental issues and by providing a framework on how to consider the relevant issues. Sound governance requires companies to demonstrate effective policies and outcomes to stakeholders, including investors. Technology solutions like WRM can help companies deal with the risks.
Alfonso Carrillo is an analyst with Cornerstone Capital Group. He holds an MBA from Babson College where earned the Dean’s Leadership award. Previously Alfonso worked for a family office focusing on business development opportunities in e-commerce and fin-tech. He is a member of the Guatemalan Bar Association, and prior to 2014, he worked on fraud and insolvency cases, as well as anti-corruption cases against Guatemalan authorities. Outside his professional training, Alfonso helped create, and still holds advisory positions on, various youth and social-impact organizations in Guatemala.