The UN's new report on climate change paints an alarming picture, warning that temperatures are rising faster than previously expected^[1]. It adds impetus to President Biden's infrastructure plan, expected to be approved by the Senate this weekend^[2], which includes significant dollars ringfenced for investment in green fuels.

But ramping up renewable fuels isn't the only way the infrastructure plan could combat climate change. The bill also plays heavily on 5G connectivity, which some opinion-makers hope could prove good for the planet. Erik Ekudden, CTO and Head of Technology & Strategy at the 5G stock Ericsson, says that "[5G] uses, applicable across various sectors, can drive down costs, energy usage, emissions, waste and mitigate climate change."^[3]

5G can reduce emissions

By connecting remote devices through internet of things (IoT) sensors; collecting, sharing, and storing the data they gather; and powering artificial intelligence (AI) and machine learning (ML) engines, 5G can help cut emissions across a number of sectors. An earlier UN report estimated that taken together, advanced 5G-powered ICT solutions could lower greenhouse gas emissions by 20% by 2030^[4].

• In cities, tracking and charging for solid waste disposal could cut solid waste by 10-25% per capita by 2030^[5], with a commensurate drop in energy used to process it.
• Live traffic updates enable smart traffic lights to refine sequencing in real time, improving traffic flow and cutting emissions from vehicles idling in holdups by up to 21%^[6].
• 5G is a key technology behind driverless cars, which have fewer sudden braking and accelerating incidents that burn more fuel.

5G can cut waste and pollution

Advanced agro-tech solutions use 5G and IoT sensors in fields and orchards to give farmers real time, reliable information about disease, hydration, and soil and weather conditions, so they can make better decisions about fertilizer and pesticide use. AI-powered drip delivery systems allow them to apply the chemicals they do use in more accurate ways, reducing runoff into groundwater.

It's a similar story for heavy industry and manufacturing. "Lights off" production uses robotic process automation (RPA) that relies on IoT data, lag-free edge computing, and ML. Without employees on site, there's less need for lighting and temperature control.

Smart factories reduce human error that causes environmental incidents and wastes raw materials and energy. Ericsson estimates that their 5G-powered smart factory uses 5% less energy, produces 5% less waste, and is 24% more efficient overall than the baseline^[7].

5G can increase food production

As well as helping farmers cut pollution, 5G is widely expected to boost food yields^[8]. 5G's stronger connectivity could bring reliable internet to rural areas that are currently severely underserved, so farmers can refine planting and animal husbandry decisions.

IoT devices can detect the early signs of infestation, disease, or changes to soil conditions, enabling farmers to resolve the issue before crops or herds are seriously affected. Real time hydration information can also cut water usage; crucial when water levels are dropping, and agriculture accounts for approximately 70% of the world’s annual consumption of freshwater^[9].

5G can lower energy consumption

Smart buildings use IoT to automatically turn off lights and adjust temperature control systems to use less energy. The Empire State Building in New York, for example, implemented smart meters some years ago to help tenants optimize their energy usage. It's seen energy costs drop by 38%, and reduced CO2 emissions by 105,000 tonnes in one year.^[10]

New smart grids are more reliable and energy efficient, reducing energy wasted through leaks and power surges. Better monitoring of energy consumption through IoT and ML also means energy companies can measure production against demand, and balance consumption needs with output from renewable energy to reduce their use of fossil fuels.

5G can boost disaster management

As made clear in the UN report, the next century will be marked by natural disasters such as landslides, wildfires, and floods. 5G stocks can help us cope:

• IoT sensors can deliver early warnings about wildfires, landslides, avalanches, and flooding, helping speed up evacuation and prevent loss of life and property.
• Edge computing and AI engines predict extreme weather events and plot the path of wildfires and hurricanes.
• Augmented reality (AR) headsets use latency-free video analytics data streamed over 5G to give firefighters visibility into the heart of wildfires, helping them fight them more safely and effectively^[11].
• 5G enables rescue teams to use drones, GPS, and emergency communication to work more efficiently, and to bring aid where it's needed most.

Improve wildlife stewardship

On a more positive note, 5G can help safeguard protected habitats and track endangered species. For example, a pilot project in the UK's Sherwood Forest uses 5G to monitor the health of the trees and the creatures who live in and around them^[12].

5G sensors monitor microbe and acidity levels in water tables to detect changes instantly, so action can be taken before serious incidents occur. IoT sensors in gas, chemical, and water pipes also check constantly for cracks to prevent leaks. It's estimated that 5G sensors and analytics on water systems can reduce water loss by up to 25%^[13].

Is 5G an energy monster?

There are fears that 5G's extra computing power could raise energy consumption. A recent report from France warns that 5G networks could release an extra 3 to 7 billion tonnes of CO2^[14], and in China, power consumption from 5G technology is predicted to increase by 488% by 2035^[15].

But others allay these concerns. 5G networks themselves are around 90% more energy efficient than 4G networks^[16], and it's only the initial stages of the rollout which need more power.  “Once the network is more mature, all energy efficiency features will kick in and energy consumption will be optimised,” said Joop Hazenberg, European External Affairs Director at GSMA^[17].

According to Ekudden, much depends on the choices made by 5G providers and infrastructure contractors. 5G rollout powered by renewable and green energy shouldn't raise emissions noticeable, and once it's in place, it should drive a net reduction in power usage.^[18]

Or the next ESG investment choice?

It might be too much to suggest that investors who want to support environmentally friendly causes should put their money into 5G stocks, but at the same time, investors who are excited about being part of the cutting edge of 5G innovation don't need to feel guilty about the impact it has on the planet.

Investing in Defiance's FIVG 5G ETF allows investors who want to join the 5G transformation to mitigate their exposure to risk by spreading their investment over a range of leading 5G stocks, thereby helping balance their portfolio.

 N.B. This is sponsored content and not FINSUM editorial.

^[1] "AR6 Climate Change 2021: The Physical Science Basis", released August 9, 2021 https://www.ipcc.ch/report/ar6/wg1/

^[2] "Infrastructure on track as bipartisan Senate coalition grows" August 10, 2021 https://apnews.com/article/joe-biden-business-c299d5d2a32188989b58cb5feec12f5d

^[3] "Digitalization with 5G enables further acceleration of climate action" January 21, 2021 https://www.ericsson.com/en/blog/2021/1/digitalization-5g-climate-action

^[4] "ICT Sector Helping to Tackle Climate Change" August 12, 2016 https://unfccc.int/news/ict-sector-helping-to-tackle-climate-change

^[5] "The global economic impact of 5G" https://www.pwc.com/gx/en/tmt/5g/global-economic-impact-5g.pdf

^[6] "FEATURE: How 5G will transform smart transportation in cities in 2021" October 14, 2020 https://www.traffictechnologytoday.com/features/feature-how-5g-will-transform-smart-transportation-in-cities-in-2021.html

^[7] "Digitalization with 5G enables further acceleration of climate action" January 21, 2021 https://www.ericsson.com/en/blog/2021/1/digitalization-5g-climate-action

^[8] "Agriculture’s connected future: How technology can yield new growth" October 9, 2020 https://www.mckinsey.com/industries/agriculture/our-insights/agricultures-connected-future-how-technology-can-yield-new-growth  

^[9] "WATER IN AGRICULTURE" May 8, 2020  https://www.worldbank.org/en/topic/water-in-agriculture

^[10] "Achieving sustainability in a 5G world" December 2016 https://www.brookings.edu/wp-content/uploads/2016/11/gs_20161201_smartcities_paper.pdf

^[11] "5 Ways 5G And IoT Could Help Change The World" August 9, 2021 https://www.forbes.com/sites/tmobile/2021/08/09/5-ways-5g-and-iot-could-help-change-the-world/?sh=51adc6085557

^[12] 5G Connected Forest, started March 1, 2020 https://uk5g.org/discover/testbeds-and-trials/5g-connected-forest/

^[13] "The global economic impact of 5G" https://www.pwc.com/gx/en/tmt/5g/global-economic-impact-5g.pdf

^[14] "Deploying 5G will lead to spike in CO2 emissions, French climate council warns" December 20, 2020 https://www.france24.com/en/europe/20201220-deploying-5g-will-lead-to-spike-in-co2-emissions-french-climate-council-warns

^[15] "Superfast but not so clean: China’s 5G network is causing its carbon emissions to soar" June 4, 2021 https://www.euronews.com/next/2021/05/28/superfast-but-not-so-clean-china-s-5g-network-is-causing-its-carbon-emissions-to-soar

^[16] "5G 90% more energy-efficient than 4G, Nokia study finds" December 8, 2020 https://www.smart-energy.com/industry-sectors/digitalisation/5g-90-more-energy-efficient-than-4g-nokia-and-telefonica-find/

^[17] "Friend or foe? The potential climate benefits of 5G" June 4, 2021 https://energymonitor.ai/tech/digitalisation/friend-or-foe-the-potential-climate-benefits-of-5g

^[18]  "Superfast but not so clean: China’s 5G network is causing its carbon emissions to soar" June 4, 2021 https://www.euronews.com/next/2021/05/28/superfast-but-not-so-clean-china-s-5g-network-is-causing-its-carbon-emissions-to-soar

(Washington)

Biden’s big ‘death tax’ has been spooking advisors and their wealthy clients for months now, and there are very major concerns over if and when it will be implemented. Well we have good news and bad news today. The good news is that both the House Democrats and the Ways and Means commission have put forth proposals with significantly lower tax rates than Biden’s initial budget. The House Democrats, for instance, would keep all-in capital gains taxes at a max of around 28.8% (counting the surtax). The bad news is that a recent adoption by the Ways and Means Commission puts the cutoff date for any company sales that would be affected by Biden’s much bigger capital gains taxes as Sept 13th (for sales with a binding contract prior to that date).

FINSUM: Overall, the direction of the proposals is getting more favorable for the HNW community, but there is still a LONG way to go.

(New York)

Most advisors know and respect Wade Pfau, a retirement guru in our space. Well Wade has just offered a new take on annuities as part of a broader conversation on retirement income strategies. According to Pfau, “Annuities deserve an equal seat at the table with any other retirement income strategy … The whole idea that annuities mean giving up something is not true”. Pfau says that understanding a client’s retirement income preferences is key. For example, the total return approach is not for everyone, and the peace of mind of guaranteed income can be a big winner for certain clients.

FINSUM: Pfau’s one-size-does-not-fit-all view is a very apt one and it highlights how annuities could be the bedrock of a strategy for one client, and completely absent for another, with the majority being somewhere in between.

(New York)

Morningstar has become a leader in model coverage. The firm covers several hundred models and gives each multiple ratings. As the model world continues to grow, this is getting more and more useful. Here is our third installment of our coverage of Morningstar’s rankings, with the top 5 covered. The rankings: #5 is American Funds Growth (silver rating); #4 is American Funds Growth & Income (silver); #3 is American Funds Income; #2 is Vanguard Core (gold); and #1 is BlackRock Target Allocation ETF (gold).

FINSUM: There is a pretty low diversity of providers in the top 15, but this speaks to the expertise a handful of firms have developed in this space.

Responsible investors have long believed that investing with embedded consideration of environmental, social, and governance (ESG) factors is a compelling approach to identify investment opportunities: well-run, thoughtfully managed companies built for the long term, ready to foster societal transition and dynamically adapt to our rapidly changing world. This belief is simple enough to justify: identification, application, and integration of ESG risks and opportunities can provide investors with additional, independently derived insight into a company’s management quality, strategic positioning, operational efficiency, and potential risk exposure.

The broader investment community has caught on. In 2020, ESG funds saw greater inflows than in any year prior, a nearly 140% increase over 2019 and nearly ten times greater than in 2018. Corporations have responded to this shift, with a record number of companies appointing their first Chief Sustainability Officer (CSO) in 2020, a year that saw more CSOs recruited than in the previous three years combined. 

SUSTAINABLE FUND ANNUAL FLOWS AND ASSETS

Source: Morningstar. Data as of 12/31/2020
Includes Sustainable Funds as defined in Sustainable Funds U.S. Landscape Report, Feb. 2020.
Includes funds that have been liquidated, does not include funds of funds.

The transformative potential in the hands of ESG investors has grown by orders of magnitude. This exponential growth has brought an increasingly crowded field with a variety of approaches to ESG, creating ambiguity in the marketplace over what it means to be intentional as an impact investor. An authentic, intentional, and holistic approach relies on aligning active ownership strategies (e.g., shareholder resolutions, public policy participation, voting proxies) with stated investment goals, an ESG-led research process, and impact-oriented themes and targets.

Dispelling a Persistent Myth

There has been a widespread misconception among investors that ESG factors are non-financial. This is not entirely accurate. ESG factors can instead represent unpriced externalities and unmanaged risks that are uncorrelated with traditional financial metrics. By incorporating ESG factors into security analysis, investors can identify a host of material issues core to business fundamentals, enhancing the ability to recognize patterns that are not already priced in.

In addition to risk-mitigation, businesses that proactively accelerate the adoption of positive ESG practices and the development of solutions-oriented products have a unique opportunity to exceed revenue expectations and thus be rewarded with higher ratings over time. These companies may see an improving competitive position versus peers, while those that are on the wrong side of this transition may see changes in their cost of capital and an accompanying deterioration in their competitive position. Investing in the transition to a more just, sustainable world gives investors access to solutions-fixed revenue streams while altering the trajectory on climate action and racial equity among a host of other vital issues.

Identifying strong business fundamentals and ESG process leadership — underpinned by the belief that businesses with forward-thinking managements are higher quality — combined with insights gained from global, proactive, and sustained shareowner engagement can together form a positive feedback loop for better investment decision-making. Managers with the knowledge and experience to employ this holistic approach understand the need to incorporate the product dimension into impact and support companies whose products and services are solutions for societal, environmental, and human rights problems.

ACTIVE OWNERSHIP STRATEGIES

The Way Forward

We are at an inflection point where ESG is transitioning from niche to mainstream. True to the original spirit of the movement, we should hope not to build a new investment establishment in the image of the old, but instead to forge a dynamic, holistic, evolved approach, generating positive impacts by holding companies accountable as stewards of people and planet. As investors, holding ourselves to the same high standards we demand of portfolio companies will go a long way toward making these impacts sustainable.

We hope that you will join us on the journey.

By Liz Su, CFA and Kevin Hart, CIMA of Boston Common Asset Management

Past performance is not a guarantee of future results. Investing involves risk including possible loss of principal.

This does not constitute investment advice or an investment recommendation.

This represents the views and opinions of Boston Common Asset Management.  It does not constitute investment advice or an offer or solicitation to purchase or sell any security and is subject to change at any time due to changes in market or economic conditions. The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes.

Applying ESG investment criteria to investments may result in the selection or exclusion of securities of certain issuers for reasons other than performance, and may underperform investments that do not utilize an ESG investment strategy. The application of an ESG strategy may affect an investment's exposure to certain companies, sectors, regions, countries or types of investments, which could negatively impact performance depending on whether such investments are in or out of favor. Applying ESG criteria to investment decisions is qualitative and subjective by nature, and there is no guarantee that the criteria utilized or any judgment exercised by an investment manager will reflect the beliefs or values of any particular investor.​

AMG Funds LLC (“AMG Funds”) is a wholly-owned subsidiary and U.S. retail distribution arm of AMG. AMG Funds offers long-term investment strategies through a unique platform that includes a family of funds and separate accounts managed by a selection of AMG's investment managers.

N.B. This is sponsored content and not FINSUM editorial.