Climate Change Change


President Trump has announced the withdrawal of the United States from the Paris Climate Accords.  I disagree with the decision and believe that its costs will exceed its benefits, perhaps substantially so.  I am concerned about the rapid rise in CO2 in the atmosphere and oceans, and its effects on the planet.  As regards this decision, I am also concerned about a potential backlash against the United States, its companies, and their products and services.  Many prominent CEO's made this point directly to the President, but their arguments did not prevail.  We are closely monitoring the news, Twitter, and Facebook for any signs of boycotts.  Sales of soda by Coca Cola, shoes by Nike, movies and amusements by Disney, smartphones by Apple, software by Microsoft, airplanes by Boeing, retail gas by ExxonMobil, and so many more are often dependent upon goodwill in global markets.  I believe this decision significantly risks unnecessarily (because the US economy is already de-carbonizing) global goodwill, and substantial impairment of global goodwill could negatively impact sales by American companies.  Since Election Day, revenue in foreign travel to the United States is down approximately 15% over prior periods at a time when global economic growth has been strengthening.

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Another important decision on climate change has also just been made this week. ExxonMobil just held its annual shareholder meeting, and at that meeting 62.3% of shareholder votes were cast in favor of the company producing more detailed disclosure about the risks posed by climate change to its business.  Last year, the same vote failed to pass with only 38% in favor.

Why the change?  In part, because massive and growing shareholders like Blackrock, Vanguard, and DFA with whom New Capital invests your funds, are getting the message from advisors like us that we want them to be more active stewards, as we get that message from you.  Often when our sales representatives visit I emphasize to them that we and our clients expect them to represent our interests to the boards of companies in which our funds have ownership - which means pretty much every company in the world given the broad index funds we employ in your portfolios.  I tell them that we want our investees to be focused not only on strong profitability, but also on fair employee jobs and pay, proportional executive compensation, good community relations, moral and ethical responsibility, and environmental sustainability.  We want our fund companies to be more than simply conduits for client money, and we want them to vote company proxies in support of these principles, even if it means voting against management's positions.

As the ExxonMobil vote indicates, our business partners are listening.  The almost 25% jump in the Exxon vote tally is a staggering increase that can only be attributed to rapidly changing attitudes.

As your advisor, I hear your voice when you speak to me about what's important to you in your investments, and I forcefully and clearly express your values to our important fund business partners, who have no choice but to listen if they wish to keep our business.  I began making these points to them several years ago, I've been patient as my and others' views have made their way up the chain, and we are now seeing the fruits of those efforts.  While some clients want to go further and hold "ESG" (Environmental, Social, Governance) portfolios, which we are happy to provide, all clients benefit from our work with the large fund companies.  In fact, I would argue, our work as influential investment intermediaries may have more direct impact than divestment.

The ExxonMobil vote is non-binding.  Management can decide to disclose more about climate change risks or not.  But just as I listen to you, and Vanguard, Blackrock, and DFA listen to me, ExxonMobil's management should listen to their largest shareholders.  To his credit, Darren Woods, the company's new CEO, indicates that the board will at least consider the result because it reflects the view of a majority of shareholders.  In a time when many in our country are concerned whether the voice of the majority is being heard, I applaud Mr. Woods' initial recognition of the voice of the majority, and in the case of Exxon Mobil shareholders, the clear majority.  Hopefully, he will heed it, too.

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