Morningstar - Q3 2021 - 48

Spotlight: Integrating ESG
The Race of Our Lives
predicted the biggest loss of value in the history
of the S&P.
In his keynote address at the 2018 Morningstar Investment Conference,
Jeremy Grantham argued that we are in the " race of our lives " to mitigate the
cataclysmic consequences of climate change. Backed by compelling
evidence that remains relevant today, his passionate speech made an impact.
Below are two of the most provocative charts he presented.
Global Greenhouse Gas Oscillates. Until...
CO₂ (Parts Per Million)
400
PPM
Highest Historical CO₂ Level
335
270
205
1950
400
Thousands of Years Before Today
350
300
250
200
150
Source: Reconstruction from ice cores, National Oceanic and Atmospheric Administration.
For 400,000 years, carbon dioxide levels fluctuated between 180 and 280 parts per million. Ice ages
occurred when levels declined to 180. Interglacial periods happened at 280. But in the 70 years since
the typical interglacial peak in 1950, we have added another 120 parts per million of CO₂, about
the same amount as what separates an ice age and an interglacial period. " It is a dramatic, reckless
experiment, " Grantham said.
Surface Temperatures: Not Just Rising but Accelerating
01/31/1900-08/31/2016
100
50
140
I presented it at your conference where we
took out each of the 10 big groups of the
S&P permanently, and it hardly affected the return.
Who knew the market was so efficient?
Whether it was consumer durables or whether
it was oil or whether it was utilities and so
on, each major group missing since 1925 had only
moved plus or minus 8 or 10 basis points
around the average return. Quite remarkable. It
seems the market may be gloriously inefficient
in bubbles every 15 years, which we know
it is, but it does a pretty darn good job in the long
run of equating growth stocks with highyield
stocks and so on. There's no easy free
lunch to be had at the sector level.
Exceptionalism in VC
+.025° C per year
Temperature Anomaly (Celsius)
+1.5°
+.015° C per year
+.007° C per year
1958
1900 1910 1920 1930 1940
1950
1960 1970 1980 1990
Source: NASA Goddard Institute for Space Studies. Data as of 08/31/2016.
Surface temperatures are not only increasing; they're increasing at a faster rate, doubling since 1958.
Between two recent powerful El Niños, which created surges of heat, temperatures increased even
faster, 0.025 degrees Celsius, from peak to peak.
48
2000 2010
-0.5°
-1.0°
+1.0°
+0.5°
0.0°
Kapoor: Jeremy, a lot of what you've been laying
out makes sense if you are overseeing a large
pool of money and you're allocating assets and
you have access to all kinds of information
and data that allows you to make some of these
decisions. I'm interested in hearing from you about
what you think an effective framework might
be for a financial advisor or an individual investor
who's starting to think about these issues
and doesn't have access to all the information and
tools that someone like you may have, yet they
are interested in starting to make a shift in
their portfolios to reflect climate change and some
of its effects. How can folks individually start
to make a difference vis-à-vis waiting for the
institutions they rely on to do that?
Grantham: Well, they can make a difference
by buying climate change funds. I'm happy
to say GMO has a pretty good one. ESG
funds where many reputable firms have them-
that would make a difference. It would
be good if we had a better rating on all the funds'
voting records-how green they are-
and it's something the Grantham Foundation
is working on.
Let me just say a word about our foundation,
because we have a completely different

Morningstar - Q3 2021

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