The 2024 US SIF Conference (US Sustainable Investing Forum), held in Chicago from June 25-26, brought together leaders of the sustainable investing community.
The event provided an opportunity to learn about new sustainable investing approaches, trends, and policy developments.
I was able to attend the two-day conference and visit some friends and family in the city during my free time. Here are some highlights from the conference.
Opening Keynote by Carlos Curbelo
The conference kicked off with a keynote speech by Carlos Curbelo, a former Republican Congressman from Florida known for his bipartisan approach. Here are some key points from his speech:
Bipartisan Agreement on Climate and Energy Policy: Curbelo emphasized that Democrats and Republicans agree on climate and energy policy more than is often portrayed by the media. There is significant common ground between the two parties on this issue.
Inflation Reduction Act (IRA) Protections: He suggested that the core parts of the IRA could remain in place, no matter who is elected president, highlighting the investments made in both red and blue states.
Urban vs. Rural Divide: Curbelo pointed out the massive urban-rural divide in the country and noted that the IRA includes substantial investments in rural areas, which should help these communities benefit from the clean energy transition.
Bipartisan Climate Caucus Growth: He mentioned that the bipartisan Climate Caucus saw the most growth in 2016 and may grow again.
After nearly a decade of increased popularity, Environmental Social and Governance (ESG) funds faced challenges in 2023. The third quarter of 2023 was the fourth consecutive quarter of outflows in ESG funds.[1] According to Morningstar Direct, Manager Research, investors pulled $2.7 billion from U.S. sustainable funds in 2023′s third quarter, for a total of $14.2 billion over the past year. The reduction in demand affected sustainable funds more than conventional funds.
Why are sustainability funds shrinking? Here are a few reasons that may explain why this has been the case.
Different Economic Backdrop
In general, the stock market and interest rates have an inverse relationship. Currently, we are in an economic environment with the highest interest rates we’ve seen here in the United States since the Great Financial Crisis of 2008. Up until 2022, before the Fed started hiking interest rates, we were in a near 0% interest rate environment for over a decade. Low interest rates are typically good for Growth stocks since they can borrow at lower interest rates to fuel the growth of their profits.[2] Growth stocks handedly outperformed Value stocks in the 2010 decade, with the Russell 1000 Growth Index gaining 260% during that time, compared to just 189% for the Russell 1000 Value Index.[3]Growth Stocks typically have higher ESG scores, which means that many ESG funds benefited from the outperformance of Growth Stocks during that decade.
I had the pleasure of attending this year’s Berkshire Hathaway Annual Meeting in Omaha during the first weekend in May. Dave Bromelkamp invited his older brother Mike, Saul Baumann, and me to join him on the trip to eastern Nebraska.
The Annual Meeting (which most people call a "festival") is unlike any other event I've attended. This mid-sized Midwestern city becomes a destination for investors worldwide, and the entire town focuses on the Annual Meeting. Every local I encountered on Thursday, from my Uber driver to the restaurant employees to the hotel front desk staff, asked if I was in town for "Berkshire Weekend." It's easy to see the locals' pride in Warren Buffett, Charlie Munger, and the Berkshire Hathaway company.
On Friday, the day before the Annual Meeting, Berkshire Hathaway hosts their subsidiary companies in a huge ballroom where attendees can shop and learn more about their products. The best way I could describe the atmosphere in the convention center that day was a combination of the Minnesota State Fair and the Mall of America. There were thousands of people milling about, trying to take advantage of the sweet deals, catching a glimpse of a celebrity, or finding one of the dozens of CNBC cameras to achieve their 15 minutes of fame. The biggest celebrity we saw during the weekend was Bill Murray leaving the meeting Saturday. Many attendees weren't even shareholders but Nebraskans who bought tickets to gain access to the shopping deals being offered. My favorite booths in the convention center were Dairy Queen offering $1 dilly bars (D.Q. is a Berkshire Hathaway company), and the bookstore. The bookstore had 20 books for sale that were some of Warren and Charlie's favorites. They also had various authors there signing books for the attendees.
Inflation Reduction Act and the Tax Incentives for Consumers
The Biden administration recently passed one of its more significant pieces of legislation—the Inflation Reduction Act of 2022. However, many debate whether a bill that includes almost $500 billion in new spending will do much for inflation in the short term. Proponents of the bill claim that the increased taxes derived from corporations and IRS enforcement will reduce the budget deficit.
The purpose of this post is not to get into a political discussion about whether this new bill will reduce inflation and the budget deficit. There are plenty of articles written about that already. Instead, we will take a closer look at the $386 billion earmarked for energy and climate and how individual taxpayers could take advantage of some of the new tax incentives.[1]
Energy Efficient Home Improvement Credit
The Energy Efficient Home Improvement Credit is similar to the old Nonbusiness Energy Property Credit that expired in 2021. Starting in 2023, homeowners can receive a tax credit of 30% for energy-efficient home improvements.[2] Eligible improvements include energy-efficient doors and windows, air conditioners, circulating fans, and more.[3] The lifetime limit for this tax credit increased from $500 to $1,200, meaning taxpayers can get more bang for their buck.
Many scientists believe that the earth’s atmosphere is changing rapidly. According to the National Oceanic and Atmospheric Administration (NOAA), the earth’s temperature has risen by an average of 0.14°F every decade since 1880. The rate of warming over the past four decades is more than twice that at 0.32°F.1
This temperature increase profoundly affects weather patterns and strains on our natural resource. Rising global temperatures significantly impact the world’s oceans. Scientists estimate that the global sea level could rise another one to eight feet by 2100 due to melting arctic ice sheets.2 In the United States, the increased sea level will put millions of people and billions of dollars of real estate at risk from rising tides causing erosion, flooding, and environmental changes to wildlife habitats and farmland.