Trillium News

Stephanie Leighton Testifies in Support of Fossil Fuel Divestment in Massachusetts Public Pension Funds

On September 10, 2013, Stephanie Leighton, CFA testified before the Massachusetts Public Service Committee in support of a bill to begin the process of divestment from oil, coal and other fossil fuels in state public pension funds.

Stephanie’s testimony is below:

“Senator Brownsberger, Representative Michlewitz and members of the committee: Good afternoon and thank you for giving me the opportunity to address the Committee today.

My name is Stephanie Leighton. I am a Senior Vice President and portfolio manager at Trillium Asset Management, the oldest independent investment advisor devoted exclusively to sustainable and responsible investing. Trillium is based in here Boston. I am a Chartered Financial Analyst charter holder and earned my MBA from Northeastern University. I am a member of the Boston Security Analysts Society and the CFA Institute. I have 31 years of investment experience.

I am here to testify in support of Senate Bill 1225: An Act relative to public investment in fossil fuels.

Our employee-owned firm has managed socially and environmentally screened investment portfolios for individuals and institutions since 1982. We have seen growing interest in our fossil fuel free investment portfolios, which currently represent approximately 20% of our firm’s $1.2 billion of assets under management.

Trillium acts as sub-advisor for Green Century Balanced Fund, an environmental mutual fund with a fossil fuel free mandate.

The frequency and severity of extreme weather systems continues to impact the lives of people around the globe and increasingly in our own communities. Many investors are becoming acutely aware of the presence of fossil fuel companies in their own portfolios. It seems clear that climate change is no longer solely a threat to future generations. The damage to the environment, economy, homes, and lives is happening today.

In our experience, fossil fuel free investing has been a credible investment approach. I want to share my perspective as an investment manager who fully understands the demands of building portfolios that seek to maximize returns while managing risk.

Some have argued that divestment from fossil fuels could potentially increase risk and lower return because you are narrowing your investment universe.

Recent independent studies have shown that investors can go fossil fuel free without major negative impacts on portfolio performance.

Investment firm, Aperio Group, estimated that excluding all fossil fuel companies would have an annual standard deviation from its benchmark of just over half a percent but which has virtually no riskier in terms of volatility[1]. They also report that over a 10 year period, a carbon-free portfolio outperformed its benchmark 73% of the time.

MSCI, a leading provider of investment decision support tools, looked at the impact of excluding companies owning carbon reserves from one of its index funds, the MSCI All Country World Index (MSCI ACWI). It determined that over a five year period the active return differential was 1.2% better for the same index without fossil fuel investments [2]

At Trillium, we utilize portfolio optimization software to help us manage the exclusion of fossil fuel stocks from a portfolio. It helps us to find other stocks that closely correlate with these stocks in terms of beta, or volatility of a stock in relationship to the market, and the size of the companies we invest in.

Investors can also seek to identify substitutes that most closely correlate with fossil fuel companies to minimize risk and tracking error or variation from benchmark. Many clean technology and industrial companies provide energy efficiency products such as LED lighting, power management, commercial building energy/efficiency controls.

Also within the industrial or technology sectors, we can find energy storage investments such as hybrid car batteries, electric grid distribution and transmission companies – some that are plays on bringing renewable energy to the power grid. Water and geothermal utilities can be evaluated as potential substitutes.

We mitigate risk and also improve the sustainability of portfolios by investing in green power generation – solar, wind, biofuels, geothermal – through finding bigger companies that have parts of their business in green/renewable sources of energy.

I believe that an investment portfolio can provide competitive returns over the market cycle — while managing a conscious choice to avoid fossil fuel investment exposure — and I am pleased to know that this committee is exploring that option.

Thank you”.

[2] The MSCI ACWI ex-carbon vs. the MSCI ACWI for the time period February 2008-March 2013
Photo Credit: Shelley Alpern