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Climate craze accelerates ESG investing amid pandemic

Ecofin is a sustainable investment firm dedicated to uniting ecology and finance. Matt Breidert — Senior Portfolio Manager at Ecofin joins Yahoo Finance Live to break down the company's mission to generate strong risk-adjusted returns in 2021 and weigh in on the rise in ESG investing.

Video Transcript

- Well, President Biden's focus on climate and green energy also providing a big lift to ESG funds. Net new inflows into ESG funds topped $51 million last year. That is the fifth straight year we have seen records on that front. Ecofin one of those companies that is investing in a significant way. Let's bring in Matt Breidert. He is from Ecofin, the PM, their portfolio manager. And Matt, you've been listening to that conversation from Tom. No question you're very familiar with the company, as well. But can you speak specifically to the kind of bump that you have gotten on the back of expectations of more climate-friendly policies coming from this administration?

MATT BREIDERT: Yeah. Thanks for having me today. I think the main thing that's really happened in the last year is that investors are starting to recognize that the opportunity set inside sustainability and ESG actually focuses heavily around growth. And a lot of these opportunities are growth-based, rather than simply repositioning portfolios around specific attributes of ESG. And inside ESG, really in order to accomplish a lot of the goals inside ESG, in particular climate change, you really need to undertake a massive amount of substitution of existing assets in the global infrastructure space.

- Now, one question for you, I guess, is in the financial underpinnings of this ESG world, which has really exploded over the last two years or so, what is the role for a fund-- it seems like ETFs have also gained a lot of interest, as well, so there's kind of that back-and-forth with passive versus active, but where do you see the role of what you guys are providing in the space within the context of that ecosystem?

MATT BREIDERT: Well, I think the role of any active fund is ultimately that the managers are able to discern opportunities in the marketplace that aren't just based on simple things like market cap or dominant leading position today. It's about finding the companies of tomorrow that are positioning themselves to find explosive growth in certain new markets. That could be anywhere in the globe, in Thailand, in Vietnam, in China. It could also be lots of companies that aren't part of the main benchmark constituent indexes that most of the ETFs attack.

So you know, we tend to think also there's a huge component of active management around discerning what sustainability content actually looks like inside these companies. It's not a one size fits all approach. You need to engage with management teams about what your alignment and intentionality is, both of the company and for your investors. And that relationship actually develops over time. So I think there's a lot to really look at inside the active management role in ESG that's quite different than the ETF explosion.

- Well, you mentioned the global growth that we have seen. Where are you seeing the biggest gains right now when you look outside the US?

MATT BREIDERT: Well, I mean, if you wanted to take one mega theme that's probably bigger than anything else in energy, it's that we think electricity wins. Electricity today is about 20% of global market share inside the energy pie. And we think over the next 20 years, that number doubles. And it doubles because there's four big verticals that are pulling on electricity. And then inside electricity, we think almost all of it relates to renewable energy.

So the first one is decarbonizing supply chains. These are companies like Apple, that are demanding that their suppliers decarbonize the content of the materials that they use to manufacture. The second big vertical would be electric vehicles. Clearly, that's a whole new market for electricity. And we believe that most of the electricity drawn by electric vehicles needs to be decarbonized, and therefore needs to be renewables.

The third big one would be around green hydrogen, which we think will supply the precursor materials to decarbonizing other industries, like heavy industry or petrochemicals and plastics, in order to make decarbonized plastics. And then the last big quadrant there is really utilities. We think utilities almost completely decarbonize over the next 10 to 20 years. As you heard from Tom earlier, there's great economics attached to that migration and substitution. And it just keeps getting better. So we think the whole spectrum of electricity is really exciting for growth and for sustainability right now.