Keesa Schreane: Today's guest is Jeff Gitterman, co-founding partner of Gitterman Wealth Management LLC. Jeff, thank you for joining us. So really exciting. You were able to transfer your clients to becoming 100 percent ESG focused in terms of their portfolios. Tell us how you did that. What's the background there? 

Jeff Gitterman: I just want to say it's easier because my clients are mostly college professors. So if you had to pick a target market that you wanted to work with, that would be open to sustainable or ESG investing, they're probably the best single target market I could have had. So I'd like to give 90 percent of the credit to my clients. I'll take 10 percent of the credit.

But it was also we had made a movie called “Planetary” that was addressing a lot of these issues with Bill McKibben and Paul Hawken, kind of the original sustainable ESG guys all the way back to the 70s, they've been talking about it, and a group of astronauts. They educated me through the process of making the movie. And then the movie came out in 2015. And I just realized that if I really cared about these problems, then I had to figure out a way to address it within my practice and not just be talking about it at movie premieres and stuff. 

Schreane: So what was the biggest challenge in terms of moving in that direction? 

 It was really creating portfolios that we were proud of at the time. You know, today you look at the landscape and there's thousands of funds that have an ESG label on it. So I don't know if it's easier or more difficult now because there's a lot of greenwashing going on where you don't really know if the label matches the packaging. But at that time, there were much less funds available. So creating completely diverse portfolios that all used ESG integration in their manager, you know, in equity selection or bond selection was difficult. It took us about a year, maybe a year and a half to build portfolios that we were confident and proud of before we started putting client money into them. 

Schreane: So a year and a-half to build them but selling, if you will, to your clients was relatively easy given who your clients are. 

Gitterman: Yeah. And also it's how we explain it to them. You know, I think a lot of advisors out there don't understand the difference between SRI and ESG. And we talk about ESG as being about value and value creation. So really looking for value in companies and using the lens of ESG data to help assess value in more than just the traditional fundamentals and stock metrics and analyst reporting that you used to use. And SRI is more about values. 

So we were able to explain to our clients that for us this was about new data that was available on a more consistent basis and it was about creating long term sustainable value in companies that we were interested in. And it wasn't about us trying to put our values onto the people. We let them add their values to the equation if they want to and if they're interested in that. But we saw ESG as just the basic fundamental data set that should be incorporated into all portfolio construction. 

Schreane: So that's great. Speaking of terminology and really educating the marketplace and your clients on what these terms are, we're hearing a lot more about the geospatial space. And I'd love to know what is the trend there and where do you see it going? 

Gitterman: So when you think about climate change, so let's kind of veer off from ESG for a second, because ESG doesn't specifically address climate change or the data sets that are currently in ESG. But when you think about climate change, you really could sum it up in two words: floods and droughts. So we're going to see a dead heat to that, too.

But from a physical risk standpoint, floods and droughts affect the investments that we make, substantially. And what geospatial analysis allows is for real estate pools or bond pools, you could think of mortgages or municipalities. They look at the landscape of the whole globe and they look at affected low lying areas to tidal surges to flood risk. So you don't have to be on the shore to have climate risk. You could be in Houston where we saw severe flooding in the last storms.

So the geospatial analysis actually covers the map and allows you to look at your portfolios and see what parts of your portfolios specifically in real estate, mortgage pools and municipal bond pools are most at risk to climate change. 

Schreane: So we see a trend that's developing more. Do we see that we're learning about it? Is there still a gap in terms of where we are there? 

Gitterman: I hate to say opportunity and climate change in the same sentence. But sometimes you do make money out of scenarios that aren't great. It's a huge opportunity set because right now that data is not priced into the market. So we're right on the precipice. And how do we know we're on the precipice? Because one could argue that, but the data provider companies that do this type of geospatial analysis have been around for a while.

But last year they started to get acquired by companies like Moody's and Fitch and they invest. So all of a sudden you need to translate that into what's going to happen in the market and what you can clearly see by these acquisitions that these companies are going to start raiding their pools, whether it's real estate or bonds, based on the risks that are affecting those pools. So you don't even have to believe in climate risk right now for you to be aware of the fact that currently a bond portfolio in Colorado is priced the same as a mortgage bond portfolio in the Keys in Florida.

And that is going to change literally this year. We'll start to see ratings affect different pools. So right now, you can buy a safer pool of real estate or mortgages or municipal bonds without paying a premium for them at all. Why wouldn't you want to do that? And at some point in the very near future, you're going to be paying a premium for safer pools of risk.

Schreane: So these bonds are really going to have ... we're gonna see impact in the future as relates to the bond market, real estate market. 

Gitterman: Absolutely. And all the large asset managers that we're talking to are already analyzing their pool. Blackstone came out literally this week. I think it was, a Larry thing came out the week before with his huge letter about addressing climate risk in your portfolios. But Blackstone, who, you know, was one of the largest holders of real estate, I think in the country, came out and said they are seriously looking at their risk of their assets to climate risk.

So when you start to have the biggest players saying they're addressing the risk, when you start to see the ratings agencies buying the data providers that help you analyze that risk, it means any day now the risk is going to get priced in. And a lot of people always ask me, like, when should I start avoiding that? But when everyone's asking you when, when it's time is going to be too late, because then everyone rushes for the door. So the time is really now to start assessing your risk and your portfolios, not when everyone starts pricing it in, because then it's too late. 

Schreane: So, Jeff, what is the big idea? What do you see coming to bear for the markets that will have a great impact in 2020 or beyond that we should really be aware of, that. Investors may not be aware of at this point. 

Gitterman: You know, there's two different lenses to look at in public securities markets, whether it's bonds or equities. We think right now it's about addressing and reducing the risk of physical climate change in your portfolios. For the private side, where you're doing more of your impact investing where it's intentional and you're trying to affect a specific situation or problem. We think that market is going to explode. We've already seen solar and wind have a huge run. And I don't think they're anywhere near being done. But you're going to start seeing battery storage ideas, all of the things that will affect reducing CO2 emissions in the atmosphere. Because of all this pressure from BlackRock and Blackstone and all the ratings agencies, those impact ideas are going to start to get funded in a much bigger way. Really, this year, we'll start to see huge inroads into the impact space. So it's about looking for opportunities in the private markets and reducing risk in the public markets. 

Schreane: So, educating clients in the marketplace, really understanding where trends are going in terms of the bond market and how that's going to be impacted then really looking at the public sector as well as the private sector to see change that can hopefully benefit us. As we look to solve our climate change issues. 

Gitterman: Yeah, absolutely. We need the money going to the people that are solving for the biggest problems and we need to stop funding the biggest polluters of the problem. So we have to do it in a twofold manner. But I think the capital markets are waking up. So I have hope. We have to have hope. You know, can't go on without hopes. 

Schreane: So we were talking earlier about some of the issues that you see in areas like northern California and southern Florida, where climate change is already there. And I mean, it's in loads of places in the world, but it's clearly having a huge impact. What have you seen in those areas? 

Gitterman: Well, we're seeing in northern California, reinsurers start to walk away from the space. So the people that own property there have to now buy their insurance from the state, which is typically three to four times more expensive. If your house has burned down, even if you're getting money from FEMA, it's typically way less than the value of the house right now. And the insurance premiums are too high. So people are walking away. They're taking their FEMA money and leaving their home.

And you know, the interesting thing I was asked the other day about, you know, odd investment ideas around climate risk is that mobility becomes the number one feature of protecting yourself against climate risk. I don't know if you remember, but during the fires in California, LeBron James tweeted that he can't find a hotel room so he could not find a place for his family to stay. And it made big news because once he tweeted, I think he probably got a thousand people who said he could stay at their home.

But you think about it. So even the wealthiest person in California, one of the wealthiest people in California, couldn't relocate in a time of great distress. So I said I thought that mobile homes or, you know, those Silver Streams, those beautiful, you know, mobile trailers would be as California’s situation kept exacerbating itself and in Florida as the flooding and storm situation kept exacerbating that people would want to be more mobile.

And you'd start to see really more and more people just wanting on their property, especially if you're a very wealthy person in California. You keep a Gulfstream Silver Stream trailer. So if there are fires, you can literally get up and go. You have like a preset, you know, house you've got your escape or evacuate pack in a trailer and you could jump in and drive away and go anywhere and be safe as opposed to the situation that happened where people really waited till the last minute. Some people waited too late.

You saw the films of trying to drive through the fires and how horrible it was. So that and then I said wine, too, because I think as the California drought keeps exacerbating, we see more and more fires. You're going to start to see effects on the vineyards in California. So buying California wines now and stocking them up will probably be a great side investment as well. Unfortunately, I mean, these are all horrible things to think about, how to make money around climate risk. But people want to know. And those are things that we see as interesting ways to kind of hedge against traditional portfolio models. 

Schreane: And also, I was thinking back historically to Hurricane Katrina. There were a lot of people who were there because they weren't mobile, unfortunately. So it sounds like that's something that as we see more and more fires and hurricanes and these sorts of disasters, that's something that we all should be aware of. 

Gitterman: Yeah. And it's unfortunate that people with the least mobility or the poor and disadvantaged are the ones that are most affected by climate change and typically live in areas that are most impacted by climate change. New Orleans has the fastest disappearing landmass on earth right now. Right in the delta in New Orleans, they lose a football field of land every 90 seconds. So it's right in our hometown. And yet people are still talking about whether it's real or not. Unfortunately, it's here to stay. 

Schreane: Thank you.