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From Timothy P. Dunn, CFA - Chief Investment Officer, Managing Member, Founder

The story behind Terra Alpha’s Environmental Productivity™ and our journey to create Better Returns, a Better Environment, and a Better World:

Thirty years ago, while I was a very young MBA student, I became fascinated by what made great companies – great. I was drawn to equity investing because it was a profession in which one assessed companies and then invested based on that analysis. In the long-run, the market told you if your analysis about a company was right or wrong. Fortunately, over my investment career my assessments have more often been correct.

During my 27 years as a professional investor, I have learned the power of a deliberate and disciplined investment approach and the importance of a strong, collaborative research team. At Capital Research I was a lead portfolio manager in several of the largest global equity funds with direct responsibility for over $26 billion in client assets. I also oversaw the firm’s global research clusters, which enabled collaboration amongst the firm’s 300 investment professionals.

Unfortunately, over the last 30 years, the public equities markets have become increasingly focused on short-term factors that often have little to do with a company’s long-term reality. And the “markets” increasingly have failed to consider the truly fundamental issues around environmental and societal factors. I walked away from my successful career in professional investing in 2009 because I wanted to try to help correct this market failure.

I spent the subsequent five years working with some of the largest and most important environmental organizations both to learn from them and to help increase the effectiveness of their efforts. My time serving on a state chapter board and working with national leadership at The Nature Conservancy gave me great insights into the power of working positively with companies. My year serving as a Strategic Advisor working directly alongside the leadership team of CDP in London gave me a strong understanding of the growing cache of corporate environmental data and information.

In 2014, I founded Terra Alpha Investments LLC to bring together my deep experience as a professional investor and my strong understanding of the risks (and the opportunities) created by our economy’s impact on essential natural resources that businesses and investors now face. Our firm’s vision is to use the power of our capital markets to help shift how our economy operates so that it is more aligned with our natural systems. To achieve this vision, we invest using our Environmental Productivity™ approach and we actively engage with businesses and other investment professionals.

Today, Terra Alpha has a team of incredibly dedicated professionals working in support of our firm’s mission. We believe that combining well-considered environmental data and research (our Environmental Productivity™ approach) with traditional fundamental analysis will allow us to identify some of the most sustainable companies in the world and provide our investors with superior long-term risk-adjusted returns.

Our capital markets can, and must, properly value our natural resources and the manner by which companies serve the needs of society if we are going to shift to a more sustainable economy. Terra Alpha Investments works through our investment fund and our advocacy work to help make that happen. It connects natural and societal factors to the financial investment process in order to provide our investors with a better way to invest their assets.

We work everyday to deliver better financial returns, a better environment, and a better world.

Timothy P. Dunn, CFA - Chief Investment Officer, Managing Member, Founder

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From Frank Loy - Terra Alpha Advisory Board Member and Board Member of Environmental Defense Fund

One of life’s great privileges is the opportunity to choose how you want to spend your time.  What you want to do with your life.  In the early 1980s, there came a moment when I felt I had that privilege.  

I had spent the prior 20 years or so twice serving in the State Department – once negotiating international aviation, shipping and telecommunication agreements, and once leading the Bureau that administered the sensitive Refugee Program.  I had also been a practicing lawyer, an officer of an international airline, and a partner in a firm that turned around failing businesses – the most important of which was the large but bankrupt Penn Central Transportation Company.  Environmental issues were not on the scene.

(Later, in the 1990s, I would return to the State Department as an Under Secretary and as lead U.S. climate negotiator.) 

I began to think about what was I giving back to the society that had treated me so generously.  My wife suggested that I concentrate both my charitable giving and my energies in a specific area.  Following that advice, I studied my options, and gravitated toward environmental issues.  Not only did these seem important, but also because – and in this differed from most other philanthropic endeavors -- they required blending four intriguing disciplines:  science, economics, law and politics.

As a practical matter, my entry would have to be via the environmental NGO community.  As I studied that community, it seemed that most organizations at the time rejected the idea that it was proper to test regulations and laws by economic criteria – such as a simple cost/benefit analysis.  Nor did most accept that market mechanisms, such as taxes or a cap-and-trade regime, could help solve environmental problems.  Generally, there was a widely-shared belief that the business community was the problem, and could not become part of the solution.

All three notions seemed more wrong than right.   I searched for an organization that to some degree shared my views, and joined the board of the Environmental Defense Fund (EDF).  Soon thereafter I became its Chairperson.

The chief scientist of EDF then was Michael Oppenheimer (now at Princeton), and I believe I first heard the term “global climate change” from him.  As I learned more, it seemed clear that this environmental threat would become the defining issue for my generation.  Thus, it should be where I would concentrate my energies.

Climate Change, however, demanded a broader effort than any one organization could provide.   It would require (a) economic research on the various costs and benefits of climate mitigation, (b) a much more hands-on political effort, and (c) an environmental advocate with a presence in all 50 states.  So, I joined the boards of Resources For The Future and the League of Conservation Voters (becoming soon thereafter chair of both boards) and the board of The Nature Conservancy.

The more involved I got, the clearer became yet another proposition:  It would be useful to try to work with the business community rather than simply fight it.  This was a community that had resources and political influence.  If these could be brought constructively to bear on the climate issue, they had the potential to be game-changing.

There is evidence that points in this direction, stemming from EDF’s work with Walmart, McDonalds, FedEx, as well as the work of other NGOs  -- such as C2ES and The Nature Conservancy – with the business and finance community.

On a direct personal level, I was glad to have a chance to demonstrate the truth of this proposition via my work with ExxonMobil, where I am a member of a panel named by the company to advise it on its social responsibility agenda and its annual social responsibility report (which it calls its Citizenship Report).

Additionally, at this moment I am engaged in raising impact investment-type moneys to fund innovative technologies that could speed the production of useful products (such as concrete, carbon fiber, intermediate chemicals, etc.) using the carbon that comes out of power plant and industrial plant smokestacks.

Soon after the founding of Terra Alpha Investments, Tim Dunn approached me about joining its Advisory Board. This seemed to be a logical next step in my journey, and I happily agreed.  Terra Alpha’s investment decision-making approach recognizes that being more efficient with natural resources will enhance long-term business returns. The firm also advocates this message to business leaders and other investors. This blend of better business as part of a better environment and better world, fits with my view, and I am happy about its success so far.

Frank E. Loy - Terra Alpha Advisory Board Member and Board Member of Environmental Defense Fund
 

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From Ellen Stofan - Terra Alpha Advisory Board Member and former Chief Scientist at NASA

The following is the first in a series of articles written by Terra Alpha Investments Advisory Board members about how their own professional experience led them to support our work.

As the former Chief Scientist of NASA and a planetary scientist, I have studied the greenhouse world of Venus where surface temperatures reach 900°F; dry, dusty, and cold Mars where once water flowed on the surface; and frigid Titan, a moon of Saturn, where its liquid hydrocarbon rain forms rivers and seas. All of these worlds may seem alien, but each of them has pieces of information to help us understand the past, present, and future of our planet Earth. Each have helped us understand the role of greenhouse gases like carbon dioxide and methane in planetary climate.  They have helped the scientific community reach the consensus that human activity is causing Earth to warm, in ways that pose a threat to our society and its economy and security. Continued reliance on a carbon-intensive economy is a threat to humanity, but we have the ability to avert the worst effects of climate change if we act now.

NASA and other space agencies from around the world partner to operate an extensive network of spacecraft to monitor Earth. These satellites produce continuous and reliable datasets, measuring the state and health of the oceans, the atmosphere, the land surfaces, and even the interior of Earth. This has led to increasingly sophisticated models that predict Earth’s future climate, showing us that curbing carbon emissions will result in a habitable world, while unmitigated use of coal, tar sands, and oil will threaten the sustainability of our population. Satellite data on weather, climate, water resources, land use, and agriculture are utilized by federal, state, and local government agencies to plan water use, protect assets, and increase efficiency. Additionally, a growing number of private companies are either launching their own earth observation satellites and/or creating new products that benefit the private sector and bring additional information to decision-makers.

Our growing population and our changing climate has made this monitoring of our planet even more critical. Scientists have already identified changing patterns of agriculture as rainfall and temperature patterns change, increased incidences of severe weather, and effects of rising sea levels. The cost of climate change to developed economies like the US is increasing; from damage caused along the east coast from regular high-tide flooding to the extensive reduction in agriculture yields during the prolonged California drought. In many developing countries, historic patterns of crop cycles are changing and water availability is threatened, destabilizing economic development and security.

The solution: we need to change the way we utilize natural resources on the planet, and we need to de-carbonize the economy. Global policy agreements, like the Paris Accords, are just the beginning of what needs to be done to bring carbon emissions down to levels that will result in only 2°C of warming. While this level of warming will still present challenges with rising sea levels and changing patterns of agriculture, it averts the more worrying scenarios that displace large numbers of people worldwide and greatly inhibit our ability to feed a growing population. With about 1.2°C of warming already affecting us now, this means we are in an ‘all hands on deck’ situation. Relying on the green energy sector or investing in methods of carbon capture is not enough.

Reducing carbon emissions means a massive change in most parts of our economy from energy and agricultural production to transportation systems.  Growing pressures on freshwater reserves, healthy soil, forests, and raw materials needed to support human prosperity will results in operational and cost pressures. These will create opportunities and risks for companies and their supply chains around the world. Every sector of the economy will be affected; the companies that understand, prepare, and position themselves for a changing world will not only be the most profitable, but will also be part of the solution to ensure a healthier planet for future generations. That is where my interest in Terra Alpha Investments comes into the story. They are part of the solution.

Terra Alpha utilizes environmental productivity metrics and analysis to evaluate investments based on CO2 emissions, water, and material efficiency in order to determine which businesses are actively managing their exposure to climate change risk and natural resource scarcity.  Additionally, they evaluate companies based on their fundamental ability to thrive in our economy and society of the future. Their success in investing in some of the most forward-thinking businesses around the world highlights the path forward for transforming our economy.

Scientific data has illustrated the threat of our changing climate; businesses and investors have the opportunity to enact change. Every company needs to learn how they can best position themselves to not just to avoid risks, but also to be part of the solution. All investors need to understand and adjust their portfolios to reflect these very real natural resource and climate challenges in order to minimize risk and improve returns. Asset owners need to know if their investments are positioned to both address these challenges and support their financial goals. Terra Alpha is working to serve all of these needs.  

Ellen R. Stofan - Terra Alpha Advisory Board Member and former Chief Scientist at NASA.