Morningstar - Q3 2021 - 46

Spotlight: Integrating ESG
Green Linings
Jeremy Grantham says the pandemic
taught investors to think more long term.
That's good for climate change.
Morningstar
GRANTHAM
Jeremy Grantham has long incorporated the
impact of climate change and other environmental
factors into his long-term investment outlook.
At the 2018 Morningstar Investment Conference,
he warned that we are in the " race of our lives "
to mitigate the consequences of catastrophic
climate change.1
Three years later, the co-founder
of the investment-management firm GMO
spoke with Morningstar CEO Kunal Kapoor for the
2021 Morningstar Investment Conference in
Sydney.2
They discussed a wide range of issues,
including the effects of the COVID-19 pandemic
and asset-price valuations. But they mostly
spoke about the environment and global warming
and what the future may hold. Here, we
focus on that aspect of their conversation, which
took place in May. It has been edited for
clarity and length.
Kunal Kapoor is the CEO of
Morningstar.
Jeremy Grantham is the
co-founder and the long-term
investment strategist of GMO.
me, because that's what I do. I quit portfolio
management proper 15 years ago and spend my
time only on the very big issues.
Plastics' Not-So-Great
Future
Kapoor: As you've been spending time thinking
about the future, have you started forming
kernels of new ideas that you want to explore
further that have long-lasting implications?
What might some of those be?
Jeremy Grantham: I'm hoping they'll be a little
longer-term-oriented, a little more interested
in things that can go wrong and the black
and gray swans that lurk offstage. I think COVID
might have taught us that. We haven't been
learning that quickly with climate change, but
I would say we are finally beginning to learn a
little. And COVID is just a reminder-those kind of
issues that are not your routine quarterly
earnings type of issues are nevertheless much
bigger deals in the long run.
I started pushing climate change 13 or 14 years
ago, and I can tell you there was a lot of
eye-rolling from our clients and from the general
investment world. And time passed, and
finally, you look back and you find that oil has gone
from 15% of the S&P 500 to 3% and that whole
new industries-wind, solar, energy efficiency,
new agriculture-are everywhere. So, it creeps up
on you in a very interesting way.
Kunal Kapoor: As you think about the investment
research business, what do you think are the
long-lasting impacts of the past 18 months or so
on the way people will do their work?
I think people are more willing to think about
things like that now than they were a year
ago. They were beginning to tilt toward climate
change and longer-term issues perhaps a
year before COVID. But this has really encouraged
us to be a little longer term, which is brilliant to
1 See " Jeremy Grantham: The Race for Our Lives, " Page 20, in the August/September 2018 issue.
2 Video of the full discussion is available at https://www.youtube.com/watch?v=vjfwL-58JXY
46
Morningstar Q3 2021
Grantham: We have a bee in our bonnet
about toxicity. I think pesticides and plastics are
doing a job on our health and the health
of the insect world and the health of the whole
natural world. Our sperm count has dropped,
looking at the data, to a third of what it
was the day I was born. That's a hell of a drop.
The first 80% of that drop didn't matter.
We were overengineered, like a good Victorian
bridge. But finally, it's whittling us down
to a level where in the last 10 or 15 years, it's
begun to matter, and we've gone from
almost nobody having trouble to about 15%-
one in eight-young couples having trouble.
And it's progressing almost 2% a year,
which is a sinister number, because that's
about the rate that the insect population
is disappearing, and it's showing no sign of
slowing down.
That makes me feel that the plastics industry,
the chemical industry, pesticide industry
are all under potential threat from toxic losses.
Plastics are just getting warmed up. Plastics
leach what they call forever chemicals
into the water you drink and the food you eat-
the wrappers around your food. These are
a completely underestimated shock that will play
out in the next 10 to 20 years-alongside
climate change, of course, which is gathering
speed as we sit.

https://www.morningstar.com/articles/870606/watch-jeremy-granthams-race-of-our-lives-speech https://www.nxtbook.com/nxtbooks/morningstar/magazine_20180809/index.php?startid=Cover1 https://www.nxtbook.com/nxtbooks/morningstar/magazine_20180809/index.php?startid=Cover1 https://www.youtube.com/watch?v=vjfwL-58JXY https://www.youtube.com/watch?v=vjfwL-58JXY https://www.youtube.com/watch?v=vjfwL-58JXY https://www.nxtbook.com/nxtbooks/morningstar/magazine_20180809/index.php#/p/20 https://www.youtube.com/watch?v=vjfwL-58JXY

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