Earth Day, the EPA, and Conscious Capitalism

This post was originally made on 4/22/21

Welcome to The Bloch,

Today is Earth Day 2021 and I believe it may turn out to be the most consequential Earth Day since the first one in 1970.

For those who may not be familiar with the history of the environmental holiday, here’s a refresher from the EPA article on the founding:

“In spring 1970, Senator Gaylord Nelson created Earth Day as a way to force this issue onto the national agenda. Twenty million Americans demonstrated in different U.S. cities, and it worked! In December 1970, Congress authorized the creation of a new federal agency to tackle environmental issues, the U.S. Environmental Protection Agency.”

So 51 years ago the EPA was created 8 months after 20 million Americans marched for clean air, pure water, and healthy land. Since then, the EPA has made major strides to this effect. If you are interested, this article has a full history of milestones of the EPA. Here are some of the highlights:

• Defines Air Pollution Danger Levels — October 1971
• Banning pesticide DDT — June 1972
• Ocean Dumping Act — October 1972
• Leaded Gasoline Phase-Out Begins — December 1973
• Safe Drinking Water Act — December 1974
• Cancer-Causing Pesticides Banned — June 1975
• Clean Water Act of 1977
• New Air Pollution Standard for Lead — September 1978
• Phaseout of ozone-destroying CFCs (Chlorofluorocarbons) — October 1978
• Nuclear Waste Policy Act — January 1982
• Asbestos Testing in Schools — May 1982
• 90 Percent Reduction of Lead in Gasoline — March 1985
• Sewage Ocean-Dumping Ban — November 1988
• Toxic Waste Control — May 1990
• New York City Stops Dumping Sewage in the Ocean — June 1992
• Secondhand Smoking Health Effects reported — June 1993
• Leaded Gasoline Phase-Out Completed — January 1996
• Great Lakes Cleanup — April 1997
• New Air Quality Standards — June 1997
• Hudson River Cleanup — February 2002
• EPA becomes first federal agency to offset 100% of electricity use — June 2006
• EPA Employees Share Nobel Peace Prize for Work on Climate Change — October 2007
• Stronger Lead Standards — October 2008
• Next-Generation Fuel Economy Labels — May 2011
• First National Standards for Mercury Pollution from Power Plants — December 2011
• Comprehensive Plan for Climate Change — June 2013
• National Goal to Address Food Waste — September 2015
• Paris Climate Accord — April 2016
• Opportunity Zones — October 2019
• Office of Mountains, Deserts, and Plains developed to address land issues like mining cleanup and legacy pollution — September 2020

It’s safe to say the EPA has been busy over the years. The reason I said that I believe this year is potentially the most consequential, is due to the current sentiment in government and in the capital markets around ESG or Environmental, Social, and Corporate Governance Standards.

Biden’s environmental agenda during the campaign was dedicated to tackling climate change policy through clean energy and environmental justice. On January 27th he published an Executive Order on Tackling the Climate Crisis at Home and Abroad. And just a few weeks ago The Hill reported that Biden is “laying the groundwork” for “taking significant action” on environmental regulations. I expect this will be a key part of his two-month-late address to a joint session of Congress which is scheduled for April 28th.

In addition to the Biden administration putting environmental concerns at the forefront, some of the major players in the capital markets are getting more and more focused on conscious capitalism and ESG every day. For those who may not understand what ESG really means, you are not alone. The term ESG is very broad. PWC published a good report that helps make sense of ESG; if this is all new to you I encourage you to check it out. Here are some of the metrics that ESG could refer to:

Morgan Stanley’s Institute for Sustainable Investing published a report in 2019 with some counterintuitive and powerful findings. They compared the performance of ESG exchange-traded funds (ETFs) with that of 10,723 ETFs and Mutual Funds between 2004 and 2018, and their analysis showed the following:

This means that in a bull market, ESG funds will perform as good or better than non-ESG funds, and in a bear market, those funds will likely sell off less than non-sustainable funds. That is powerful.

Recently in his 2021 letter to CEOs, Blackrock CEO Larry Fink referred to it as a “tectonic shift” stating: “Then the pandemic took hold — and in March, the conventional wisdom was the crisis would divert attention from climate. But just the opposite took place, and the reallocation of capital accelerated even faster than I anticipated.

From January through November 2020, investors in mutual funds and ETFs invested $288 billion globally in sustainable assets, a 96% increase over the whole of 2019.”

If you want to jump on this trend with your own investments but don’t know how Kiplinger put out an article today on 7 ESG ETFs to Buy for Responsible Profits.

I expect this trend to accelerate and become more pronounced as the baby boomers continue to retire in increasing numbers and as the millennials re-shape the global economy to reflect our values. The digitally native millennial generation is, after all, the largest generation in US history. This is only the beginning.

Until next time.

Bloch