Expected impact of low carbon sustainability strategy is neutral to positive for long-term investors
| NEUTRAL | POSITIVE | UNKNOWABLE SHORT TERM |
Neutral
Ultra-low-carbon sustainable versions of Dimensional Core Equity Portfolios power Macroclimate's equity strategy. Since these funds have similar exposure to the drivers of returns as Dimensional's unfiltered funds, expected returns are similar over the long term.
As evidence, since 1975 the exclusion of all energy and utilities companies from a US equity market index portfolio would not have had any material impact on average returns. Refer to chart below for US Market. The same is true in developed markets outside of the US (since 1990) and emerging markets (since 1995).
Source: Dimensional Fund Advisors. Filters were applied to data retroactively and with the benefit of hindsight. Performance is hypothetical, doesn’t reflect trading in actual accounts, and is for information purposes only. US market data from CRSP and Compustat. All hypothetical portfolios presented exclude REITs. Hypothetical US portfolios are capitalization-weighted and rebalanced annually at the end of December. In the US market, sectors are based on SIC classification, which is mapped to GICS classification using a proprietary mapping. CRSP data provided by the Center for Research in Security Prices, University of Chicago. Past performance, including hypothetical performance, is no guarantee of future results. Returns are not representative of indices or actual strategies managed by Dimensional and do not reflect costs and fees associated with an actual investment. Actual returns may be lower.
Sector exclusions in this historical analysis are broader than those employed by Macroclimate’s sustainability strategy, which overweights companies in the energy and utilities sectors that do a better job than their peers at addressing the effects of greenhouse gas emissions.
Positive
Since there's now little doubt we'll face significant climate change effects in our lifetimes, we believe that reducing exposure to fossil fuels is likely to offer more upside than downside for long-term investors (those with a time horizon of 10 or more years). As climate change effects intensify — and the growth of global oil demand slows — downside risks of carbon-intensive assets may escalate.
Source: International Energy Agency’s Oil 2023 report (updated June 2023). This projection is a forward-looking statement. There is a high potential for influences that could likely result in actual results differing materially from the projections.
Short Term
You never know which market sectors will outperform from year to year. This applies to carbon-intensive assets in the short term, too. Carbon-related investments are subject to both real and perceived political risks, which are unknowable, as well as unpredictable, potentially catastrophic changes in the physical world that might affect investor sentiment (favorably or unfavorably).
What we do know is that financial markets have rewarded patient, long-term investors who pay attention to long-term, global trends.