How To Divest From Fossil Fuels and Invest In Clean Energy.

Mudd Talks: Thursday Oct 9th, 2020

Tom Konrad Ph.D, CFA HMC Class of ‘87 Disclaimers

The information in this presentation is intended for educational purposes only.

It is not advice, and I am not an investment advisor.

Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

2 About Tom Konrad ● Editor at AltEnergyStocks.com ● Green Global Equity Income Portfolio (private fund) managed since inception Dec 2013 ○ 15.8% compound annual total return through Aug 31st 2020 (benchmark- SDY- 7.6%) ● Consultant for Investment Advisory firms Investment Research Partners & JPS Global ● BS. in Math from Harvey Mudd College ● Ph.D. in Math from Purdue University ● Chartered Financial Analyst charterholder ● Chair, Marbletown Environmental Conservation 3 Commission Why Divest From Fossil Fuels

● Financial Reasons ● Moral Reasons ○ Lower risk ○ When you invest, you are helping to ○ Profit from transition fund the businesses you invest in. ○ Last one out loses ○ If you own fossil fuel investments, can you fully commit yourself to vote/advocate/etc for actions which might harm them?

4 Will Divesting Reduce My Returns?

5 Fossil Fuel Are Cheap Now- Shouldn’t I buy now for a good price?

Companies always look cheap before they go bankrupt.

Right: A Colorado Ghost Town… photo by author

6 Investment Advisor Pros and Cons

● Can be ● Simple. expensive. ● Can talk ● Advisors who you out of making use stocks rather common than mutual mistakes funds are more (Financial cost effective, Planning). but hard to find. ● Good if you don’t know how to start.

7 Selecting an Investment Advisor

● Supportive of your plan for a green portfolio. ○ A growing number of advisors consider this a core part of their business. ○ Advisors who try to talk you out of this are part of the problem. They don’t deserve your business. ● “Fee only” ○ Avoid advisors who are paid by commission. ● A few advisors will build a portfolio for you from stocks or ETFs. This is often less expensive than advisors who use mutual funds, because it avoids two layers of fees.

8 Investment Advisor Designations

Meaningful Certifications Legal designations ● CFP® - Certified Financial Planner ● Registered representative - licensed to sell ○ Trained in financial planning. securities. Minimal training. Avoid. ● CFA®- Chartered Financial Analyst ● RIA - Registered Investment Advisor ○ Trained in investment analysis/portfolio ○ A firm licensed to give investment advice. management. Rare, but only relevant if ● IAR - Investment Advisor Representative for advisors who do not use mutual funds. ○ An individual licensed to give investment advice.

9 ESG Mutual Funds

● “ESG” means “Environmental, Social and Governance” ● ESG funds look for companies that have some standards for behavior in three areas: ○ “E” Protecting the Environment ○ “S” Protecting workers, customers, and other stakeholders, not just shareholders. ○ “G” Governance - policies that are intended to make managers behave more responsibly. ● Definitions vary ● Companies owned by these funds are mostly “less bad” rather than “good.”

10 “ESG” Mutual Funds: Pros and Cons

● Typically High ● Easy fees compared to other funds. ● No universal ESG standards- may not align with your own

11 Portfolios

● Complex ● Get ● Time exactly Consuming what ● Most you advisors want use funds ● Low

● Dangerous cost

12 Before Buying Either Stocks or Mutual Funds

● Home efficiency - insulation and air sealing ● Home electrification - heat pumps, heat pump water heater ● Solar, if roof is suitable

13 Invest In/Defossilize Your Life

● Pay down - even low debt. ● Upgrade to an Electric or Plug-in electric Vehicle. ○ After rebates, cost of new EV often comparable to conventional vehicle. ○ Used EVs often cheaper than similar conventional used cars ○ Large maintenance and fuel saving. ○ Battery degradation typically only 10-15% at 100,000 miles (except Nissan Leaf) ● Yard equipment can also be electric 14 Selecting Mutual Funds

1. Know what you are looking for ○ Risk, stocks/bonds, specialty funds ○ Ethical principles- avoid worst companies or try to do good? ○ Active/Passive? 2. Factors to look at ○ Fossil Fuel Free ○ Carbon Footprint ○ Contains Green Companies ○ Number of Holdings/ Portfolio concentration

15 Finding Mutual Funds: FossilFreeFunds.org

16 Stock Picking vs. Indexing

● Safest way to pick individual stock is to mimic the market with greener stocks ○ Saves cost, delivers similar performance ● Stock picking is like playing poker against professional

gamblers. Are you ready to sit down at this table?

17 Selecting stocks

● Every part of the economy needs ● 10 - 20 diverse stocks can give to get off fossil fuels you 90-95% of the benefits of full ● Choose stocks from wide variety diversification. of sectors/ Business types ● Consider preferred shares when ● Focus on profitable companies, available not the “next big thing.” ● Mutual funds holdings good ● Profitable and Boring place to start. ● Low volatility (beta) is good ● AltEnergyStocks.com for stock lists and my picks

18 Current stock picks (price as of 10/2/20)

● Covanta Holding Co (CVA) - $7.94 ○ Waste-to-Energy (incineration) ○ Sold off due to opportunistic dividend cut early in Covid crisis. ○ No expected term business impact from Covid; term impact limited.

19 Current stock picks (As of 10/2/20)

● MiX Telematics (MIXT) - $8.62 ○ Leading fleet management provider for large fleets ■ Multinational oil and mining Cos ■ Public transport ■ , Emergency services ○ Reduces fuel use, accidents, costs ○ Currently impacted by customers idling vehicles ○ Should be able to continue to grow in other industries even if current customers do not recover.

20 No investing presentation is complete…

Q&A

Tom Konrad

[email protected] www.altenergystocks.com

www.patreon.com/tomkonrad ...without a “nest egg.”

21 Q: What are some critical metrics/values for fossil fuels that makes (e.g. the price of a barrel of crude, etc.) clean energy more attractive on a relative basis?

A: Solar and wind are already cheaper than most fossil fuels on a Levelized Cost of Energy basis, while electric vehicles often have lower total cost of ownership.

The biggest barriers to the transition are not cost, but non market barriers, like not wanting to replace legacy infrastructure, regulatory capture, market structures and subsidies that benefit the incumbents.

22 What tools do you employ to identify stocks and funds that meet your ESG criteria? (Two people asked variations of this Q)

● FossilFreeFunds.org for mutual funds. ● Look at the holdings of funds that have criteria that match your own for individual stocks. ● AltEnergyStocks.com has extensive stock lists for companies involved in different alternative energy industries. ● I personally go to the company website and read the business description and annual/quarterly reports.

23 Divesting by the Five Colleges

Q: How could the 5Cs begin divesting from fossil fuels, and how long would this take? What efforts would have to be made by administration, and how could students play a role in this?

● is a decision of the Board of Trustees. ● Students’ role is to pressure them to make that decision. ● The main limits on speed are any illiquid investments (not publicly traded) and the conservatism of money managers. Making the decisions takes much longer than divesting (but many managers will protest otherwise) ● Gofossilfree.org has resources for student campaigns.

24 Choosing Mutual Funds / Fund Holdings

Q: How we can find out what holdings the various funds have.

(demo - FossilFreeFunds.org, prospectuses, or just google “fund name holdings”)

Q: What do you think about investing in the ESG funds managed by companies that also managed fossils fuels funds.

It’s the fund managers that really matter, but I prefer to give my business to the specialists… I believe this will change the mutual fund industry more quickly, and I want to help the specialists grow their business.

25 What if I don’t have a lot of money to invest?

1. Pay down debt 2. Lifestyle changes that are good for the environment & save money a. Buy less stuff. b. Eat less beef/lamb. Chicken & Pork much less bad for climate. c. Take advantage of weatherization programs for low income, or talk to your landlord. 3. Start/Join a divestment campaign for your college 4. Talk to your parents/people who care about your future. Educate them about how their investments are impacting your future. 5. VOTE! And volunteer to help get out the vote. 6. Start a green business. (Electric lawn care, anyone?)

26 Energy Externalities

Q: Can you comment on the hidden costs of green machines? It seems nobody takes these costs into account when discussing the economics.

● Electric vehicles and batteries are more problematic than solar and wind. Best if driven a lot. Consider Chart from L. David Roper, Ph.D. buying used. Professor emeritus at Virginia Tech ● Energy Efficiency and conservation 2017 numbers. almost always best. ● Don’t forget the hidden costs of Fossil fuels! 27 Externalities from an investment perspective

As , we can take externalities into account.

● We don’t have to invest in the whole economy when we avoid fossil fuels ● We don’t have to invest in the whole clean energy economy, either. ● Worried about the impacts of lithium and cobalt mining for batteries? ○ Avoid mining companies, invest in battery recycling. ○ Umicore S.A. (UMI.BR, UMICY, UMICF)

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