Expected impact of Fossil Free sustainability strategy is neutral to positive for long-term investors

Versus “Unfiltered” but Otherwise Similar Benchmarks


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 versions, expected returns are similar over the long term.

As evidence, since 1975 the exclusion of all energy and utilities companies from an equity market index portfolio did not have any material impact on average returns or volatility. 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).

Excluding Energy and Utilities Sectors Had No Material Impact on Returns
US Market, January 1975 — December 2016

Source: Dimensional Fund Advisors (May 2017). Methodology and Disclosures.

Sector exclusions in this historical analysis are broader than those employed by Macroclimate’s Ulta-low-carbon 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. In other words, we pursue a Divest Invest — not just Divest — strategy.

Since there’s now little doubt we’ll face significant climate change effects in our lifetimes, 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, downside risks of carbon-intensive assets may escalate.

You never know which market sectors will outperform from year to year. This applies to carbon-intensive assets in the short term too. What we do know is that financial markets reward patient, long-term investors and low-carbon energy generally has outperformed high carbon in recent years.

Past performance is no guarantee of future results. 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).