How Differentiated Insights Lead to a Stronger Financial Portfolio
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How Differentiated Insights Lead to a Stronger Financial Portfolio

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The following content is sponsored by MSCI

Differentiated Insights Lead to a Stronger Financial Portfolio

How can wealth managers build better portfolios for a better world? It all begins with the right insights. Using risk and return analytics, along with climate and ESG considerations, wealth managers can:

  • Propose compelling solutions
  • Build stronger portfolios
  • Monitor portfolio performance

In this graphic from MSCI, we show how financial portfolio insights help a wealth manager meet their clients’ needs at each step of the process.

Insights in Action

Let’s look at how these benefits take shape for a hypothetical client and their wealth manager.

  • Client: Faye
  • Investable assets: $1 million
  • Risk tolerance: Medium
  • Preferred strategy: ESG integration

Given this profile, a variety of financial portfolio insights will help Faye understand how a new solution meets her needs.

Build a Strong Financial Portfolio

In the first stage, the wealth manager will begin building a model portfolio by conducting research and risk/return analytics. A stress test shows that the constructed model portfolio would have performed better than its benchmark during historical market downturns.

Downturn EventPortfolio ReturnBenchmark Return
Global Financial Crisis (2007-2009)-34.7%-36.4%
Oil Crisis (1972-1974)-29.3%-31.4%
Argentine Economic Crisis (2000-2002)-23.9%-24.2%
Dot-com Slowdown (2001)-22.2%-24.2%
Market Crash (Oct 14-19, 1987)-15.0%-16.9%

Financial portfolio construction can also include analyzing exposure to factors, or the investment characteristics that drive risk and return.

To take ESG into account, the wealth manager compares an ESG model portfolio to one of their traditional model portfolios across various metrics. They find that the ESG portfolio has similar risk and a higher historical return, along with a higher ESG quality score.

Propose Compelling Solutions

Once the wealth manager has built the financial portfolio, the advisor can use data and analytics to propose the solution to Faye. Relative to Faye’s current portfolio, the proposed portfolio has had higher returns during its best years and a smaller loss during its worst year. This is more in line with Faye’s risk tolerance.

To highlight the ESG characteristics of the proposed portfolio, the advisor shows Faye the ESG ratings distribution for both portfolios.

ESG RatingFaye’s Current PortfolioFaye’s Proposed Portfolio
AAA - Leader5%18%
AA - Leader10%30%
A - Average26%30%
BBB - Average30%15%
BB - Average12%5%
B - Laggard10%1%
CCC  - Laggard7%0%

Note: Numbers may not sum to 100 due to rounding.

Almost half of the proposed portfolio holdings are ESG leaders, compared to only 15% of Faye’s current portfolio holdings. The proposed portfolio also has a 53% lower carbon intensity than Faye’s current portfolio, a reduction that is equivalent to 406,843 miles driven by average passenger cars.

Monitor Financial Portfolio Performance

During portfolio reviews, Faye’s advisor provides meaningful information in order to increase Faye’s satisfaction. This also helps ensure they can make adjustments as needed. Faye’s advisor shows her a breakdown of her portfolio holdings according to their weighting and risk score.

Investment% of PortfolioRisk Score
Delta Air Lines21%228
The Walt Disney Company15%165
UPS4%165
Automatic Data Processing6%115
iShares MSCI USA Equal Weighted ETF30%115
iShares Total Return (TR) MSCI KLD 400 Social ETF12%101
Nushares TR ESG Emerging MKTS Equity ETF12%100

Given Faye has a medium risk tolerance, she may consider reducing her portfolio’s concentration in Delta Airlines.

With regards to ESG, Faye’s advisor can show her how her financial portfolio has been performing in relation to a traditional benchmark. Her advisor shows her that her portfolio has outperformed the non-ESG benchmark year-to-date, and over a five year timeframe.

Positioned for Success

With insights tailored to their preferences, clients are more likely to understand and commit to their financial portfolio. This means wealth managers are positioned to increase client satisfaction—leveraging the power of better portfolios.

Learn more about how MSCI helps wealth managers generate insights here.

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Ranked: Emissions per Capita of the Top 30 U.S. Investor-Owned Utilities

Roughly 25% of all GHG emissions come from electricity production. See how the top 30 IOUs rank by emissions per capita.

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Emissions per Capita of the Top 30 U.S. Investor-Owned Utilities

Approximately 25% of all U.S. greenhouse gas emissions (GHG) come from electricity generation.

Subsequently, this means investor-owned utilities (IOUs) will have a crucial role to play around carbon reduction initiatives. This is particularly true for the top 30 IOUs, where almost 75% of utility customers get their electricity from.

This infographic from the National Public Utilities Council ranks the largest IOUs by emissions per capita. By accounting for the varying customer bases they serve, we get a more accurate look at their green energy practices. Here’s how they line up.

Per Capita Rankings

The emissions per capita rankings for the top 30 investor-owned utilities have large disparities from one another.

Totals range from a high of 25.8 tons of CO2 per customer annually to a low of 0.5 tons.

UtilityEmissions Per Capita (CO2 tons per year)Total Emissions (M)
TransAlta25.816.3
Vistra22.497.0
OGE Energy21.518.2
AES Corporation19.849.9
Southern Company18.077.8
Evergy14.623.6
Alliant Energy14.414.1
DTE Energy14.229.0
Berkshire Hathaway Energy14.057.2
Entergy13.840.5
WEC Energy13.522.2
Ameren12.831.6
Duke Energy12.096.6
Xcel Energy11.943.3
Dominion Energy11.037.8
Emera11.016.6
PNM Resources10.55.6
PPL Corporation10.428.7
American Electric Power9.250.9
Consumers Energy8.716.1
NRG Energy8.229.8
Florida Power and Light8.041.0
Portland General Electric7.66.9
Fortis Inc.6.112.6
Avangrid5.111.6
PSEG3.99.0
Exelon3.834.0
Consolidated Edison1.66.3
Pacific Gas and Electric0.52.6
Next Era Energy Resources01.1

PNM Resources data is from 2019, all other data is as of 2020

Let’s start by looking at the higher scoring IOUs.

TransAlta

TransAlta emits 25.8 tons of CO2 emissions per customer, the largest of any utility on a per capita basis. Altogether, the company’s 630,000 customers emit 16.3 million metric tons. On a recent earnings call, its management discussed clear intent to phase out coal and grow their renewables mix by doubling their renewables fleet. And so far it appears they’ve been making good on their promise, having shut down the Canadian Highvale coal mine recently.

Vistra

Vistra had the highest total emissions at 97 million tons of CO2 per year and is almost exclusively a coal and gas generator. However, the company announced plans for 60% reductions in CO2 emissions by 2030 and is striving to be carbon neutral by 2050. As the highest total emitter, this transition would make a noticeable impact on total utility emissions if successful.

Currently, based on their 4.3 million customers, Vistra sees per capita emissions of 22.4 tons a year. The utility is a key electricity provider for Texas, ad here’s how their electricity mix compares to that of the state as a whole:

Energy SourceVistraState of Texas
Gas63%52%
Coal29%15%
Nuclear6%9%
Renewables1%24%
Oil1%0%

Despite their ambitious green energy pledges, for now only 1% of Vistra’s electricity comes from renewables compared to 24% for Texas, where wind energy is prospering.

Based on those scores, the average customer from some of the highest emitting utility groups emit about the same as a customer from each of the bottom seven, who clearly have greener energy practices. Let’s take a closer look at emissions for some of the bottom scoring entities.

Utilities With The Greenest Energy Practices

Groups with the lowest carbon emission scores are in many ways leaders on the path towards a greener future.

Exelon

Exelon emits only 3.8 tons of CO2 emissions per capita annually and is one of the top clean power generators across the Americas. In the last decade they’ve reduced their GHG emissions by 18 million metric tons, and have recently teamed up with the state of Illinois through the Clean Energy Jobs Act. Through this, Exelon will receive $700 million in subsidies as it phases out coal and gas plants to meet 2030 and 2045 targets.

Consolidated Edison

Consolidated Edison serves nearly 4 million customers with a large chunk coming from New York state. Altogether, they emit 1.6 tons of CO2 emissions per capita from their electricity generation.

The utility group is making notable strides towards a sustainable future by expanding its renewable projects and testing higher capacity limits. In addition, they are often praised for their financial management and carry the title of dividend aristocrat, having increased their dividend for 47 years and counting. In fact, this is the longest out of any utility company in the S&P 500.

A Sustainable Tomorrow

Altogether, utilities will have a pivotal role to play in decarbonization efforts. This is particularly true for the top 30 U.S. IOUs, who serve millions of Americans.

Ultimately, this means a unique moment for utilities is emerging. As the transition toward cleaner energy continues and various groups push to achieve their goals, all eyes will be on utilities to deliver.

The National Public Utilities Council is the go-to resource to learn how utilities can lead in the path towards decarbonization.

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The Road to Decarbonization: How Asphalt is Affecting the Planet

The U.S. alone generates ∼12 million tons of asphalt shingles tear-off waste and installation scrap every year and more than 90% of it is dumped into landfills.

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Road to Decarbonization - How Asphalt is Affecting the Planet

The Road to Decarbonization: How Asphalt is Affecting the Planet

Asphalt, also known as bitumen, has various applications in the modern economy, with annual demand reaching 110 million tons globally.

Until the 20th century, natural asphalt made from decomposed plants accounted for the majority of asphalt production. Today, most asphalt is refined from crude oil.

This graphic, sponsored by Northstar Clean Technologies, shows how new technologies to reuse and recycle asphalt can help protect the environment.

The Impact of Climate Change

Pollution from vehicles is expected to decline as electric vehicles replace internal combustion engines.

But pollution from asphalt could actually increase in the next decades because of rising temperatures in some parts of the Earth. When subjected to extreme temperatures, asphalt releases harmful greenhouse gases (GHG) into the atmosphere.

Emissions from Road Construction (Source) CO2 equivalent (%)
Asphalt 28%
Concrete18%
Excavators and Haulers16%
Trucks13%
Crushing Plant 10%
Galvanized Steel 6%
Reinforced Steel6%
Plastic Piping 2%
Geotextile1%

Asphalt paved surfaces and roofs make up approximately 45% and 20% of surfaces in U.S. cities, respectively. Furthermore, 75% of single-family detached homes in Canada and the U.S. have asphalt shingles on their roofs.

Reducing the Environmental Impact of Asphalt

Similar to roads, asphalt shingles have oil as the primary component, which is especially harmful to the environment.

Shingles do not decompose or biodegrade. The U.S. alone generates ∼12 million tons of asphalt shingles tear-off waste and installation scrap every year and more than 90% of it is dumped into landfills, the equivalent of 20 million barrels of oil.

But most of it can be reused, rather than taking up valuable landfill space.

Using technology, the primary components in shingles can be repurposed into liquid asphalt, aggregate, and fiber, for use in road construction, embankments, and new shingles.

Providing the construction industry with clean, sustainable processing solutions is also a big business opportunity. Canada alone is a $1.3 billion market for recovering and reprocessing shingles.

Northstar Clean Technologies is the only public company that repurposes 99% of asphalt shingles components that otherwise go to landfills.

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