Peter Krull, founder and CEO of Earth Equity Advisors, lives and breathes his mantra of sustainable investing: He uses solar panels on his roof to generate electricity for his home, drives an electric car and invests only in socially responsible stocks and funds.
These are just some of the reasons the Asheville, North Carolina-based financial professional was selected as a 2021 winner of ThinkAdvisor’s new recognition program — the LUMINARIES — in Thought Leadership & Education.
Krull’s “eureka” moment on socially responsible investment (SRI) was twofold and came after he left Merrill Lynch. First, he met his wife, who has doctoral degrees in microbiology and molecular genetics and with whom he sees eye to eye on environmental protection. Second, he met the preeminent green architect Bill McDonough, who showed him many of the changes that must be made to help protect the planet.
Since its founding in 2004, Krull’s firm — which now has $175 million in assets under management — has been one of the go-to places for those interested in SRI investing.
We spoke to Krull about this trillion-dollar industry, where it’s headed and how advisors can imprint the SRI philosophy on their own businesses.
THINKADVISOR: Is there a difference between SRI and environmental, social and governance?
PETER KRULL: There is a difference between ESG and SRI, but they’ve almost become synonymous at this point.
ESG is a tool. It’s a set of metrics used to make decisions and SRI is the actual portfolio. It’s the process of taking that ESG data and implementing it in a way that aligns with client values that does work to have a positive impact.
And we’re seeing all too often now that big firms like BlackRock are just taking the ESG data and throwing a portfolio out there without actually passing the smell test, where we ask the question, does it make sense that Exxon Mobil is in the largest ESG fund available? Does it make sense that McDonald’s is in there?
Some groups say that to get a sector represented, they look at an Exxon, for example, which may be starting a green division, or doing some other work socially. Doesn’t that count?
Jeremy Grantham, who runs [Grantham, Mayo & van Otterloo, a wealth management firm], did a study that looked at what happens if we extract any particular sector from the S&P 500, and what that does to long-term returns. What they found is that [returns were] almost negligible. For example, if you took energy out of the S&P 500, you actually performed a little bit better, especially over the last decade.
This is probably one of the biggest stumbling blocks to full-scale use of ESG implementation.
Every big institution doesn’t want to see tracking errors greater than two or one, or whatever their particular metrics. The reality is, as institutions continue to hold on to this idea that they have to have a low tracking error, they’re not going to get what SRI is because they have to be able to eliminate old-economy companies, [which] inherently are going to be in those traditional benchmarks, and what they are basing tracking error on.
If we’re going to be investing for tomorrow, we want to invest positively for not only where we are going, but where we have to go from a climate change and sustainability perspective. We have to eliminate those old economy companies. They’re just dinosaurs.
What are the biggest changes you’ve seen in the past two decades you’ve been in SRI?