The climate crisis is fueling a human health emergency. Numerous climate-sensitive health risks are scientifically established:

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

Please see our report Climate Determinants — Financial Services: Transformative risks for the financial sector, governments and consumers

On April 22, Earth Day, Cornerstone hosted a webinar titled “Every Day Must Be Earth Day: Climate, Coronavirus and Complexity. CEO Erika Karp was joined by Karl Burkart, Managing Director of One Earth, a project of Rockefeller Philanthropy, and former Director of Science & Technology at the Leonardo DiCaprio Foundation. One Earth is dedicated to advancing cutting-edge science to address the climate crisis. The organization funded a breakthrough climate model (published as Achieving the Paris Climate Agreement Goals by Springer Nature) which shows how the world can achieve the ambitious 1.5°C goal through currently available technologies at a lower cost than our current energy system.

In a wide-ranging discussion, Erika and Karl tackled these questions:

In preparation for our call, Karl provided a written assessment of the questions we used to shape our discussion. Below are his responses.


Is the COVID-19 pandemic related to climate change?

There is a large and growing body of scientific literature linking climate change to the spread of vector-borne disease. Studies have focused mostly on insect carriers such as mosquitos (malaria) and ticks (Lyme). There is a general consensus that increased warming will drive increased vector-borne diseases, but no one knows exactly where and by how much.

It’s also possible that vertebrate animals are being exposed to more vector-borne diseases, making them carriers of novel diseases to humans. These ‘zoonotic’ diseases — pathogens that jump between species — include the COVID-19 outbreak, but it’s very hard to make a direct link to climate change. What we do know is that deforestation and encroachment of human activity on wildlands is creating greater risks for both humans and animals, as edge effects increase. We need to retain our current footprint of wildlands (approximately 50% of the terrestrial surface) in order to save biodiversity, preserve priceless carbon sinks, and reduce the risk of future zoonotic diseases.

Climate change will certainly increase risks to public health, and we’re only just starting to learn about the ways this could happen. An emerging body of science is looking at “zombie pathogens” that have been frozen, sometimes for centuries, but are thawing due to climate change. One anecdotal example of this, an outbreak of anthrax in Siberia in 2016, was caused by increased temperatures thawing permafrost and an anthrax-infected reindeer carcass from 1941. Whether this will happen at larger scale is a very controversial topic and the science is new, but it’s clear there are strong linkages.

Will the pandemic-related drop in carbon emissions lead to lasting changes?

It’s hard to talk about the silver lining to such a horrible pandemic, but it is true that emissions will likely drop 5-10% or more as a result of COVID-19. This is essentially exactly what was needed to get us on track to 1.5°C — a net reduction of 56% of global emissions by 2030 (or roughly 6.5% per year).

I myself had a pretty bad carbon footprint due to my travel and speaking engagements, and I’m seeing many of these venues events now going online, including Climate Week, which is normally held in New York concurrent with the UN General Assembly in September. The irony of Climate Week is that you have the whole world gathered in one place talking about solving the climate crisis while emitting enormous amounts of CO2. We’re now being forced to learn how to do many things virtually, with a much-reduced carbon footprint.

This could be a tipping point when virtual working becomes the standard, rather than the exception. A study in 2018 showed that 70% of people were able to work remotely on occasion. What if that were reversed – with physical officing being the exception rather than the rule? The permanent reduction of carbon emissions implicit in such a transformation of our work lives would be a game-changer. But I think many are rightfully skeptical that this will turn into permanent behavior change. And behavior change is only a piece of the climate change puzzle…

There’s only so much we can do as individuals to help. We need permanent policy shifts. We need to stop subsidizing fossil fuels (at a whopping $4.7 trillion per year according to the IMF) and start subsidizing clean, renewable energy. To make that shift happen, we will need a different kind of behavior change… VOTING. People need to start voting for candidates in much larger numbers at all levels of government of they care about clean air, clean water, and a balanced climate. Perhaps if we get nationwide mail-in voting, this could be the beginning of more civic engagement, which will drive the policy changes needed to solve the climate crisis.

Will the oil market collapse slow the pace of transition to alternative energies?

This is an excellent question and a very complicated subject. In my opinion, COVID-19 is “sinking all boats” — fossil fuel energy and renewable energy. I was in Riyadh for G20 meetings in late February, and prior to COVID-19 breaking out there was already a brewing conflict with OPEC+ nations balancing whether or not to cut production to stimulate falling prices. The fact of the matter is, the oil industry was already heading for a rough year. We supported research by Carbon Tracker, a think tank in the UK that has been analyzing  data from many of the Oil & Gas majors, and they predicted a major decline in the sector in the early 2020s, as more and more people switch to electric and hydrogen modes of transport.

Then COVID-19 hit. The oil markets are now in a freefall, with negative trades for the first time in history. This will put a lot of oil and gas companies out of business, including the oil services industry (companies that manage, build, and maintain the production pipeline). Massive layoffs are happening right now, and when the economy comes back to life, hopefully in a year or two, it will be a huge and difficult ramp-up for the fossil fuel industry. There will be many, many losers and only a few winners. And some of the losers need to lose, like the tar sands in Alberta, which produce 25% more supply chain emissions per barrel of oil than the global average. Then there is increased demand for electric vehicles. Just last month, Tesla had record sales in China.

I’m almost brave enough to predict that COVID-19 will be the beginning of the end of the fossil fuel era as we’ve come to know it. We will have to rebuild our economy, and I think clean economy will win out, with solar and wind power now heading to 4 cents per kilowatt hour (c/kWh) on average and one solar hybrid project last summer bidding below 2c/kWh. Renewables also make the most sense as a stimulus for economic recovery, creating jobs at a ratio of 3 to 1 per dollar invested versus fossil fuels. This is not to say the renewable energy industry isn’t also being pummeled. This was set to be the biggest year in history for solar deployment, and now there are massive layoffs. We’ll just have to see how bad it will be on both sides and hope for a realignment of subsidies to promote a clean future.

What is the impact of the current crisis on social and economic justice?

First let’s consider health. Before COVID-19 hit, there were an estimated 4.2 million deaths per year due to ambient air pollution, according to the World Health Organization. Low-income communities constitute by far the majority of those deaths. And this isn’t the case just in the developing world. A recent study in California shows that black and brown people are exposed to 40% more emissions than white people. This is often due to the location of low-income communities in proximity to fossil fuel plants — land that wealthier (and historically whiter) people didn’t want to build on.

So we need to acknowledge that low-income communities were already struggling with lung disease and other diseases at a higher rate. Now, according to a new study, those same communities are experiencing many more COVID-related deaths than the national average. In Michigan and Illinois, for example, black people make up 41% of Covid-19 deaths, despite being less than 15% of the population. And in Louisiana, nearly 60% of the people who died of coronavirus in the state are black, while the demographic is just a third of the state’s population. Top all that off with the lack of socialized healthcare in the US, and you have a recipe for disaster.

There’s blame to share in many directions, but first let’s point a finger at the fossil fuel industry, and the lack of regulations to protect communities from pollution. Second, let’s look at our healthcare system in the US. Many European countries last month called citizens home who were on visas in the US because they deemed our country as lacking sufficient medical infrastructure. Post-COVID, these two problems have to be addressed to even begin a conversation about social justice. In the global context, I shudder to think about the impacts of so many people losing their jobs and livelihoods. But one thing that does appear to be emerging is a growing movement to tackle climate injustice head-on. I think COVID-19 is going to add fuel to that fire as these great inequalities in our economic system are revealed.

What can people do to move the needle on climate justice?

It shouldn’t take a global pandemic for us to see clear blue skies and breathe in clean fresh air. We deserve better. If anything good can be said of COVID-19, it is this momentary glimpse of what the sky should look like and some space to think about the future we want to create.

So what is the future we want to live in post-COVID? I think that’s the question we all need to be asking. Are we going to let the fossil fuel industry come roaring back to life? Or are we going to finally start to build the clean energy future we all need? We could have an opportunity to start righting the wrongs, provide low-income communities with access to clean energy while providing job training and income opportunities for a clean energy future. This is what a Green New Deal should focus on – pivoting subsidies away from the ailing fossil fuel sector and towards investments in renewable energy, along with a major jobs program to transition coal, oil and gas workers to good, long-term jobs in solar, wind, and energy efficiency.

Internationally, we know developing countries are going to be hard hit by the pandemic and one initiative, Sunfunder, is working to bring energy access to rural areas of Africa where it’s needed most. There is a risk of default for many community solar projects across Africa due to the pandemic, which would be a horrible loss to the people there, derailing more than a decade of progress to bring clean, affordable energy in the region. So these are the types of efforts that need to be supported now more than ever.

One thing we do at One Earth is to identify key initiatives that are strategically important in creating a green future and achieving the 1.5°C goal of the Paris Climate Agreement. If you’re interested, please feel free to visit our website and sign up for a monthly briefing of projects around the globe that are working towards a green, and sustainable future.

Editor’s Note: From an investment perspective, there are numerous ways to deploy capital in support of climate justice. Cornerstone Capital Group works with to clients to identify their financial goals and impact interests, and recommends appropriate investment solutions. Our recommendations reflect rigorous research into investment opportunities to understand their risk and return profile, their environmental, social and governance characteristics, and the degree to which an investment facilitates access to the products, services and systems needed to achieve the United Nations Sustainable Development Goals. If you would like to explore how Cornerstone may be able to serve you, click here.



On March 19, 2020, Cornerstone Capital Group held a conference call addressing concerns about the current coronavirus pandemic and its impact on the markets, the economy, and importantly, the changes in how we think about the infrastructure of our society over the longer term. Cornerstone’s Erika Karp, Craig Metrick and Michael Geraghty were joined by two equity managers on the Cornerstone platform: Cathie Wood of Ark Investment Management, and Garvin Jabusch of Green Alpha Advisors. The full call replay can be accessed here.

Managing Portfolio Risk Through Integrated Analysis

The participants on the call focused on the benefits of integrating environmental, social and governance (ESG) factors into the investment process in an effort to de-risk long term portfolios and identify critical growth opportunities.  Both Ark and Green Alpha look at multiple risk factors at a systemic level to minimize exposure to threats such as climate change. This extends to investing in methods to address risk — such as pandemic crisis. In their view, by focusing on innovation and the future while considering all stakeholders instead of only shareholders, investors may experience better long-term returns with lower volatility.

Kicking off the discussion, Erika highlighted that “sustainable investing is a proxy for quality. It’s a proxy for innovation and a proxy for resilience. And that is precisely what we need right now.” She asked whether, when we emerge from this current crisis, we would be forever changed:

“We have to think about issues like distance learning, telecommuting, distributed health systems. We have to think about supply chain logistics. We have to think about surge capacity. We have to think about virtual entertainment, emergency service centralization, obviously food safety, water quality, hygiene standards. We have to think about mental health provision. We have to think more proactively and in an innovative way about investing. Going forward to attack these challenges, we remind everyone that impact and sustainable investing is just investing.  But a more conscious, predictive way to invest.  Impact investing is the new cornerstone of capitalism.”

Michael Geraghty, Cornerstone’s market strategist, discussed the volatility of the markets under the current coronavirus situation. He doesn’t believe the markets will stabilize until the virus is either contained or a vaccination is developed and made available to the public. Michael notes, however, that this is a short-term shock to the system and not a structural one. That’s not to say that this pandemic won’t have a profound effect on the economy or the markets near term.  The consumer accounts for 70% of U.S. Gross Domestic Product (GDP). If consumers are staying home and hunkering down, a cut in rates by the Federal Reserve and a payroll tax cut by the Federal government won’t have a strong impact on consumer behavior.

Craig Metrick noted that Cornerstone focuses on long term investment objectives while creating an investment plan which is designed to achieve social and environmental impact. He then interviewed Cathie and Garvin as to their views on the longer-term implications of the current crisis.

Investing in Disruptive Innovation and Strong Governance

Ark Investment Management focuses on investing in disruptive innovation over a five-year time frame.  Its five core themes are: DNA sequencing, robotics, artificial intelligence, energy storage and blockchain technologies. Cathie Wood noted that the companies her firm invest in are not typically in any indices. Other managers are selling these names while buying names in the indices, such as the S&P 500, giving firms like hers an opportunity to buy these innovative company stocks at lower valuations. Over the long haul, she believes these investments should outperform older economy names that still dominate the indices.

Garvin Jabusch noted that a recession is already priced into the markets and his firm is looking for companies that will perform well out of the downturn.  Bottom-up analysis is key, in his view. He looks for companies that are good stewards of capital, are innovative and create solutions that will make the economy more productive. Green Alpha is a long term buy and hold manager. The firm focuses on innovative companies that can help de-risk the economy such as those engaged in decarbonization, biotech and electrification.

Summing up the discussion, which included a very lively Q&A, Erika noted: “When it comes to ESG analysis, the “G,” governance, is first among equals. Because if we’re talking about a well-governed company, then by definition it is looking at environmental and social issues. And if a company is not looking at environmental and social issues, it is by definition not well-governed. It’s tautological.”

Ark Investment Management and Green Alpha are two of the strategies included in the Cornerstone Capital Access Impact Fund. Click the link to view standardized performance and the Fund’s top ten holdings:

You should carefully consider the investment objectives, risks, and charges and expenses of the Fund before investing. The prospectus contains this and other information about the Fund, and it should be read carefully before investing. You may obtain a copy of the prospectus by calling 800.986.6187. The Fund is distributed by Ultimus Fund Distributors, LLC. Cornerstone Capital Group is the adviser to the Fund. Investing involves risk, including loss of principal. Applying ESG and sustainability criteria to the investment process may exclude securities of certain issuers for both investment and non-investment reasons and therefore the Fund may forgo some market opportunities available to funds that do not use ESG or sustainability criteria. Securities of companies with certain focused ESG practices may shift into and out of favor depending on market and economic conditions, and the Fund’s performance may at times be better or worse than the performance of funds that do not use ESG or sustainability criteria.


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.

Executive Summary

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Fundfire, June 11: Endowments and foundations that have placed bets on environmental, social and governance (ESG) investing are experiencing the pay-off…“What we’ve seen with ESG strategies, whether they be individual strategies or separate pools, is that they’ve been performing in line or better than non-ESG strategies over time,” says Craig Metrick, a managing director of institutional consulting and research at Cornerstone Capital Group. “ESG strategies tend to do well in down markets. [E]SG strategies have a longer time horizon, lower turnover and can be higher in quality as well, which will help in certain markets.”

Full article here (subscribers only).

In the process of painting, an artist will back away from a canvas and intentionally blur her vision, simulating distance, in an effort to take in the work as an aesthetic whole and not merely an accumulation of discrete marks, painstakingly applied. She may turn the canvas upside down, sideways, lay it flat to view from above, refreshing her vantage on the balance and rhythm of the overall composition. These “sensitivity tests” reflect an intuitive understanding that the work of art exists as a system, with a logic of color, form, and mark.  Too tightly focused attention — fetishizing — on any one attribute of the work compromises overall system intelligence. Novelists allude to this call-and-response in writing when they answer the admiring reader’s query, “How did you write that character?,” by stating simply, “She wrote herself.” More medium than maker, an artist’s primary task is setting up conditions that invite, capture, and sustain system flow.

The speculative financialization of art — the last unregulated market — proceeds apace with the financialization of the global economy. However, distinct from the production of our built and natural world, we have yet to have financiers actually making the art, notwithstanding the entrepreneurial savvy of market players such as Koons and Hirst, themselves prefigured by Warhol, whose trenchant quip, “Making money is art and working is art and good business is the best art,” speaks to his value-driver framework. Production systems of artist-led ateliers have been a mainstay since the Middle Ages, with themed templates and serialization maximizing output. Although responsive to patron dictates or cultural trends, an artwork’s value issues from the artist’s singular capacity to exceed base-line deliverables of verisimilitude (portraiture), reverence (religious art), and trophy ornament (something to hang over couch).

Bringing system intelligence to real estate

In the built environment, the real estate industry, comprising over a third of the world’s tangible wealth, has an especially counterproductive value-driver framework. This is interesting as the industry intersects two millennia-long sources of wealth creation — art and land. Financiers churning to keep ahead of real estate cycles deploy art and artists as cost-efficient value drivers, contributing cultural vitality to desultory, pro forma-driven, assembly-production developments. The land upon which these financial instruments are constructed, with their narrowly focused, fetishistic insistence on 18-month returns, is abstracted to a square-foot or per-acre line item.  Yet, soil, according to geomorphologist David R. Montgomery, is the “delicate blanket of rotten rock that makes our terrestrial world habitable.” From an artist’s perspective, this profit maximizing delivery of our built world lacks system intelligence — socially and ecologically.  By comparison, art produced to these crude, reductive metrics we call kitsch.

The status quo of real estate development not only squanders social and ecological capital, its brutal short-termism leaves unprecedented financial spoils on the table too.  The Financial Times recently reported on one of the biggest intergenerational wealth transfers in history, an estimated $4 trillion in the U.K. and North America alone, anticipated in millennial inheritance from their baby boom elders.  Millennial investment priorities: sustainability, clean energy, impact investing.  Follow the money. “What is very clear to me is that millennials’ values are distinctively focused on making the world a better place, using financial capital for social return, having an impact and supporting sustainable development,” says Burkhard Varnholt, deputy global chief investment officer at Credit Suisse, in the FT.  This newly wealthy generation, ready to start their own families, will choose to live and work in communities that align with these sustaining priorities.

Great art works are legacies, handed down generation to generation. Applying the artist’s holistic, system intelligence to producing the built environment is a legacy project, an investment that will perform financially, ecologically, and socially for generations to come. It requires a patron/investor/commissioning body to finance, an artist to envision, and her atelier of premier artists/artisans — designers, engineers, accountants, lawyers, contractors — to implement. This good business is the best art, for the earth and for each other.

The work of TILL

Upcycling downmarket suburbia through an aggressive three-part platform of decarbonization is the value driver framework of our community-based development practice, TILL. We target brownfields, industrially impacted landscapes, acquired at discount. Rather than remediate these damaged sites with conventional methods of encapsulation (“capping”) or “dig and haul,” we regenerate the soil using living plant material. Restoring soil health leverages soil’s capacity to sink carbon. Re-carbonizing the soil, decarbonizing the atmosphere: healthy soil deepens our carbon reservoirs. Brownfields comprise 20% of U.S. real estate, with the built environment contributing 1/3 of the world’s greenhouse gas emissions. At scale, soil regeneration is a tool in our development portfolio to positively impact climate change, from the ground up.

Above ground, TILL builds new construction using cross-laminated timber (CLT), a jumbo plywood that is 50% sequestered carbon and a renewable resource. CLT construction is 30% faster and requires less heavy equipment than conventional construction, yielding cost savings while reducing the carbon footprint of building production.

Further decarbonization is realized in our mobility platform integrating AV, EV, dynamic ride and car sharing. Transportation contributes 27% of U.S. greenhouse gas emissions; reducing private-car dependency with mobility options for mobility-poor suburbia is an economic catalyst that also offers critical social connectivity for aging populations as driving becomes untenable.

Like the iPhone, the world-changing, best-selling product of all time, TILL works because it aggregates decades-old, proven technologies of soil regeneration, mass timber construction, and smart mobility. Like the iPhone, TILL is confluence technology, not invention. Our innovation is the compilation and real-world implementation of these proven technologies for real-world impact that scales.

While our business strategy at project launch targets industrially impacted sites — buying value at discount — there is every reason to implement TILL’s confluence technology in urban and suburban sites beyond brownfield landscapes. Living in garden settings that contribute toward urgent decarbonization of our atmosphere aligns with the mission-oriented millennial and Gen Z age groups, prized as new business generators and a demographic canyon in aging ex-urban communities and disinvested municipalities.

Investment follows talent.

Talent pursues mission.

Mission makes market.

Anticipating both growing consumer demand for sustainable options and the inevitability of carbon pricing gives TILL competitive advantage and compounds future value as we build long-term community health and prosperity.  This best art is excellent business.

TILL is an international, intergenerational, multidisciplinary practice focused on holistic community-based brownfield regeneration. It seeks community-specific solutions that engage the global context. TILL’s fiscal sponsor is the New York Foundation for the Arts.

Jane Philbrick is founder of TILL (Today’s Industrial Living Landscapes).  Jane is graduate faculty in the Art, Media, and Technology Program at Parsons School of Design/The New School, NYC. She holds a bachelor’s degree from Barnard College, Columbia University, and a masters degree from the Graduate School of Design, Harvard University.

Olivia Greenspan, TILL co-founder,  is a fellow at Fordham University’s Social Innovation Laboratory and is a junior at Fordham College at Rose Hill studying Economics.

On April 18, Cornerstone Capital Founder and CEO Erika Karp delivered a “TED”-style talk at Big Path Capital’s Impact Capitalism Summit, held in Chicago. She spoke on the unprecedented confluence of trends driving the integration of environmental, social and governance considerations into the analysis of investment opportunities. In the video, Erika states her belief that investment professionals who do not systematically incorporate such considerations into their investment decisionmaking process are “breaking a fiduciary duty and should not be in the market.”

Executive summary:

The language of impact. At Cornerstone Capital Group, we apply the discipline of environmental, social and governance (ESG) analysis along with financial analysis in assessing investment opportunities designed to help our clients achieve positive impact – the societal and environmental change resulting from investment decisions. Our overarching objective as a firm is sustainability, which we define as “the relentless pursuit of material progress towards a more regenerative and inclusive society.” In this report we use ESG in discussing issues and investment strategies, and “impact-driven investing” when “investing for impact” would be cumbersome. We use “sustainable” or “sustainability” when referring to broad concepts.

Why invest for impact? A growing number of investors wish to integrate their investing activities with the values that inform the rest of their lives or their organizational missions. They want to invest in ways that pay heed to both their financial priorities and their commitment to environmental or social issues. Some investors believe that doing so will grant them a financial edge in the marketplace. Others wish to influence the direction of the economy because they see their own futures as inexorably linked to the future health and prosperity of the world.

Why is this trend becoming more mainstream now? Increasing demand for impact-oriented investments is being driven by a “perfect storm” of factors. The global financial crisis of 2007-08, the Deepwater Horizon disaster and other events have made investors increasing conscious of the systemic risks facing their portfolios. Beyond financial instability and the risk of industrial accidents, these risks include climate change, globalization, and inequality. Also, technology is driving greater transparency and accountability for companies, even as more of their value is tied to intangible factors that are becoming harder to measure through traditional financial analysis.

Key players. Today, the sustainability ecosystem includes some of the most sophisticated investment organizations in the market, as well as professional associations, data providers and others that can help investors invest for impact. With the help of a financial advisor who possesses the right expertise, investors can select the optimal mix of strategies designed to achieve both financial and impact objectives.

ESG-focused investing strategies and financial performance. Traditionally, the mainstream financial world has claimed that ESG-focused strategies would underperform their more traditional counterparts. However, experience and research have shown that these investments offer competitive returns. Recently, evidence has emerged that attention to ESG concerns may help both investors and companies mitigate risk and, in some cases, boost performance. Of course, investors may differ in the societal values that they bring to the market, just as they have differing risk tolerance and time horizons. Numerous strategies have evolved to help investors integrate their values into their investment portfolios. The best-known strategy, screening (positive or negative), remains important, but investors seeking social impact may also choose strategies such as active ownership, ESG integration or thematic investing.

Download our report here.

Areas with higher exposure to water-related risksSource: Aqueduct Water Risk Atlas

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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.


Cornerstone Capital CEO Erika Karp quoted in ThinkAdvisor‘s recent writeup on rising demand for ESG and sustainable investing.


Executive Summary

Can investors be confident that International Oil Companies (IOCs) are sustainable for the long term? Technological, policy and market trends intended to mitigate climate change threaten permanent displacement of oil demand. The long-term investments of oil companies may prove to be liabilities if future demand falls short of expectations. The potential implications for investors are significant, but uncertain since the likelihood and impact of these trends are difficult to forecast.

In uncertain circumstances, business strategies and practices that historically have served shareholders well may become a hindrance to adapting to new operating environments. The primary risk for oil companies is an inability to adapt to scenarios that fall outside of historical norms.

Given the difficulty of making accurate forecasts in an uncertain environment, the most useful current signal of how well a company is positioned for the long term is its corporate governance. While there is no doubt that oil companies are preparing for the future, the question for shareholders is whether the companies are envisioning a future that looks much like the present or preparing to adapt to societal change that could result in an entirely new operating environment.

As we discussed in our June 2017 piece, “Making Their Voices Heard: Shareholders Vote for Greater Transparency on Climate Change,” a majority of shareholders at two IOCs and more than 40% at a few others supported proposals asking companies to disclose an analysis of the impact on their businesses of a global shift to a “low carbon” economy – one in which greenhouse gas emissions are sharply curtailed in order to limit global warming to 2 degrees Celsius. Some companies, such as Shell, Statoil and Total, have done so. Within the past few days, Exxon Mobil has promised to produce a report as well.

While these analyses are important, we believe oil company shareholders should be primarily concerned with whether the company has adopted practices for governance, disclosure and engagement that indicate flexibility and resilience in the face of secular decline for its primary product.

We explore six key questions to guide investors as they engage with oil companies and review upcoming climate risk reports:

Download the full report here.

John K.S. Wilson is the Head of Corporate Governance, Engagement & Research at Cornerstone Capital Group. He leads a multidisciplinary team that publishes investment research integrating Environmental, Social and Governance (ESG) issues into thematic equity research and manager due diligence. He also writes and presents widely about the relevance of corporate governance and sustainability to investment performance for academic, foundations, corporate and investor audiences. John has nearly two decades of experience in sustainable investing and corporate governance.

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:

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.


Today, Environmental, Social and Governance (ESG) data are helpful to investors — but not helpful enough.  Environmental information about greenhouse gas emissions has enabled investors to identify companies that seem vulnerable to a potential carbon tax, and has also highlighted companies that have materially improved energy efficiency.  Similarly, many companies have been reporting data on water consumption and waste generation, two other factors that can prove financially material.  Although these environmental disclosures contain valuable information, they seem unlikely to drive near-term (i.e., 12-month) stock price performance any time soon.

While measurements of many environmental costs are now well established, metrics for social issues are still in need of a lot more rigor.  This is somewhat paradoxical, given that social issues have been an important driver of stock prices lately.  For example, automation in the retail sector remains of keen interest to investors, even as few companies have developed a comprehensive strategy to address the issue, let alone provided information about the possible impact on their business—e.g., comparable data on the number of employees, both full-time and part-time.

As we outline in detail below, the key issue facing investors looking to integrate ESG data into an investment framework today is not the absence of data but, rather, the absence of data that have material significance for near-term stock price performance.

Evaluating Intangible Factors with ESG Data

ESG data can help investors better understand the value of intangible factors.  Ocean Tomo analysis shows that between 1975 and 2015, intangible assets increased from 17% of the market value of the S&P 500 to 87% — Figure 1.

Figure 1: Components of S&P 500 Market ValueFigure 1: Components of S&P 500 Market Value Source: Ocean Tomo

Intangible assets are those things an investor can’t touch, but can name.  For example, many investors consider environmental performance, a social license to operate (a dedicated workforce, loyal customers, and so forth), and corporate governance to be integral intangible assets.  Based on a survey of issues considered relevant today, Figure 2 lists 36 intangible factors that can be material to companies, industries and sectors; these are categorized under the headings “environmental,” “social,” and “governance.”

Figure 2: 36 Intangible Factors That Can Be Material to Companies, Industries, and Sectors* Figure 2: 36 Intangible Factors That Can Be Material to Companies, Industries, and Sectors

*In this methodology, the boundaries between the three factors are somewhat fluid.  So, for example, the Governance category includes “Accident & safety management” and “Supply chain management;” it could be argued that these should both fall under the Social category.

Source: Cornerstone Capital Group

Despite significant progress made in disclosing, reporting and aggregating ESG data, the evaluation of intangible factors remains challenging, in large part reflecting:

Too Little Material Data

Several information providers — including Bloomberg, MSCI and Sustainalytics — provide both data and analysis on corporate performance across a range of environmental, social and governance indicators.  (It is important to note, however, that the various research methods are not standardized.)  These sustainable finance facilitators typically provide several types of services:

So, for example, Bloomberg calculates an ESG Disclosure score for thousands of companies globally to quantify the overall extent of a company’s ESG reporting:

The weighted Bloomberg score is normalized to range from zero, for companies that do not disclose any ESG data, to 100, for those who disclose every one of the 219 data points collected.  Currently, the average Bloomberg ESG disclosure score for companies in the S&P 500 is just 29.  (Note here that, for the reasons outlined below, we are not suggesting it would be optimal for every company to disclose on each of the 219 data points.)

Illustrating this data paucity, Figure 3 shows that, per Bloomberg, several prominent food retailers — including Whole Foods Market, which initially built its reputation by focusing on ESG issues — do not disclose greenhouse gas, water usage or waste generation metrics.  In addition, these companies report virtually no social data.

Figure 3: Current ESG Metrics of Five Food RetailersFigure 3: Current ESG Metrics of Five Food Retailers

Source: Bloomberg

Too Much Immaterial Information

Turning to ESG ratings, it has been shown[1] that ratings from different ESG data vendors have frequently not converged, and have led to different conclusions.  In addition, it is often the case that the ratings systems employed by the vendors tend to reward companies that produce a lot of ESG disclosure, even if it is not material.

Using BP as an example, it has been pointed out[2] that:

The Deepwater Horizon incident in 2010 scarcely dented BP’s overall ESG rating because “oil spills” affect just one of [the] 250 equally weighted indicators [from an ESG data provider]. Thus, the data provider’s process of scaling to structure ESG data like financial data only served to obscure what was meaningful.

Similarly, Volkswagen (VW) is another example of a large, well-capitalized company that disseminated nonfinancial data which contributed to the company ranking well in some of the ESG databases.  In August 2015, just prior to the revelation that emissions had been systematically and intentionally underreported, MSCI ESG Research upgraded VW’s rating because of “proactive steps to lower the environmental impacts of its products — reducing its vehicle fleet carbon emissions and recall rates in recent years.”[3]

And just weeks before the scandal broke, in early September 2015 VW put out a press release[4] to announce:

The Volkswagen Group has again been listed as the most sustainable automaker in the world’s leading sustainability ranking.  As in 2013, RobecoSAM AG again classed the company as the Industry Group Leader in the automotive sector in this year’s review of the Dow Jones Sustainability Indices (DJSI).  Volkswagen is thus one of only two automakers to be listed in both DJSI World and DJSI Europe.

A broad study[5] of this issue by a team at the Harvard Business School observed that:

Firms release a wealth of information in the form of ESG data, but the sheer number of sustainability issues…raises the question of which of these ESG data are material.

In fact, the Harvard researchers found that just 20% of the items in the sustainability dataset they used were material by the standards of the Sustainability Accounting Standards Board (SASB).

One issue here might be that the materiality of different ESG issues varies across sectors.  For example:

It is also the case that, within sectors, ESG risks and opportunities can vary by industry (see An Atypical Analysis of Industry Risks, Cornerstone Capital Group, May 26, 2016), which again highlights the potential complexity of ESG analysis in the absence of robust data.

Cost of Data Collection

A recent survey[6] of senior investment professionals from mainstream (that is, not ESG-oriented) investment organizations identified the “cost of gathering and analyzing ESG data” as a major barrier to using ESG information for investment decision-making.  The authors of the survey review acknowledged that many data providers have expanded their capacity and capabilities to collect and distribute ESG data to the investment community.  Of course, once investors obtain this ESG information from the data providers, it must then be analyzed for investment significance, which can be challenging.

An example from our own research pertains to the number of employees of retail companies in the United States, per Bloomberg.  In preparing our 2017 report Retail Automation: Stranded Workers?, we downloaded the current employee data for 30 major retail companies.  Broad analysis of the data showed that while all the companies provided some employee data, companies reported different employee metrics, including total employees (full-time and part-time) or Full-Time Equivalent (FTE) employees (a summation of full-time and part-time employees with part time counting as 0.5 FTE).

We noticed that several companies had significant changes in employment numbers between reporting periods and we had to corroborate each employment data point with each company filing to ensure accuracy and consistent metrics.

From the reporting companies’ perspective, the sheer number of reporting frameworks and sustainability indices that now exist is raising questions about whether the time and resources spent filling out sustainability questionnaires is worth the corporate effort and cost.  Around 50,000 companies are subject to annual ESG evaluations by 150 ratings systems on approximately 10,000 performance metrics.  The diversity of organizations and systems, ratings, and metrics has brought many corporate sustainability managers to the verge of “survey fatigue.”

By way of example, each year RobecoSAM asks over 3,400 listed companies around the world between 80-120 industry-specific questions focusing on economic, environmental and social factors.  The questionnaire for the Metals & Mining industry (one of 60 different questionnaires) runs to 138 pages.  Similarly, General Electric responded to more than 650 individual questions from ratings groups in 2014.  The process took months to complete, and required more than 75 people to finish.

A Big-Cap, Developed Markets Bias, Particularly Toward Europe

While fewer than 20 companies globally disclosed ESG information in the early 1990s, the number of companies issuing sustainability reports increased to nearly 9,000 by 2016.  In the United States, sustainability reporting by S&P 500 companies rose from just 20% in 2011 to 81% in 2015.

In the European Union, a 2014 directive mandated corporate disclosure of non-financial information (including environmental, social and governance information) for the 2017 fiscal year, so that the first company reports are expected in 2018.

Several European countries — including France, Germany, Italy and the United Kingdom — have already been requiring some form of sustainability reporting.  Not surprisingly then, a KPMG report[7] pointed out:

Europe continues to have a clear lead among the regions in terms of the overall number of [sustainability reporting] instruments [mandatory or voluntary] in place.  This is to be expected given the high number of countries within the region and given that sustainability reporting and associated instruments are more mature in Europe than in many other regions.  The number of reporting instruments in European countries has continued to grow significantly…Our research identified 155 instruments in 2016 compared with [just 25 in North America].

In contrast to Europe and the United States, there is much less data disclosure and collection on companies in emerging markets.  That said, we have highlighted[8] the fact that, given wide divergences in the quality of corporate governance in emerging markets, ESG-based stock selection can add significant value in emerging market countries.

Cornerstone Capital Group’s Experience: ESG, Equity Strategies and Global Themes

Despite the issues outlined above, ESG data can play a valuable role in the investment decision-making process.  A thoughtful and consistent ESG framework can facilitate evaluation of risks and opportunities not always apparent on income statements or balance sheets.  So, for example, in recent years, analysts at Cornerstone Capital Group have published two types of investment research that have integrated ESG analysis:

  1. Sector Equity Strategy
  2. Global Thematics

Sector Equity Strategy

In our June 23, 2015 report, ESG in Sector Strategy: What’s Material? we developed an approach to analyze intangible factors that can potentially have a material financial impact on sectors, specifically MSCI ACWI GICS.  In the first step, we identified what we considered to be the most important intangible factors for each sector.  Figure 4 shows for nine sectors the relevance of 36 intangible factors according to their categorization in Figure 2 above.

Figure 4: Relevance of Intangible Factors by SectorFigure 4: Relevance of Intangible Factors by Sector

Source: SASB, Cornerstone Capital Group

In the second step, we examined the MSCI ACWI GICS and plotted the estimated likelihood that a materially adverse sustainability issue would occur, against the potential financial impact of the adverse event.  Figure 5 illustrates the estimated positions of sectors at the time of report publication.

Figure 5: An ESG Materiality Matrix: “Most” and “Least” Risky SectorsFigure 5: An ESG Materiality Matrix: "Most" and "Least" Risky Sectors

Source: Cornerstone Capital Group

We then multiplied the likelihood and the potential degree of ESG impact to calculate the probability-weighted financial impact of an adverse ESG event.  Figure 6 shows that sectors with relatively high ESG probabilities have had lower P/Es than sectors with relatively low ESG probabilities.

Figure 6: Sector P/E vs Probability-Weighted Impact of Adverse ESG EventFigure 6: Sector P/E vs Probability-Weighted Impact of Adverse ESG Event

Source: Cornerstone Capital Group

Global Thematic Research  

The second investment research product that has been published by Cornerstone Capital Group is global thematic research, which incorporates ESG factors to provide a unique lens for investors.  The research details the deep investigation of emerging but material trends that are cross-regional and cross-sectoral.  Our objective is to identify trends that may have material impact on investment returns after nine months — but before 24 months — following the report’s publication.  We set this timing benchmark after analyzing the outcomes of our previous thematic research.

Recent examples of research include:

Our framework categorizes each trend into one of three factors:

A confluence of all these factors is likely to provide the greatest investment opportunities (Figure 7).

Figure 7: Trend assessment frameworkFigure 7: Trend assessment framework

Source: Cornerstone Capital Group

The global thematic investment research uses top-down ESG assessments, including the Sustainable Accounting Standards Board’s (SASB) Materiality Matrix, and bottom-up issue identification. The bottom-up assessment entails fundamental analysis with a focus on reviewing company filings, earnings calls, and industry trends.

The resulting analysis identifies emerging but material ESG issues that are likely to impact the company, industry or sector within an investable timeframe. ESG data is then used to understand the potential impact on an absolute (single company level) and relative (between companies) level.

The results of the assessment generally provide an indication on the relative positioning of each company on an issue, with an example relating to extractive companies as shown in Figure 8.

Figure 8: Extractive company thematic assessmentFigure 8: Extractive company thematic assessment

Source: Cornerstone Capital Group


As ESG integration practitioners, our proprietary investment lens has benefited from all aspects of the improvement in ESG data.  However, there are still substantial challenges to integrating ESG data as a way of confidently valuing the “intangible assets” of companies, industries, and sectors.  Areas of improvement that we would prioritize:

[1] “Do Ratings of Firms Converge?” Strategic Management Journal, Chatterji, Durand, Levine and Touboul, October 2014

[2] “Highlights from PRI In Person 2015,” PRI Academic Network RI Quarterly, October 2015



[5] “Corporate Sustainability: First Evidence on Materiality,” The Accounting Review, Khan, Serafeim and Yoon, November 2016

[6] “Why and How Investors Use ESG Information: Evidence from a Global Survey,” Harvard Business School, Amel-Zadeh and Serafeim, 2017


[8] /wp-content/uploads/2017/02/ESG-Factors-in-Strategy-16-Feb-2017-ExecSum.pdf

Michael Geraghty is the Equity Strategist at Cornerstone Capital Group. He has over three decades of experience in the financial services industry.  Michael has worked as an investment strategist at a number of leading firms.  At PaineWebber (1988 – 2000), he was a Senior Vice President and member of an Institutional Investor ranked U.S. Portfolio Strategy team.  At UBS (2000 – 2003), he was an Executive Director and senior member of the global equity strategy team responsible for regional and sector allocations.  At Citi Investment Research & Analysis (2004 – 2012), Michael was the global themes strategist; Citi was ranked #1 for Thematic Research in the 2011 Extel survey.  Michael holds a Master’s degree in Economics and a Masters of Business Administration in Finance from Columbia University.

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 New York University’s Stern School of Business, and has a bachelor’s degree in natural resource economics from the University of Queensland.

Editor’s Note: 

The piece below by Uwe Gneiting, a Research and Policy Advisor for the Private Sector Department at Oxfam America, and originally published here on July 13, 2017, struck a chord with Cornerstone’s research team.

In October 2016 we published Extractive Company Values, an in-depth report illustrating how mining companies’ “attentiveness” to material environmental and social issues provides predictive insight into their potential for successful execution of their strategies. In the report, we posited that a mining company’s approach to managing local community concerns is one key indicator of attentiveness, and therefore of a company’s likelihood of strategic success.

As Uwe’s piece highlights, Tahoe Resources’ alleged mishandling of community concerns at its Escobal silver mine in Guatemala hit the stock hard in the near term and throws a shadow over its operations there; and the signs were there for investors who look beyond pure financials.

Further, July 18, Seeking Alpha reported that the gold mining company Goldcorp “experienced a significant setback when its proposed Coffee Gold project [in Canada] was delayed based on a failure to sufficiently consult potentially affected indigenous groups.” Read more on this instance here.

One of the world’s largest silver companies just lost 40% of its value – it shouldn’t have surprised investors:

It doesn’t happen every day that a mining company, and investment analyst darling, loses more than a third of its stock market value within just a few days. Tahoe Resources, the parent company operating the Escobal silver mine in Guatemala, saw its stock price plunge last week after the Guatemalan Supreme Court suspended the company’s mining license for two of its projects in the country.  Escobal is Tahoe’s flagship mine and one of the largest silver mines in the world.  The temporary suspension is the result of a legal suit brought by Guatemalan civil society organization CALAS (an Oxfam partner) against the Ministry of Energy and Mines for the ministry’s failure to respect the consultation rights of indigenous Xinca communities’ when granting the mining license for Escobal to Tahoe’s Guatemalan subsidiary.

Tahoe’s stock price plunge as a result of the suit has left investors furious. Just days after the announcement, some began to file a class action law suit against the company arguing that it provided false and misleading statements, and failed to disclose to investors the details of its consultation obligations and the resulting risks of suspension.

The case of Tahoe’s Escobal mine is illustrative of the risks companies face when they do not seriously consider the concerns of the indigenous communities where they operate and their right to free, prior and informed consent. It also highlights investors’ challenge to marry financial and social considerations in their investment decisions and to obtain accurate information on local practices and the impacts of mining companies abroad.

Did Tahoe mislead its investors?

Tahoe’s troubles around the Escobal project shouldn’t be news to investors. Tahoe has faced significant community opposition in Guatemala for years, which civil society organizations, including Oxfam, have amply highlighted. Furthermore, the company has faced legal challenges in Guatemala and Canada for its conduct around obtaining its mining license and responding to community protests. Just over the past few weeks, communities located around the Escobal mine have reengaged in peaceful protests to bring attention to the harmful social and environmental impacts of the project.

Yet, in its public communication, Tahoe’s executive leadership has repeatedly denied claims of community resistance or wrongdoing. The company’s CEO has refuted claims of conflict with communities by arguing that ‘indigenous issues’ do not play a role at Escobal and that legal procedures are without merit. The company has also boasted its strong corporate social responsibility programs and community relations as reassuring evidence that the project is advancing smoothly.

Investors looking at buying or selling Tahoe stock have thus been faced with competing accounts of the situation in Guatemala. Attempts to strengthen regulatory oversight to clear up these information gaps have so far been without success. As a result, investors have been forced to use their own judgment to put together an accurate picture of Tahoe as an investment prospect.

Some investors drew the right conclusions early on. In 2015, the Norwegian Pension Fund pulled out of Tahoe citing human rights concerns. Yet, for the majority of Tahoe’s investors the company’s favorable production schedule and revenue forecasts appear to have trumped concerns of potential human rights risks and their financial implications.

This is sobering not only because the costs of company-community conflicts in the extractive sector have been shown to be significant, but also because community resistance to mining projects is extremely common in Central America – which any informed investors should have been aware of.  El Salvador, for example, recently passed a law banning mining in the country. Guatemala also has a long history of communities resisting mining projects (Goldcorp’s Marlin mine is case in point) and trying to change its current mining law. Community-level conflict is thus not a risk that can be managed by an individual company, but illustrates fundamental opposition to the extractive industry’s development model in a region where governance isn’t strong enough to adequately manage risks and distribute benefits.

The key lesson here is this:  Investors need to take a closer look at the human rights implications of their investments. Those investment advisors and fund managers who are forward-looking enough to consider the risks associated with corporate disregard for human rights are better equipped to avoid the sorts of precipitous drops in stock price demonstrated in the Tahoe story. This case exhibits yet another way in which the socially-responsible investment community can outperform mainstream investors.

Photo: Horses and cows graze in the shadow of the Escobal mine. Los Planes, Santa Rosa, Guatemala. (Credit: Giles Clarke)


This is the text of a speech we prepared for the conference “Post-Carbon Finance: Fostering Low-Carbon Investment,” to be hosted by Ecologic Institute and the Consulate General of Germany in New York on June 15.

It is an auspicious time to be talking about climate finance. The US administration may be removing itself from the Paris accord, but as Cornerstone Capital wrote following the election of President Trump, we believe that the capital markets have the ability and responsibility to power the progress needed to solve the critical issues of our time, including climate change.

The US departure from the Paris Accord, together with the potential movement away from globalization in numerous countries, changes the medium-term climate investment catalysts, though will have less near-term effect. Earlier this year, we outlined three macro trends – regulatory, behavioral, and technological – whose intersection will drive climate change investing both in the near and medium term. Tonight, I want to talk through these trends, where their overlap creates the strongest catalysts, and how recent events create new climate investment risks and opportunities.


Regulatory: US sidestepping resistance, EMs linking to growth

Key US states and cities have driven policies addressing climate change, from renewable energy portfolio standards to feed-in tariffs (payments to ordinary energy users for the renewable electricity they generate), for decades. We see their role in climate action expanding further because of the current administration’s stance. The US government does not have a national energy policy, and, with the staying of the Clean Power Plan, it is not likely to adopt a plan soon. States and cities are now front and center, if they ever left, and leading states and cities have already increased climate response policies. California’s senate passed a bill mandating 100% clean energy by 2045[1] while Pittsburgh (not Paris) now aims to source 100% clean energy by 2035[2].

While states and cities will push climate change regulations in the US, national governments in emerging major emitting countries are taking a significant role. The clear co-benefits of climate action make the discussions for China and India different from even five years ago, as both countries have transitioned to incorporating climate action into other national policy goals. China sees the reduction in air pollution as well-aligned with the rollout of renewable energy, while India sees the necessary provision of electricity to all its citizens as linked to distributed energy sources, such as solar. This alignment between renewable energy, political stability, and economic growth provides significant hope for rapid progress.

Behavioral: Accelerating focus across sectors and consumer segments

We see behavioral trends becoming a more powerful force than regulatory trends. We consider behavioral trends in the broadest sense, from consumer trends to how companies are positioning themselves for changing markets. On the consumer side, we see a deeper focus on supply chain impacts. From food to beauty products to clothes, consumers are examining supply chains in a way we have not seen before. Some companies expressed their concern at the US’s shift on the Paris accord because they consider responding to climate change to be a market imperative (as well as a branding opportunity). Corporations are also acting to inspire their employees, who are increasingly demanding their organizations engage in climate action.

Technological: Relentlessly advancing

Technological advances to address climate change continue to meet and raise expectations. The question if solar and wind could reach grid parity has been answered, when it was a real concern less than nine years ago. The battery sector has also seen significant declines in price, with electric vehicle battery prices dropping by 80% from 2010 to 2016[3]. If the decrease can continue, battery prices are poised to achieve grid parity in the coming years. This technology, which can support the decarbonization of transport and the mass storage of electricity, would be a significant boon to renewable energy.

Intersection of trends creates powerful investable opportunity

The intersection of regulatory, behavioral, and technology trends builds near- and medium-term momentum, which creates an investable opportunity that is more powerful than the sum of the individual trends. For instance, the intersection of trends has contributed to the increasing capacity of renewable energy, with solar capacity increasing from virtually zero at the turn of the millennium to 305GW in 2016[4]. Over the same time, US regulation provided subsidies to consumers buying solar panels in the form of federal tax credits, minimizing the financial risks to buying solar panels while consumers became more interested in renewable energy sources for the climate benefits. China has also flooded the world marketplace with solar panels, rising from less than 1% of global production prior to 2000 to more than 60% in 2013. This supply growth, combined with technological advancement, has pushed solar prices to decrease 78% from 2000 to 2013, contributing to the relatively quick expansion of solar energy capacity.

These factors should cushion any near-term risks to climate investing from recent political events. In the near term, a slip in progress in one trend can be buoyed by the momentum created by other, overlapping trend. We believe that behavioral and technology trends can drive the investable thesis for renewable energy in the near term. In 2015, Kansas repealed its goal of 20% renewable energy by 2020, six years after adopting the goal. A year later, in 2016, Kansas achieved 30% of its electricity from wind power, speaking to the near-term momentum provided by the intersection of trends[5].

Looking to the medium term

The US departure from the Paris accord does, in my view, create medium-term implications. Regulation brings forward consumer and company action, which might take longer to manifest otherwise, and focuses technological development. Any further decrease of US regulation could weaken these trends, though there is the possibility that the retreat of leadership at the federal level will result in increasing state level regulation. California and China are already pledging to expand trade with an emphasis on renewable technologies. The potential for state action brings the possibility of companies looking to California as a leader in regulation instead of the federal government.

However, states will have difficulty filling the federal government’s role in international cooperation on climate change, which poses a risk for medium-term climate change investing. Consistent and transparent action across countries creates trust, enabling investors and companies to quickly adapt to new approaches and introduce technologies to new markets. A less trusting global marketplace hinders climate change mitigation and raises barriers to market access for investors.

We believe there are opportunities for creative investments to capitalize on and accelerate the behavioral and technological trends, which are aided by state action but not reliant on federal regulation. Given this change to medium-term regulatory momentum away from the US federal government, the areas of technological progress, behavioral trends, and the overlap of these two are becoming the more powerful catalysts.

On the behavioral side, we see companies that manage supply chain issues and integrate technological advances as well positioned to capture the increasing consumer concern around supply chain management. Specifically, an area that warrants more attention is the emissions reductions created for downstream companies by upstream companies. Coca Cola, for instance, says two-thirds of the carbon footprint of its products is caused by suppliers and is aiming to cut its carbon footprint by 25% between 2010 and 2020.[6] While carbon emission trading schemes captures this value more explicitly, businesses that help other businesses within their supply chain be more efficient (i.e. sustainable) are well positioned.

Technologically, we are most interested in climate investing opportunities that align with broader technological trends, such as internet of things, and that respond to consumer demand for innovative energy products. While big data is mentioned in every conference on any topic, we do know that the availability of vast amounts of data, along with improvements in analytics, are likely to uncover critical insights that we would not be able to decipher through mere observation. We see the ability to gather and analyze big data as a necessary step for innovation in energy efficiency.

The public market support for large-scale energy innovation companies such as Tesla is a substantial vote of confidence for addressing climate change. Nearly 400,000 people have pre-ordered Tesla’s Model 3 car, highlighting the market demand for clean energy products. At the same time, we are looking for solutions to the sourcing of renewable energy raw materials so that the technology we use to address climate change doesn’t exacerbate environmental damage and income inequality issues in emerging markets. Technology companies that can source responsibly will be able to capture the demand for technology and benefit from the growing consumer concern around supply chain management.

The intersection of behavioral and technological trends opens creative opportunities for investors. For instance, we see a future for an ethical fish farming system that addresses the world’s protein requirements in a manner consistent with consumer supply chain concerns. Companies are starting to innovate in fish farming: a Danish company is building a high-efficiency salmon farm in the Gobi Desert in northwestern China, where there is no more rainfall than 50 to 100 millimeters a year, to address protein demand and consumer interest in sustainable protein supply chains[7]. Companies that minimize energy use in this type of innovation are poised to satisfy consumer demand while benefiting from technological advances in efficiency.

We remain confident that technological and behavioral trends can continue to grow and catalyze climate investment, even as the US decreases its role in national and international regulation. However, there are several reasons we could be proven wrong in the future. Technology development or consumer technological demand for clean energy solutions could be more reliant on regulated subsidies than we understand, or changes in globalization could undermine the existing clean technology supply chains. We will continue to watch these trends and update our view on climate investing opportunities and risks.

In conclusion, I am buoyed by the progress over the last five years and hope that winning begets winning. As most people in the room can attest, shifting to an economy that decouples emissions and economic growth has had stops and starts before. Investors should remain focused on the bigger picture, utilize the growing global behavioral and technological trends, and nurture the capital markets to solve climate change.








Sebastian Vanderzeil is a Director and Global Thematic Analyst with Cornerstone Capital Group. 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.

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.

Executive Summary

From “How” to “Where” — For many investors, the conversation has shifted from how ESG matters (i.e., performance) to where it matters. When ESG matters to an investment factor, that can have material implications for stock selection criteria.

A Widespread Interaction Between ESG and Investment Factors — A relationship exists between ESG and a multitude of investment factors, including country classification, market capitalization, and various valuation metrics.

ESG Adds Value in Certain Geographies — Because of wide divergences in the quality of corporate governance in emerging markets, ESG-based stock selection can add significant value. In developed markets, ESG-based stock selection has added more value in Europe than in the US.

High ESG Risk Sectors can be Associated with Certain Factors — Some sectors have greater ESG risks than others. “Value” managers investing in sectors with low price to book multiples may unknowingly overweight areas where ESG risks are relatively high, e.g. Materials, Energy.

Figure 1: At the Intersection: ESG and Investment Factorsfactors venn

Source: Cornerstone Capital Group

Our full report is available to clients of Cornerstone Capital Group. Please click here for important disclosures.

Michael Geraghty is the Global Markets Strategist for Cornerstone Capital Group. He has over three decades of experience in the financial services industry including working as an investment strategist at UBS and Citi.

Executive Summary

A New GIC. On September 1, 2016, MSCI added Real Estate as a new sector, increasing the number of GICS sectors to 11.

Real Estate through an ESG Lens. A preliminary assessment might suggest that environmental issues are at the forefront in the Real Estate sector. On this assumption, the sector would seem to be positioned relatively favorably in an ESG Materiality Matrix.

A More Complex ESG Footprint. Social and governance factors are material in Real Estate too. As with Utilities, good community relations can have a significant impact on the amount of time it takes to bring a project to fruition. The sector also has many of the same governance issues as Financials, most notably those pertaining to business ethics. This broader view suggests the Real Estate sector’s ESG risk profile is likely among the highest of the GICS sectors.

Figure 1:  Real Estate’s Position in an ESG Materiality Matrix


Source: Cornerstone Capital Group.

Click here for important disclosures. The full report is available to clients of Cornerstone Capital Group.

Michael Geraghty is the Global Equity Strategist at Cornerstone Capital Group. He has over three decades of experience in the financial services industry.

Below is an executive summary of our in-depth report. Click here for an extract of that report. The full version is available to clients of Cornerstone Capital Group. 


The extractive sector is vitally important to the global economy and will in fact be critical to a sustainable future. With a market cap of over US$6 trillion, the extractive sector encompasses over 5,000 companies. It provides raw materials for everything from energy creation to high-tech manufacturing to electronics. Even as the world starts to transition from greenhouse gas emitting commodities like oil and coal, natural resource extraction will remain essential. Smartphones and electric vehicles, for instance, require metals sourced from extractive operations around the world. Yet natural resource extraction is, by its very nature, environmentally destructive and socially disruptive — and managing the risks inherent in mining is of prime concern to extractive companies and the host countries in which they operate. Extractive companies’ success will be in part determined by their ability to position themselves for this future.

Risk Assessment in Context

The environmental and social (E&S) issues we address in this report highlight strategic concerns for any mining or extractive company. Tailings risk (tailings are the effluents generated in a mine processing plant, and require long-term, secure storage), community-company conflict, contract workers and labor disputes, and management of global reputational risk (using biodiversity impact as its proxy) create event risks such as mine failures, shutdowns or license denials. They also impact longer-term operational planning because they require proactive engagement with local, global and contextual stakeholders to assure passage. We assess selected companies’ corporate governance as it relates to actively managing E&S issues, identifying leaders and laggards based on relative “attentiveness” to material E&S concerns.

Detailed analysis of E&S issues provides predictive insight. We offer a proprietary framework to assess extractive companies’ underlying values, leadership, and culture based on a bottom-up analysis of material, yet underappreciated environmental and social (E&S) issues. We then explain how the issues impact specific items within a company’s financial statements.

Key observations. At a high level, we came away with these conclusions:


We evaluated companies according to seven metrics that together provide a clearer picture of their potential for long-term success in executing their strategies. These metrics are:

We performed our assessment on a range of representative companies, shown below. We “score” the companies on each of the seven metrics, then roll those up into an overall “attentiveness” indicator.


Sebastian Vanderzeil is a 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.

Carolyn Trabuco is a Managing Director and Global Thematic Research Analyst at Cornerstone Capital Group. Carolyn has spent more than 25 years in the global equity investment space where she has identified dynamic secular changes, made investment decisions, developed business and industry models, valued companies, and assessed risk around global commodities, companies and industries. Previous firms include Pequot Capital, Phibro, Montgomery Securities and Fidelity Management and Research.  She is an independent member of the Board of Directors of Azul Brazilian Airlines.

Michael Shavel is a Global Thematic Research Analyst at Cornerstone Capital Group. Prior to joining the firm, Michael was a Research Analyst on the Global Growth and Thematic team at Alliance Bernstein. He holds a B.S. in Finance from Rutgers University and is a CFA Charterholder.

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 extend our thanks to Fiona Ewing, Cornerstone Capital Group summer intern, for her contributions to the report.

Recent survey results indicate a move away from antibiotics in emerging market poultry production. WATT Global Media surveyed poultry feed producers and consumers globally (i.e., nutritionists, consultants, veterinarians, production managers) and 43% of respondents said that more than half of their feed production is now antibiotic-free. Based on the regional breakdown provided, we estimate that emerging markets accounted for 60-75% of survey participants.

Possible divergence from company views. In fiscal 4Q16, Phibro Animal Health (PAHC: $25.54) reported modest growth in sales of medicated feed additives (MFAs) containing antibiotics. Weakness in the US was offset by international growth from emerging markets such as Brazil and China. On the earnings call, Phibro cited emerging markets’ growing populations and need to improve productivity in food production as a long-term driver for their international MFA business. Our read of the survey results is that investors should be cautious assuming that growth in emerging market poultry production will translate into similar growth in MFAs.

Nutritional and specialty feed additive opportunities in EM. Our October 5, 2015 report Antibiotics and Animal Health: Value-Chain Implications in the US highlighted nutritional and specialty feed additives as having significant growth potential. We believe the survey implies a broader opportunity in EMs with two-thirds of survey respondents exploring, testing or using feed additives as antibiotic alternatives. Probiotics and prebiotics usage is also on the rise, supporting our previous view that growth these categories would outpace other additives.

Investment implications. For animal health companies, the survey signals possible checks to future growth in antibiotic use in EMs. Nutritional and specialty feed additives are generally produced by major chemical companies and represent a small portion of overall revenue, but opportunities in the EM appear to be growing. For companies with more concentrated exposure, probiotic and prebiotic feed additives offer the greatest growth potential.

Click here to access the full note.

Michael Shavel is a Global Thematic Research Analyst at Cornerstone Capital Group. Prior to joining the firm, Michael was a Research Analyst on the Global Growth and Thematic team at Alliance Bernstein. He holds a B.S. in Finance from Rutgers University and is a CFA Charterholder.

Sebastian Vanderzeil is a 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.