In this episode, Gil Jenkins speaks with Peter Krull, Partner & Director of Sustainable Investing at Earth Equity Advisors, A Prime Capital Investment Advisors Company. Peter focuses on creating and managing Earth Equity’s sustainable, responsible, and impact investment portfolios as well as writing thought leadership pieces and elevating the responsible investing story. Gil talks with Peter about his background and journey into the industry, how sustainable investing has evolved from socially responsible investing (SRI), which focused on exclusion, and the differences between impact investing, ESG investing, and sustainable investing from his point of view. Peter also shares his thoughts on a few of the energy and environmental sectors that excite him most.
In this episode, Gil Jenkins speaks with Peter Krull, Partner & Director of Sustainable Investing at Earth Equity Advisors, A Prime Capital Investment Advisors Company. Peter focuses on creating and managing Earth Equity’s sustainable, responsible, and impact investment portfolios as well as writing thought leadership pieces and elevating the responsible investing story.
Gil talks with Peter about his background and journey into the industry, how sustainable investing has evolved from socially responsible investing (SRI), which focused on exclusion, and the differences between impact investing, ESG investing, and sustainable investing from his point of view. Peter also shares his thoughts on a few of the energy and environmental sectors that excite him most.
Links:
Full Bio:
Pete is a well-known leader in the green business community and a long-time advocate for fossil-fuel-free and sustainable, responsible, and impact (SRI) investing.
He began his investment career at Merrill Lynch in 1998 where he earned the firm’s Certified Financial Manager designation. He honed his investment management skills as he guided his clients through the dot-com bubble and recovery.
In 2004, he hung up his shingle as Krull & Company and began the journey as a conscious entrepreneur. From the beginning, he knew that his firm would focus on responsible investing and trademarked the phrase, helping you align your investments with your values®. In 2017, Krull & Company became Earth Equity Advisors.
Over the years, he has provided leadership to clients, colleagues, and communities. From chairing the Asheville-based environmental non-profit MountainTrue through a pivotal expansion to guiding Earth Equity Advisors’ rapid growth and rise to prominence as a six-time Best for the World™ honoree, Pete’s impact on the responsible investing movement is clear.
He was named one of the 100 most influential financial advisors in America by Investopedia in 2018 and became one of the first individuals to earn the Chartered SRI Counselor™ designation from the College for Financial Planning. In 2021, Pete was featured by The Collider among the Faces of Climate City, which highlights Asheville, NC residents who are providing leadership in the Climate industry. He was also recognized on Real Leaders’ list of 70 Environmental Leaders You Should Know alongside Sir David Attenborough, Jane Goodall, and Greta Thunberg, and was selected for the LUMINARIES Class of 2021 by ThinkAdvisor in the category of Thought Leadership & Education. Recognition continued in 2022 with Pete being announced as a finalist for the RIA Intel Awards’ ESG Advocate of the Year, appearing on AdvisorHub’s list of Fastest Growing Advisors to Watch in 2022, and receiving the 2022 Sustainable Champion Award from the North Carolina Business Council.
Pete’s expert opinion is sought after by The New York Times, Bloomberg, Money Magazine, CNBC, The Washington Post, Investors Business Daily, US News & World Report, MarketWatch, Investment News, Wealth Management, RIA Intel, Barron’s, and other notable national publications, podcasts, and channels. He is also a contributing writer to top business publications, Forbes and Kiplinger. As Partner and Director of Sustainable Investments, he is responsible for leading the firm’s SRI initiatives, including thought leadership, education, and managing the sustainable investment portfolios.
A native of Western New York, he lives in Asheville, NC with his wife, Dr. Melissa Booth, a microbiologist, author, and the founder of The Science Communicator. He is a serious amateur photographer, a lover of world travel, and a huge fan of the Buffalo Sabres. As you would expect, their house is solar-powered and their cars are electric.
Episode recorded February 3, 2023
Email your feedback to Chad, Gil, and Hilary at climatepositive@hasi.comor tweet them to @ClimatePosiPod.
Chad Reed: I'm Chad Reed.
Hillary Langer: I'm Hillary Langer.
Gil Jenkins: I'm Gil Jenkins.
Chad: This is Climate Positive.
Peter Krull: We want to invest in the next economy. The way I look at traditional investing is rear view mirror investing. You're investing where the market or where the economy has been versus next economy, which is where it's going. The economy is going forward as a sustainable economy. Why not invest in that?
Gil: This week, we’re talking with Peter Krull, the Partner & Director of Sustainable Investing at Earth Equity Advisors, A Prime Capital Investment Advisors Company.
Peter and I had great chat about his background and journey into the industry, we also talked about how sustainable investing has evolved from what was known first as socially responsible investing (or SRI). And along those lines, Peter provided some helpful clarifications on the differences between impact investing and ESG investing as he sees it. I also found time to get Peter’s take on a few of the energy and environmental sectors that excite him most. I hope you find this this conversation with Peter as interesting as I did – it was really fun to check in with a true veteran and expert in the field of sustainable investing.
Gil: Pete, welcome to Climate Positive.
Peter: Thanks, Gil. I am really excited to be here today.
Gil: We are as well. One of the reasons we wanted to have you on was that you have such an interesting background as a true veteran in the sustainable investing financial advisor space. Could you give us a sense of your origin story, your background from the early days, and what you're doing today?
Peter: Absolutely. I started in financial services back in '98 with Merrill Lynch, Mother Merrill, as we used to call it back in the day, and it was way back when it was an independent entity, and they had a pretty decent reputation at the time. I spent about five years, give or take, with Merrill. They had great training, but it was time to move on. When I did, that would have been in 2003, 2004, somewhere in there. About the time, I had been able to spend some time with a gentleman named Bill McDonough.
Gil: Sure. Cradle to Cradle guy.
Peter: Cradle to Cradle guy, yes. He was such an interesting person. One of my clients actually was putting a rainwater catchment system at his house in Charlottesville. He invited me to come along, and we spent an afternoon with Bill in his office. If you ever heard Bill speak, he's so thoughtful, but he'll stretch things out. He'll be like, "What if we?" There would be just some silence, "thought about," and there'd be some more silence-
Gil: Pause for effect.
Peter: -"moving into sustainable investing," or whatever it was that we were talking about, but it was a really great afternoon. That was part one, one of two.
Gil: That's what hooked you. I remember seeing him at the Commonwealth Club years ago. He was doing some work with Ford, and he was talking about a butterfly atrium and some of those impactful corporate designs. I had the same wow experience. What a brilliant guy.
Peter: Yes. The documentary he did, The Next Industrial Revolution, was what hooked me on him, but there was really two parts to this. The second part is the woman I was dating at the time, Melissa, who's now my wife, she has PhDs in microbiology and molecular genetics, so she's definitely a hell of a lot smarter than I am, and we were having some just really in-depth conversations about the environment and sustainability and climate change and all these things.
Gil: Like first-date conversations, or?
Peter: Yes. We started off just diving in the deep end.
Gil: Love it.
Peter: She amazes me every day. We were having these great discussions, and I took my conversations with Bill, and I took my conversations with Melissa, and then I combined them with-- It's interesting, there was a guy at Merrill who, every time the Calvert rep came in, said, "I'm going to do that socially responsible investing thing," and he never really did it because it wasn't aligned with what his values were. It was just a marketing opportunity. I think that's probably you put those three things together, and that's what put me over the edge, and so I hung up my shingle in June of 2004 as Krull and Company. We continued on as Krull and Company until, I think 2017, when we transitioned over to Earth Equity, formed our own RAA at that point, and just over a month and a half ago, we actually sold the firm to Prime Capital Investment Advisors out of Overland Park, Kansas City area, and we're really, really excited because they're a $26 billion firm, and we have a lot of really good benefits for both of us. They wanted a sustainable investing arm, and we wanted to be able to scale. We're really excited.
Gil: Let's rewind back real quick because there's a lot over those 17 years. You started at what became Earth Equity advisors. The framing in 2004, 2005 on this base was words like responsible investing, SRI, socially responsible investing, impact investing. How has it evolved over that period to maybe the last four or five years of ESG investing or sustainable investing? Just give us a sense of how you've seen this work change over a pretty crucial period.
Peter: Going back to the days of socially responsible investing in '04, '05, basically, you're right up until about the last five years or so. A lot of it was exclusion focused, what don't we want to own.
Gil: Right. No sin stocks.
Peter: Yes, exactly. Not necessarily for us, we didn't want alcohol because we liked alcohol, but a lot of it was exclusion. It's where shareholder advocacy was also an important part. It still is, and community investing has always been that third leg of socially responsible investing. Fast forward to over the last several years here, SRI has transitioned to sustainable responsible and impact investing. The acronym has changed, ESG has come in. I'd like to make a really clear distinction between what ESG is and what sustainable investing are because they're two different animals.
Gil: I'm so glad that you're about to do this because this is going to lead to some follow up on the importance of terms and the confusion that is out there. Thank you for setting this up.
Peter: Of course, these are our definitions of them, but this is how we run our portfolios. ESG for us is, basically it's a set of metrics, that's all it is. What happens, though, with ESG is that you get the large investment managers, the BlackRocks of the world or the Vanguards of the world, and all they do is they take an index, they put an overlay of ESG on, and they make what Bill McDonough would've called a less bad portfolio. We don't want to be less bad, we want to be positive.
We try to look at investing, we look at sustainable investing, and for us, sustainable investing is positive. It is solutions based. It is action oriented. The example I like to give is a portfolio that reduces its exposure to ExxonMobil is less bad. A portfolio that eliminates it entirely is better, but one that replaces it with First Solar is actually sustainable. That's how we put portfolios together where we want solutions, we want the Hannon Armstrongs in there. We want the companies that are investing money to make change going forward.
My friend, Garvin Jabusch, that runs the Green Alpha Funds out in Boulder, they like to use the term next economy. I think that just describes it really well. We want to invest in the next economy. The way I look at traditional investing is rear view mirror investing. You're investing where the market or where the economy has been versus next economy, which is where it's going. The economy is going forward as a sustainable economy. Why not invest in that?
Gil: I think what's interesting about how this has evolved as ESG as a notion as in the financial markets has become more mainstream, the loose definitions of something that is more of a risk strategy or a set of metrics that corporations use to promote transparency and give a view for investors on their risk level. Whereas, I think, there's still a large percentage of people that just think ESG, well, that means positive impact sustainability. That's where the interest, particularly from young people, is coming on wanting to align their portfolios with companies that are actually making a difference, that are harnessing the next economy, that sustainability is inherent to their business and it's about opportunity, and you don't have to sacrifice returns to do that because this isn't just impact investing for the sake of impact, that you can have both positive impact and strong returns.
I don't know how we put the genie back in the bottle. It's good in many ways that this has become a mainstream notion, but there's a diametrically posed idea. One is just about sort of risk and the other's impact and sustainability. I don't know how we unpack this, but I'd be interested in your thoughts.
Peter: When I give talks, one of the things I always ask is, "If you are investing in a sustainable fund, do you expect to see ExxonMobil in there?" Not a single hand ever goes up. [chuckles] I know. It seems pretty obvious. I mean, it seems to be a no-brainer to me, but I understand where the ESG folks are coming from. They're trying to create metrics that they can reduce risk. I have no problem with that. I think that's great. We use ESG metrics when we put portfolios together, but it's not necessarily what's at the floor. What's at the floor for us is picking industries that are going to be leading us.
When it comes to ESG, the majority of, or a lot of that money is being put in by institutions that have a charge that they need to invest with ESG, they need to start using those metrics. The reality is, and this was a couple years ago, it may have changed since, but a lot of that research was just simply going into the G side, just making sure that there was mostly good governance. I'm of the opinion that, shouldn't that just be good due diligence and research if you're making sure that a company has good governance before you buy into it, that just seems like a no-brainer to me.
We're starting to see some headwinds on the ESG side, again, because the former vice president called it woke investing, and there's definitely some political bombs that have been thrown relative to this.
When you look at it at the end of the day, it's mostly to motivate a base that really doesn't know what ESG is. ESG is simply about finding metrics that can have mostly negative impacts on a company. It's all about risk. It's all about how do we minimize risk in our portfolio. Again, we use ESG as an underlying metric, but we're not out there pushing ESG investing, ESG investing, ESG investing, because, again, it just simply makes a less bad portfolio. For those institutions that simply are using it to reduce their risk, it's reasonable.
Gil: Totally reasonable strategy, yes. Without giving you too much crease, what are your thoughts on the, I would say fairly well-coordinated political attack, maybe starting from the Republican party, both in states and on the hill. What do you think about, I guess the relative hypocrisy of trying to equate these practices with this idea of woke capitalism? It's in the headlines a lot. It does. There's a lot of dark money behind this pushback. It's ESG and sustainable investing and climate reporting and strategies have been wrapped up into these ongoing culture wars and woke wars. I'd just be interested in your thoughts on where we sit today.
Peter: At the base of it, it is pandering. It's just simply trying to get people upset and to divide us. That's the base of it right there. Beyond that, it's something that actually ultimately will end up hurting those that are espousing anti-ESG rhetoric because some of the big companies that underwrite municipal bonds, that underwrite a lot of governmental debt, have the scale to get better rates for those municipalities, and eliminating them from bidding is ultimately going to hurt the people who they're supposed to be helping because they're going to have to pay higher interest rates on debt. That's a big part of it.
Is it going to have a negative impact on sustainable investing of ESG, which please don't take that I'm equating the two because they're not. The answer is no because people are going to invest sustainably using ESG metrics because it's something that they want to do. The odds are that those people that they're pandering to were never going to invest that way in the first place. Is anything going to be lost? No. Is there going to be some pressure on some institutions? Probably.
When we're talking about the trillions of dollars that are currently invested this way, it's going to be a drop in the bucket. I was interviewed specifically on this topic by Bloomberg a few weeks back, and he asked me the question about whether I thought it was going to have an impact. I responded by saying, during the Trump administration, we had some of the best growth we've ever had. There was a major anti-ESG investing push during that time. It may not be as coordinated as it is right now, but I just don't see it having a negative impact.
Gil: I think what's also a bit frustrating, a level down to this, is these anti-ESG attacks, their ideological pandering, they do mask and distract what I think are some fair and reasonable critiques against ESG metrics and maybe more ESG ratings more specifically, and the complexity and the lack of standardization and some of the greenwashing issues, candidly. There's some merit to those as the ESG is evolving, but we can't have that conversation, it seems, when there's the silly arguments.
Peter: One point I forgot to make is that Republicans are the party of free markets. Do business the way you want to do business, except when it negatively impacts our campaign donors, i.e. fossil fuels.
Gil: It's pretty anti-capitalist. [chuckles]
Peter: Seriously. It's certainly not libertarian, go out and do your own thing. Again, it's hypocrisy at its most blatant.
Gil: All right, well, let's get out of-- We had to go there.
Peter: I want to make a comment on one thing.
Gil: Yes.
Peter: One specific example, is the politicians in Utah got really upset when one of the bond rating agencies put a negative environmental rating on their bonds out there. The politicians were all up in arms, but the reason why they put a negative environmental rating on it was because of drought. You can't tell me that drought is not a material impact on a municipality. If they're saying that these things aren't material, then they don't understand the way economics works. At the end of the day, as an investor, I want to know every single thing that could possibly have a negative impact on an investment that I have. I'm never going to get that, but the more data, the better. Why would you want to exclude data that could potentially get your investors, your citizens, or whatever it is, a better return.
Gil: Well said. Let's transition a bit to how you construct portfolios and funds, and specifically, some of the sectors that you're excited about where there's a lot more choice now, certainly as sustainability and clean energy prices have fallen dramatically over the last 10, 15 years. We've got certainly some policy tailwinds that we can talk about on the federal level here with the IRA.
Give me a sense, how do you go about building a portfolio, and then let's jump into some industries that you're really excited about right now.
Peter: Absolutely. We manage money two ways. We've got a couple of individual stock portfolios that we manage, our Green Sage sustainability portfolio and our Green Sage decarb portfolio. We also have portfolios for clients that are asset allocation. They're different funds and ETFs put together to meet a specific target risk level. That's how we manage our clients' monies. The majority of them are in the mutual fund portfolios because as a fiduciary and a financial advisor, that's one of the most important things that we do, is match risk to goals and returns that our clients have.
What's more interesting, though, to talk about is our individual stock portfolios and how we construct those. Green sage sustainability portfolio has been around for just over 10 years. We hit our 10-year number in December of '22. We're just over that right now, which there aren't a whole lot of sustainable portfolios out there that have been around for 10 years.
Gil: That's true, yes.
Peter: I'm pretty proud of that accomplishment there.
Gil: You should be.
Peter: The way I put that portfolio together is I maintain a universe of stocks that are potentials. I'm always adding and subtracting to it depending on what companies are doing. Some of them are still around, some of them aren't around anymore from 10 years ago. Then from there, I focus on basically a list of different industries or sectors that I think are going to push us into a more sustainable economy. We're not trying to overlay ESG on already constructed index or anything like that. We don't worry about differences from a particular index because you can't index where you're going by, again, I guess I said earlier, looking in the rear view mirror.
Gil: Looking in the past.
Peter: Yes. That's part of the problem with widespread adoption of more sustainable portfolios, is because so many institutions have to manage to an index, and this isn't, and it doesn't necessarily hit an index when you are pulling out the crystal ball, if you will, to look and see what industries and sectors are going to lead us sustainably. Just to give you some examples of what we're looking at, obviously alternative energy, clean energy is always going to be one of the most important things we have. Energy efficiency is tremendously important because the best kilowatt is one that's not used. Right?
Gil: Absolutely. Here at HASI, that's been our legacy. We roll and rock hard for efficiency. Big part of our business, we do that. Tear that first before you add the clean generation.
Peter: Right. Battery technology, 10 years ago, you couldn't invest in a battery company. Now you have to pick which one you're going to invest in. All of those are, at this point in time, still small caps and still pretty risky. We want to have access to that. It's in a much smaller allocation versus some other large caps. We want to have our toes in the water for that.
Water, not necessarily in privatizing water, but in water distribution, water technologies, water metering, filtration, things like that. You can't talk about sustainability without green transportation. Natural and organic products and services. That includes food stuffs and consumer goods. Sustainable real estate, that's more on the REIT side. 30% or something like that of our CO2 emissions are coming from a built environment. Making sure that we've got that in there. IT is always going to be an important part. Creating systems that make our processes more efficient. Green finance, I love to talk about this, so I'll bring this one up, and is insurance.
What is the one industry that could have the single biggest impact on climate insurance?
Gil: And reinsurance, if you really want to get [unintelligible 00:19:34]
Peter: Exactly.
Gil: The Swiss Re, Munich Re. Yes, they have the absolute bird's eye view on that.
Peter: They have the ability to price climate and price risk. On the insurance side, going to a, let's say a manufacturer that's got a facility on the coast that they're going to be paying some major damage amounts to as hurricanes get stronger, or going out west where fires are continuing to impact the landscape. The insurance industry has, the need isn't there, but they have a responsibility to really push to get companies and municipalities to take climate risk into account. I think that they're the one industry that can have the biggest impact. In the United States, they have not done it. They have really fallen down on the job. In Europe, they're ahead of us. They're still not great, but they're ahead of us on this.
Let's see, what else? Recycling and circular economy, scientific instrumentation, like the thermal fishers of the world. Green building technologies. I always include biotech because a healthier society is a more sustainable society. That's the group of different industries that I want to have in this portfolio. Again, this is positively focused as opposed to, what don't we want to own? Let's be positive. Let's find the industries that are going to make the difference.
Gil: [unintelligible 00:21:02] Cristobal, what do you think these portfolios looks like in 10 years?
Peter: I don't think they're going to look a whole lot different. I think that the companies are going to be larger cap, so I think we're going to see, just like we did-- I lived through the internet boom, and then crash in the investment world. We're going to see the same things. We're going to continue to see consolidation, we're going to see the big guys get bigger, and some of the smaller competitors are going to fall by the wayside. There's probably going to be a couple of other industries that get added to this list that we don't even know are going to exist at this point. There might be a way to pull carbon from the air. It hasn't been commercially proven yet, but I would love to invest in a company that can do that at scale. It doesn't exist at this point. I would love to see, gosh, everything from quantum computing, which is going to really help push us forward in terms of our ability to scale our understanding of the world around us. Using modeling to find out what if we do this, then what happens.
Gil: What do you think about, the near to midterm, some of those sectors you mentioned certainly stand to benefit greatly from the Inflation Reduction Act? I think certainly batteries were a big winner, when you look at that legislation in different ways, and advanced manufacturing for batteries, clean energy, of course, energy efficiency. What are your thoughts on the IRA as it relates to those specific sectors over the next couple of years?
Peter: Well, first, I think it's the worst name piece of legislation ever.
Gil: Yes.
Peter: I'll start with that.
Gil: Well, you know.
Peter: It's a compromised bill, and so we obviously didn't get what we wanted out of it completely, but it's politics. We have to deal with the compromises of it. It's a huge step forward in terms of pushing these technologies forward, electrifying our economy, moving away from fossil fuels, natural gas, propane, things like that. I'm excited to get an induction range at our house. Things like that. You don't necessarily think about that as contributing to it, but the more we can eliminate fossil fuel based energy, the bigger impact we're going to have. It's a tough, tough lift at this point. Again, we would love to have seen a much more inclusive bill. We didn't get it. We've got to take and love what we've got.
Gil: Great. Well, let's turn to our hot seat. Fill in the blank. The best piece of advice I ever received is?
Peter: Don't be afraid to fail.
Gil: The piece of advice I have ignored is?
Peter: Don't be afraid to fail. [laughs]
Gil: Best part about driving an electric car?
Peter: The pickup.
Gil: Instant torque, right?
Peter: Instant torque.
Gil: What's the most common piece of advice that you give to young people?
Peter: Work in a restaurant.
Gil: Why?
Peter: Because working in a restaurant, you have to learn how to work with other people, coworkers. You have to learn to work with customers, you have to work within a system, and you have to do a lot of things under pressure. You learn so much. You learn so many people skills. I'm an introvert by nature. It may not sound like it in this interview, but I'm an introvert by nature. One of the things that I loved about working in a restaurant, and I was a dishwasher for a year or so, was that I was forced to interact with a whole bunch of different people, on different kinds of people. Even if it's just for a year, spend some time working in a restaurant, getting to know people, and understanding what a service industry is like. If you work in a restaurant, you will never be mean to a service worker.
Gil: I understand you're a photographer. Do you have a photography hero?
Peter: I think that the road answer would be Ansel Adams. I love landscape photography, and using the rudimentary tools that he had is pretty amazing.
Gil: You're a traveler too. Tell me about why you think travel is so important for the human mind and body and soul?
Peter: Culture. Especially here in the states where we get myopic about our culture. I love Europe and I love the opportunity to see the history. We don't have that same history that they have over there, and so experiencing different cultures, experiencing different foods. I can't wait for our next trip.
Gil: Last one. To me, climate positive means?
Peter: Climate positive to me means actually doing everything you can. Here's what happens, I think sometimes. I think sometimes people see climate change as such a big problem that we become paralyzed. One thing I like to say is you can only do what you can do, but you have to do that amount. You have to contribute. If you can afford an EV, get an EV. If you can afford to put solar panels on your house, put solar panels. If you can afford to get batteries with that, get batteries, but you can only do what you can do. To me, climate positive means doing everything you can to positively contribute to the solution.
Gil: That's great. Thanks, Pete.
If you enjoyed this week’s podcast, please leave us a leave a rating and review on Apple and Spotify.This really helps us reach more listeners.
You can also let us know what you thought via Twitter @ClimatePosiPod or email us at climatepositive@hasi.com
I'm Gil Jenkins.
And this is Climate Positive.