Trillium Asset Management Lead Portfolio Manager: ESG Orientation Doesn’t Mean Sacrificing Performance

December 5, 2022
Elizabeth Levy, CFA, is the Head of ESG Strategy at Trillium Asset Management, Lead Portfolio Manager on Trillium’s ESG Core Equity strategy, and a Portfolio Manager on Trillium’s ESG Small/Mid Cap Core and Large Cap Core strategies.

Elizabeth Levy, CFA, Head of ESG Strategy at Trillium Asset Management, Lead Portfolio Manager, ESG Core Equity strategy, and a Portfolio Manager on Trillium’s ESG Small/Mid Cap Core and Large Cap Core strategies.

Elizabeth Levy, CFA, is the Head of ESG Strategy at Trillium Asset Management, Lead Portfolio Manager on Trillium’s ESG Core Equity strategy, and a Portfolio Manager on Trillium’s ESG Small/Mid Cap Core and Large Cap Core strategies.

Elizabeth Levy has an answer to questions about ESG investing.

“As Head of ESG Strategy, she is responsible for leading the development and oversight of the implementation of ESG-related policies and initiatives across all investment strategies.

With regards to the first question about ESG in general, it depends on how you define ESG. I would contend that there is no such thing as ESG investing.

There’s investing that uses ESG data, and there is investing to drive a positive impact, but environmental, social and government investing on its own doesn’t exist.

It’s really what your intention is and what you’re trying to do, and that might sound a little bit like splitting hairs, but I think it’s quite important.

The second part of your question: Is this a fad? I would say absolutely not, for two reasons. One, right now, we’re living with 1.2 to 1.5 degrees of changed climate already.

We all lived through the last few months; the variety of physical weather challenges around the world has been incredibly severe — and this is just the beginning. So to invest without considering what’s coming, I think, would be silly.

Why would you not consider what is likely to happen in the future? That is literally our job as analysts and portfolio managers. So I think that continuing to use this type of information is going to, of course, be core to any financial analyst job.

But then on the flip side of that, I would say that a lot of the growth of ESG investing has been because people, investors, really care about these environmental and social issues, in particular.

As I said, we’re all living with the same changing climate.

We’ve all lived through the events, for example in the U.S. in 2020, that really showed some of the social divisions and racial divisions in our country, and I think it’s not a coincidence how much growth we’ve seen in sustainable, responsible, impact investing since then — and it’s because people really care about these issues and people really want to align their investing with their beliefs, their attitudes, their values.

So I don’t see this trend ending anytime soon, because these are issues that are really important, and not just to Americans, we’re seeing it all around the world.”

Elizabeth Levy explains the Trillium process for ESG investing.

“At Trillium, we really take a holistic approach to integrating ESG right into our investment process. It’s not an afterthought or an add-on, or a simple screen.

We see real value in considering E, S and G topics right in our investment process.

So that might mean that we do some thematic top-down consideration when we’re looking for a secular growth theme, for example, and we also do a lot of stock-specific bottom-up work.

So in practice, there’s several different components to our ESG process, because it is so integrated.

We do have a quantitative process that compares companies within their industry to look at the E, S and G topics that are most material to that business model, and that helps us set our investment universe.

And then once our analysts have narrowed in on a target company, we roll up our sleeves and do a deep dive and really get to know the sustainability profile of the individual company that we’re investing in.

All of this work is done collaboratively between our ESG team as well as our fundamental research analyst team, so it’s not something that happens at the end.

All of our fundamental analysts are focused on a specific sector, they understand the environment, social and governance challenges within the particular industries they’re looking at, so we really think it’s holistically integrated into the full process from the beginning all the way through portfolio construction.”

One of the top picks from Elizabeth Levy is First Solar (NASDAQ:FSLR).

“One example I can give you is one of our very long-term holdings, a company called First Solar (NASDAQ:FSLR).

They are a domestic U.S. manufacturer of solar photovoltaic panels for use primarily in utility scale solar power projects, one of the leading solar manufacturers in the U.S.

They have a differentiated technology that allows them to provide utility scale panels at a lower cost than many of their competitors.

We like that they are domestic, and that the current regulatory context, with the new Inflation Reduction Act that was passed this summer, will provide some tax benefits to them as well as policy credits.

We have long admired their strong balance sheet, which is not something that has historically been common throughout the renewable energy industry.

And, we really like that they have a focus on end-of-life responsibility for recycling their solar panels.

As I mentioned, we’ve owned this stock for a number of years, and shareholder advocacy is very important to us.

Last year, we filed a shareholder proposal asking the company for enhanced policies and practices around board diversity.

We actually got a greater than 90% vote on that resolution, which is fantastic. And even better, over the summer, the company added its first woman of color to the board.

So we really think this is a great example of a company that we’ve owned for many years, that we’ve continued to work with, and that fits both our financial as well as our secular growth themes, and has been a good holding for us over a number of years.”

The lack of clarity about ESG investing is an issue for Elizabeth Levy of Trillium:

“I just told you that I don’t think “ESG investing” exists, but there are lots of products out there, including the one that I run, that have ESG in the name, because it’s trying to signify to clients what it is that we do.

I think that the challenge for us as practitioners in responsible or sustainable or impact or ESG investing, whatever you want to call it, is being clear about what it is we are providing to clients, and making sure that clients understand what they’re getting in our products.

Because I think a lot of the challenges, the pushback to this type of investing that’s been out there, has been from folks not understanding exactly what the intention behind the product was.

So I think for all of us, continuing to be clear about what we’re doing is both an opportunity and a challenge at this point.”