At ACS Group, we believe sustainable housing is important in the battle against climate change. Real Estate is a major contributor of CO2 emissions, contributing 40% to global CO2 Emissions (building operations accounting for 27%, and building materials and construction accounting for 13%).

As we envision a decarbonized future, energy efficient and sustainable homes emerge as a key component.  Some of the companies in our Sustainable Future Fund are leaders in this area and help drive the transition towards more environmentally sustainable housing.

While there are multiple aspects of sustainable housing, in this note we focus on energy efficiency and renewable energy integration. We intend to highlight the latest construction materials, technologies and energy efficiency standards that go into the “House of the Future”.

Energy Efficiency

Energy efficiency plays a crucial role in sustainable housing as it drives reduced energy consumption leading to cost savings for the homeowner coupled with reduced carbon footprint of the house. We have identified the following key approaches as critical for maximizing energy efficiency in houses.

Effective Insulation

Proper insulation helps prevent heat transfer, minimizing the need for excessive heating or cooling. By preventing unwanted heat transfer through walls, roofs, and windows, insulation significantly reduces the reliance on heating and cooling systems.

Efficient Appliances and Lighting:

Traditional appliances are energy intensive and replacing these with energy-efficient refrigerators, air conditioners, and washing machines, can lead to cost savings. Energy-efficient lighting options, such as LED bulbs, offer numerous cost benefits to homeowners.

Energy-Efficient HVAC Systems: Heating, ventilation, and cooling (HVAC) systems account for a significant portion of a house's energy consumption. It is estimated that 50% of a household’s energy bill goes towards heating and cooling. From an environmental perspective, researchers estimate air conditioning alone is responsible for the 1,950 million tons of CO2 released annually, which is 4% of total global greenhouse gas emissions.

Advanced Energy Management:

Advanced energy management technologies allows consumers to optimize energy consumption, enhance operational efficiencies, and reduce greenhouse gas emissions. By providing real-time insights into energy usage patterns and system performance, these technologies compliment the energy efficient insulation, appliances, and HVAC Systems to achieve significant cost savings and realize environmental benefits.

Renewable Energy Integration

In addition to energy efficiency, incorporating renewable energy sources in sustainable houses is essential to achieving a net-zero or positive energy balance. The most popular renewable energy systems catering to residential housing are as follows:

Residential Solar Photovoltaic (PV) Systems

This is most widely adopted method of renewable energy integration. Solar PV systems are typically installed on roof tops or as ground-mounted arrays to capture sunlight. The declining unit cost of solar panels, combined with government incentives and financing options, has made solar energy an increasingly viable option for homeowners. Residential solar PV installations have seen significant growth, with over 2 million installations in the United States and 43,000 installations in Canada.

Air Source Heat Pumps

Air source heat pumps (ASHPs) extract heat from the outdoor air to provide heating and cooling for residential spaces. It accomplishes this by absorbing heat energy from the outside air, compressing it to increase its temperature, and then releasing it indoors through a heat exchanger. ASHPs utilize electricity to power the system, as opposed to fossil fuels which are used in a typical natural gas furnace. In heating mode, the ASHP transfers heat from the outside air to warm the indoor space, while in cooling mode, it reverses the process to extract heat from the indoor air and release it outdoors.

Geothermal Heat Pumps

Geothermal heat pumps (GHPs) utilize the Earth's stable temperature to provide efficient heating and cooling for buildings. They extract heat from the ground through a system of pipes buried underground, known as the ground loop. In the heating mode, the GHP absorbs heat from the Earth to warm the building, while in the cooling mode, it extracts heat from the building and transfers it back to the ground. By tapping into the Earth's natural heat, homeowners can realize substantial cost savings and enhanced energy efficiency.

Energy Storage Systems

One of the biggest challenges with Renewable Energy has been storage and energy on demand. Energy Storage systems enable homeowners to store excess energy generated from renewable sources, reduce reliance on the grid, and achieve significant cost savings. Some of the popular systems in the market are:

Battery Energy Storage Systems (BESS)

BESS is the most popular solution that helps store electricity from renewable sources such as solar panels in rechargeable batteries. The batteries store the energy for later use, typically during peak demand periods or when renewable energy generation is low. The energy management system monitors the battery’s charge level, controls the charging and discharging process to ensure optimal performance. Through an inverter, the stored energy is then converted to electricity to power the home instead of relying solely on the grid. The flexibility to store excess energy during periods of low demand or high renewable energy production, helps homeowners avoid peak-demand charges and take advantage of low demand electricity rates.

Residential Thermal Energy Storage (TES)

TES systems work by storing and releasing heat energy to meet heating, cooling, and hot water demand in homes. These systems utilize various storage mediums such as water, ice, or phase-change materials. During excess or off-peak energy availability, the TES system absorbs heat energy, which is stored in the storage medium. When required, the stored heat is released to provide the desired temperature, reducing the need for conventional heating or cooling methods. By optimizing energy usage and utilizing stored heat energy, residential TES systems offer cost savings and increased energy efficiency for homeowners.

Conclusion

The combined efforts of energy efficiency measures and renewable energy integration can result in a substantial reduction in greenhouse gas emissions. Moreover, promoting energy efficiency and renewable energy in residential buildings can foster innovation, create green jobs, and drive economic growth within the clean energy sector.

To ensure widespread adoption, it is crucial for policymakers and industry stakeholders to provide incentives, financial support, and accessible information to homeowners. This can include tax credits, rebates, and streamlined permitting processes for renewable energy installations. Education and awareness campaigns should also be implemented to inform homeowners about the benefits and potential cost savings associated with energy-efficient and renewable energy solutions.

Our perspective is that energy efficiency and renewable energy integration in houses offer a pathway to a more sustainable environmental future. By prioritizing these measures, homeowners can reduce their carbon footprint, enhance energy security, and contribute to the transition to a low-carbon economy. This change is accelerated when individuals, communities, corporations, and governments work together to facilitate the adoption of energy-efficient and renewable energy solutions in residential buildings. Ultimately, this will lead to a greener and more sustainable future.

At ACS, we believe in investing in companies that play an important role in the decarbonization of housing. These companies fit with our thematic approach of Sustainable Cities and Energy Transition.

References:

ACS Group-Investment in Water Infrastructure

March 2023

At ACS Group, water infrastructure is a theme we’ve identified in the ACS Sustainable Future Fund as having both strong financial and Socially Responsible Investing merits.

We believe increased urbanization will put strain on municipal infrastructure, including existing water infrastructure.  To grow sustainably, cities must address the need for updated and modern water infrastructure. 

What is Water Infrastructure?

According to the US Environmental Protection Agency (EPA), water infrastructure includes all man-made and natural features that move and treat water. It can be classified into three segments:

In North America and Europe, the vast majority of water infrastructure is government owned and managed.  However, the suppliers of components for this infrastructure, such as pipes and valves are typically for-profit companies, including several publicly listed companies.  As such, the largest customers of these companies are governments, and government funding drives much of the investment in water infrastructure.

Why is Water Infrastructure Investment Crucial?

Much of the water Infrastructure in the US and Canada was built in the early 20th century and is long overdue for upgrades.  The American Society of Civil Engineers (ASCE) estimates as of 2019, the total capital spending gap on water infrastructure in the US is upwards of US$81 billion.  The Federation of Canadian Municipalities estimate C$50 billion alone needs to be invested to renew water infrastructure in Canada that are in poor condition. According to OECD, European Union would need a cumulative additional spend of EUR289 billion by 2030 to comply with guidelines.

To this end, ASCE estimates the US has a water main break every two minutes and results in the lose of 6 billion gallons of treated water each day. 

Outdated water infrastructure has serious consequences on quality of life. In 2014, Flint, Michigan witnessed the catastrophic effects of outdated water infrastructure when over 100,000 people, including close to 12,000 children, were exposed to elevated lead levels from aging lead pipe systems.  Elevated lead exposure could lead to serious health issues, including reduced intellectual functioning and increased chances of Alzheimer’s.

The stability of water infrastructure will be further stressed by changing weather patterns brought on by climate change.  It is anticipated that these less predictable weather patterns may create more major weather events, such as urban flooding, stormwater management issues and droughts.  Having the necessary infrastructure in place will be even more critical.

US Funding for Water Infrastructure

The Biden administration passed the Infrastructure Investment and Jobs Act (IIJA) that provides funding of up to US$55 billion to upgrade US water infrastructure.  This includes US$12 billion on wastewater/stormwater management systems and US$4 billion on remediating synthetic chemicals (PFSA) in drinking water. IIJA also includes dedicated funding of US$15 billion to replace lead pipes in the United States.  However, the Brookings Institution estimates the cost of replacing lead pipes from the US drinking water system will exceed US$28 billion, so while this is a welcome step, we note that there will likely be much more funding required in future to address this infrastructure need.

The ACS Investment Thesis

From a Socially Responsible Investment perspective, we believe that access to clean drinking water and sanitization is a fundamental human right.  We believe that government owning and operating water infrastructure ensures that equitable access to this human right is best preserved.  To enhance the government’s ability to effectively deliver on this, we view the role of private industry as critical.  We highlight that the private sector has brought about innovations in water infrastructure that reduce potable water losses and mitigate urban flooding. 

Some of the most exciting innovations we’ve seen recently in water infrastructure are:

From a financial investment perspective, as the approved funding makes it way to the state and local governments, we expect the water infrastructure companies to benefit from increased order backlog that will help drive revenue growth and earnings visibility. We see companies providing drinking water infrastructure to be the early beneficiaries of the upgrade cycle, followed by suppliers in wastewater and stormwater infrastructure. Our expectation is the spending is not a one-off event, as the need to upgrade and maintain the infrastructure will continue to drive strong demand for the water infrastructure suppliers and contractors. 

From both our SRI and financial perspective, at ACS, we are constructive on companies that play important roles in the modernization of water infrastructure.  This area of investment is a focus for us and supports our thesis on Sustainable Cities.

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Sources Cited

  1. American Society of Civil Engineers, “Report Card for America’s Infrastructure”, https://infrastructurereportcard.org/cat-item/stormwater-infrastructure/ accessed Feb 2023
  2. Various organizations, “Canadian Infrastructure Report Card”: http://canadianinfrastructure.ca/en/index.html, accessed Feb 2023
  3. Brookings Institution, “What would it cost to replace all the nation’s lead water pipes?”: https://www.brookings.edu/blog/up-front/2021/05/13/what-would-it-cost-to-replace-all-the-nations-lead-water-pipes/, accessed Feb 2023
  4. Environmental Protection Agency, “Bipartisan Infrastructure Law”: https://www.epa.gov/system/files/documents/2021-11/e-ow-bid-fact-sheet-final.508.pdf, accessed Feb 2023
  5. OECD, “Roundtable on Financing Water”: https://www.oecd.org/water/Session2-Financing-needs-and-capacities-for-water-related-investments-in-Europe.pdf, accessed Feb 2023

A January 2023 report from, the Canadian Centre on Substance Use and Addiction (CCSA) has brought one of our divestment areas at ACS Group into focus. The CCSA was created in 1988 by an Act of Federal Parliament to provide national guidance on substance use.

The CCSA has released new guidelines on what constitutes low-risk alcohol consumption.  The new guidelines say that low or moderate risk drinking is no more than six alcoholic beverages a week for both men and women.  This is roughly half the amount of alcohol from prior guidance. The study points to increased risk in cancer and stroke from the consumption of alcohol as rationale for the change. 

There has been a fair amount of coverage of the change in guidelines, in large part because alcohol consumption is very common among Canadians.  As of 2021, roughly 2/3 of Canadians aged 15 or older report consuming alcohol within the past 30 days (that’s 21 million people).  The decision to follow the new guidelines clearly will affect many Canadians.

Yes, but how does this impact investment decision making?

The assessment investors need to make comes in a couple different ways.  Firstly, would a wide spread change in public health guidance advocating for a reduction in alcohol consumption change consumer behaviours? The likely answer is that consumer behaviours do change as a result of forceful public policy.  We’ve seen this in terms of cigarette consumption in many Western Nations.  However, in the short term, we can speculate that global alcohol consumption is not going to be affected by a change in Canadian guidelines.  Perhaps the neighbourhood craft brewer around the corner in Canada will be impacted if Canadian behaviour changes, but global giants like Heineken likely won’t notice.

Secondly, investors should ask it they are comfortable being owners of companies that produce a product associated with increasing evidence of negative health outcomes?  In the ACS Responsible Beta Funds, we have made the decision since the outset of the funds to divest from alcohol makers.  This decision was not a clear cut one.  On the positive side, alcohol consumption for most people is a choice and in moderation is not particularly detrimental.  On the negative side, alcohol is not accepted in many cultures, medical guidance increasingly points to negative health outcomes and there are concerns around substance use disorders.

This is illustrative of how Socially Responsible Investing (SRI) can be used as an investment decision making tool. 

In this instance, we identified a social concern with alcohol that would preclude making an investment.  As such, we made an investment decision based on SRI principles. 
What has subsequently happened is that the social/health risks of alcohol are being identified by policymakers and new guidelines on moderation have been released. As a result, government policy is beginning to pose a greater negative risk to the alcohol industry and its business model.  While it is early days yet, there is a scenario where alcohol faces the same threats as the cigarette industry, which we would view as a major detriment to stock performance.

By using an SRI lens, we have got out in front of an investment decision that would be based solely on a threat to a business model.  This shows how SRI can be used as a tool to effectively identify and manage risks before they transpire in a company and an industry.

ACS Group-Divestment from Alcohol

November, 2022

At ACS Group, we recognize that the application of a Socially Responsible Investing approach is not a one size fits all methodology. There is nuance in every investment and understanding this nuance and making a judgement call based on both Financial Investment and Socially Responsible Investing merits is at the heart of what we do. After careful consideration, we have determined that fertilizers producers are suitable investments for both the ACS Responsible Beta Funds and the ACS Sustainable Future Fund. We view their products as key inputs in feeding our global population. Below we briefly describe the sector, our financial outlook for it and the ESG analysis we conducted, balancing Environmental versus Social considerations.

What are fertilizers?

A fertilizer is a natural or synthetic substance containing the chemical elements that improve growth and productiveness of plants. The farming and subsequent removal/consumption of annual crops, such as corn, consumes the nutrients that are naturally in the soil. Instead of letting the fields sit empty, to help regenerate some of these chemicals, farmers instead put fertilizer on the soil. Much of fertilizers used are synthetic, as opposed to natural (e.g., manure, compost, or bone meal).

There are three primary nutrients provided by fertilizers:

What is our Financial Outlook for the Fertilizer Sector?

The Fertilizer sector has been a laggard over the past decade. The Solactive Global Fertilizer/Potash index, which tracks the top public fertilizer companies, has returned just over 2%/annum since 2011, compared to roughly 13%/annum for the S&P 500 over that period.  However, fertilizer stocks tend to be more cyclical and could perform better than the broader market during certain periods.

The period we are in currently has some significant tailwinds for the fertilizer sector. In the short-term, the Ukraine war is having a two-fold impact on fertilizer companies. Firstly, it has created a reduction in global supply of fertilizer from Belarus and Russia, which has increased the price of fertilizers. Secondly, there is increasing pressure on global food supply and crop production levels, due to reduced grain exports from Ukraine. This creates an environment for higher crop prices, which leads to higher fertilizer demand, which, in turn, should create more profitability among fertilizer producers in stable regions.

In the longer term, the fertilizer sector has a lower correlation with other cyclical sectors, such as energy, and may improve overall portfolio risk. In addition, changing weather patterns because of climate change has put pressure on yields for existing farming and farmland operations. Fertilizers will be an increasingly important input to enable high production levels.

Socially Responsible Investment: Pros

The primary reason to invest in fertilizers is that they are a crucial input to perhaps the most critical human function on this planet, the production of food. It is unlikely current levels of global calorie consumption could be achieved without the use of synthetic fertilizers, and even more so if we consider the growing middle class and its demand for higher protein diets. For example, the use of chemical fertilizers is estimated to increase crop yields in Western Canada by over 50% annually.[1]

Chemical fertilizers are also consistent and straightforward to use. This enables farmers to grow food supply and prevent shortages more predictably. The usage levels of chemical fertilizers and the growth of human population follows a near identical growth chart.

Socially Responsible Investment: Cons

The primary concern is the amount of energy used in production of chemical fertilizers. Carbon Brief estimates that approximately 1.4% of annual CO2 emissions are due to fertilizer production.[2] Ammonia is created by combusting greenhouse gases, and phosphorus and potassium is produced with mining operations which emits CO2.

Secondly, there is a concern that excess fertilizers use may cause contamination of ground water and other surrounding ecosystems. Related to this, monoculture, the common practice of growing a single crop year-after-year on a field, is an intensive farming technique which depletes soil nutrients. As such, it has high fertilizer demand, further perpetuating the amount of synthetic fertilizer introduced into ecosystems.

Conclusion

Feeding our human population is the foremost need on our planet. Chemical fertilizers enable us to do this efficiently and more effectively. As such, the social considerations outweigh the environmental concerns in this case and contribute to us viewing fertilizers as a net positive. That said, as owners of these companies, we need to be good stewards, and thus commit to the following principles:

ACS as Environmental Stewards


  1. McKenzie, Ross, “Pros and cons of using chem fertilizers”, Top Crop Manager, November 2, 2015 (accessed November 11, 2022): https://www.topcropmanager.com/pros-and-cons-of-using-chem-fertilizers-18067/
  2. Viglione, Giuliana, “What does the worlds reliance on fertilisers mean for climate change”, Carbon Brief, July 11, 2022 (accessed November 12, 2022): https://www.carbonbrief.org/qa-what-does-the-worlds-reliance-on-fertilisers-mean-for-climate-change/

What is Socially-Responsible Investing?

Socially-responsible investing (SRI), or sustainable investing, is a broad term used by many investment firms and applied with various nuances.  SRI commonly refers to the practice of excluding from a financial portfolio those companies that are involved in industries affected by negative environmental, social, or governance (ESG) issues.  However, as outlined in the Harvard Business Review (2019), there are many strategies for sustainable investing:

As part of active ownership some SRI firms may also practice shareholder engagement, meaning that they vote in or file shareholder resolutions proposing changes in the way a company operates. Shareholder resolutions can help bring more transparency to a company, demand increased gender diversity on a board, or even pressure a company to begin ESG reporting.  Some examples of successful shareholder resolutions addressing ESG issues can be found here: www.ussif.org/resolutions.

A central premise of SRI is that companies that exhibit negative environmental, social, and governance factors pose both a financial risk as well as a risk to local and global wellbeing.  Ultimately, the industries or companies that an SRI firm decides to exclude vary depending on the firm. 

SRI at Advantage Capital Strategies Group

At Advantage Capital Strategies Group, our approach to SRI refers to the exclusion of companies involved in any of the following industries:

SRI in Canada

Socially-responsible investing is experiencing profound growth both in Canada and worldwide.  The value of Canadian assets deemed to be responsible investments is estimated to be over $2.1 trillion and growing.  In fact, according to the Responsible Investment Association, responsible investments now account for over half of all Canadian assets under management.

Many investment firms offer socially-responsible products or strategies, but only some apply socially-responsible principles to their entire investment portfolio.  Advantage Capital Strategies Group is focused primarily on responsible investing and economic return; these principles are inextricable from our identity, and we believe that they are not mutually exclusive.  In fact, research demonstrates that investments made using SRI principles are lower in risk and outperform traditional funds over 60% of the time.

The SRI Landscape

Globally, SRI continues to grow and capture the attention – and assets – of investors.  In Europe SRI funds hold at least half of all assets, while in the United States investors have been slower to adopt ESG principles, with the Harvard Business Review estimating that about 25% of American assets are in SRI funds.  According to the Responsible Investment Association and the Harvard Business Review, 50% of Canadian assets are in SRI funds, a level similar to Europe. Globally, it is believed that over half of all assets are either already in funds that consider ESG factors or funds that are in the process of evaluating ESG factors. Considering that SRI is still a growing field, it is not difficult to imagine a future in which most assets are held by funds that utilize sustainable investing strategies. 

SRI is practiced by many types of investors, ranging from individuals to pension plan administrators to religious institutions.  Different types of investors may have different reasons for choosing SRI: for some, social activism may be the most important factor, while others may use SRI as a means of limiting asset exposure to companies at risk of being affected by climate change or other ESG factors.

Trends in SRI

Standardized SRI reporting

Unlike financial reporting, which is regulated federally, there is no regulated or standardized method of reporting ESG performance.  Therefore, if a company includes an ESG report in its Annual Report, they do so of their own accord and often according to their own standards.  Some companies report ESG performance using the standards developed by the Sustainability Accounting Standards Board (SASB), an independent organization offering standardized methodology for ESG reporting, but other companies may not report ESG performance at all. 

There are many ways that SRI will grow and change in the future, but one change that researchers anticipate is that ESG performance reporting will become regulated and standardized just like financial reporting.  Such a change would allow for more accurate comparison of ESG performance between companies.

Private company impact investments

There is an increasing view that SRI can fall across asset classes.  Notably, private company investments might be the most conducive to impact investment, as investors have more flexibility in accessing management and setting company direction.  As such, investments can be made with the understanding that the creation of social impact, as well as financial returns are one of the driving factors in company success.

Fiduciary duty

Another change that may arise is in the widening of the definition of fiduciary duty to include consideration of ESG factors. Fiduciary duty refers to the legal obligation of one party to act in the best interest of another party, such as in the advisor-investor relationship, where the advisor is bound to act in the best interest – financially – of the investor.  However, because ESG factors have been demonstrated to influence financial performance, it is possible that the legal definition of fiduciary duty may widen to include necessary consideration of ESG issues.  Implemented on a national or global level, such a shift would effectively make ESG-based investing the standard for investment practices.  There is already some evidence of such a widening occurring: for example, in Ontario, the Financial Services Commission has issued a note requiring pension plan administrators to disclose their approach to considering ESG factors when developing the plan’s investment strategy.

The level of discussion concerning the relationship between fiduciary duty and ESG factors suggests indicates the growing prevalence of SRI at the national and international levels.  There is still more research and growth needed in the field of sustainable investing, and many organizations and institutions are working to fill these gaps.  Advantage Capital Strategies Group is proud to be part of the growing community of sustainable investors working to combine financial return with social responsibility.

For further reading, please visit:

Works Cited

Harvard Business Review Podcast: hbr.org/ideacast/2019/05/why-its-time-to-finally-worry-about-esg?referral=03759&cm_vc=rr_item_page.bottom

Harvard Business Review: hbr.org/2019/05/the-investor-revolution

Financial Services Commission of Ontario: www.fsco.gov.on.ca/en/pensions/policies/active/Documents/IGN-004.pdf

Responsible Investment Association: www.riacanada.ca/responsible-investment/

Responsible Investment Association: www.riacanada.ca/responsible-investment/#benefits-of-ri