Jeff Gitterman runs one of only about a dozen independent wealth managers in the U.S. that focuses on sustainability and impact investing.
He and his colleagues at Edison, N.J.-based Gitterman Wealth Management entered that segment early, in 2015, before the pandemic brought attention to our fragile, interdependent world, and the investments needed to fix it.
The Queens, N.Y., native had found success in the financial industry before starting his own company – until he was confronted with the true meaning of success. That was the seed that would become “Beyond Success: Redefining the Meaning of Prosperity,” his stake in the ground, both for his firm and for himself. Happiness is elusive, he writes, even for the wealthy. Perhaps fulfillment is a better goal. It turns out that spirituality, meditation and helping others all play a role, he found.
Gitterman spoke to Equities via phone about his firm, the changing landscape of impact investing, the difference between impact and ESG (environmental, social and governance) and more. This interview has been condensed and lightly edited for clarity.
Equities: Tell us about what your firm does differently than others. And how has it evolved since its founding?
Jeff Gitterman: Most firms are doing social justice, so they’re kind of in the please-people space and doing traditional workloads too. They have a compliant way of doing ESG. We pretty much decided that we would have a firm that’s positioned on impact. We have a paper called “The Great Repricing,” which is available on our website. We realized that physical risks from climate change would be exacerbated much faster than people were saying publicly. You could talk to people behind the scenes, and we were hearing from everyone that they were seeing a breakdown, whether it was from an ocean temperature expert or a biodiversity expert.
Equities: Your 2014 book, “Beyond Success: Redefining the Meaning of Prosperity,” tells the story of a personal journey, about being raised in a small apartment in Queens to finding what most people might call financial success. But you weren’t satisfied with that. Why not?
JG: My father probably never made more than $30,000 a year when I was growing up. Apparently, there were times when they weren’t sure where the next meal was going to come from. I became, to a degree, successful in monetary terms and didn’t feel any different. I still had a kind of economic feeling that most people grapple with. Or, conversely, you can say no matter how financially successful you are in this world, there are going to be problems that crop up. I think we all have an idealistic view that, with just enough money, things will be easy. But I didn’t feel at peace.
I wrote about this a lot. But what I think success means today is being able to do what you’re creatively aligned for, what brings you joy, and how you can be in service to the world. I think when those two things line up — in the book we say you know the definition of success is when you can align your unique creative expression and service to the world — that became my definition for success.
Equities: What’s changed in investors’ views toward sustainable investing since you founded the firm?
JG: For sure, there’s always a divide, but I get to speak to some of the wealthiest people on the planet, and they’re interested in climate. There’s certainly a lot of wealthy people who don’t believe that climate change is real, or at least say so publicly. But to get a global response that climate change is a problem that we really need to solve — it’s a difficult thing. So I think that some people are inclined to see the world as a pie to slice up and others see it as a pot to share. The two players are diametrically opposed.
To save the system that is contrary to your personal gain and benefit — that really struck me. But I also felt that years of meditation bring you to a perspective that we’re all kind of part of one whole system — we’re not all separate.
Equities: You’ve written about what you call “The Great Repricing.” What is that concept and what do people need to know about it?
JG: I saw that there was enough data to account for climate risk in capital models, and that data was getting better and better quickly because of machine learning. The Exxon XOM climate models finally got released and were almost dead-on accurate.
That brings us to the markets, which move slowly until — all at once — there’s a great repricing because of new information. The markets don’t gradually reprice climate risk — there has to be an event, or string of events, that would trigger a dramatic shift in pricing in the capital markets.
And I believe that that domino effect would start with insurance companies that would start bailing on states where it was becoming too prohibitive. We wrote about that in 2019. If you’ve been watching the news, you know that there’s been dozens of insurance companies that have left California, Louisiana and Florida because they can’t afford to cover the risk of weather-related disasters anymore.
You never know how quickly that domino effect will work out, but if people are asking when it will be too late, it’s often too late because everyone rushes for the door at the same time. So you can either look to reduce risk in portfolios now when you don’t have to pay a premium for that or you can wait until it costs a lot to do that. The great repricing is my way of illustrating to people that there’s going to be a repricing across many asset classes. And that there’s opportunities in climate change.
Equities: In the climate space, there are positive versus negative company incentives driven by governments. The Inflation Reduction Act (IRA) serves as a carrot, and the SEC’s climate-disclosure regulations as a stick. How might the balance of the two play out?
JG: If we look at a comparison to government funding of any type in any country in history – to build the Great Wall of China, the internet, the space race – that amount will be dwarfed by the money being marshalled to effect green transition. Anytime there’s that much money moved in one direction, it doesn’t make any sense not to ride along with that. There will be winners and losers, just like there was with the internet. But there’s just an enormous amount of money flowing — in batteries for electric vehicles or alternative energy or nuclear.
There are going to be companies that solve some of the world’s greatest challenges. And you would have to expect that they will be some of the biggest in the world because, ultimately, you know we have companies that don’t solve a lot of problems that are worth a trillion dollars. Now imagine a company that solves the energy crisis. You can only imagine what the worth of something like that would be.
I also think there are very clear needs in this country. Our water infrastructure is horribly aging — it’s around 100 years old. General infrastructure needs an incredible amount of repair. Climate-adaptation companies are doing incredibly well this year.
Equities: Wealthy and institutional investors are the main funders of impact projects. We know that Gen Z and millennials are idealistic and tend to put their money where their mouths are. How might the average investor be able to take part in impact or ESG investing beyond the ESG funds of today?
JG: It was an interesting 2023 because there was a significant drop in younger people’s interest in ESG and climate risk. Specifically, I think we’ll see many more thematic ETFs continue to grow. I think people have this one issue — EVs or batteries or lithium – that they gather around. So I think you’ll still see a continuation of this thematic ETF growth.
It’s also tough because there’s been doom-spending among young people today. I think we’re one or two more crises away from these kids saying that Washington won’t save any money for them when they’re older. It’s a big risk to the economy too.
Equities: What’s the difference between impact and ESG? Those two terms are often used interchangeably.
JG: Some people have a hard time differentiating between impact and ESG. ESG now has a pretty bad name. ESG is basically just a data set that’s overlaid on companies. It’s outside looking in. A fund manager can use ESG data to pick fossil fuel companies that have the best governance, the most diversification on their boards and among employees, the best gender pay and the lowest number of environmental lawsuits. Everyone’s going to keep using ESG data because managers want access to data about companies they’re investing in. He or she wants to represent in their modeling how things in the world are going to impact companies.
But that’s not sustainability or impact or climate investing. With those, you want to think about it from an inward-looking methodology. Or, what is the impact that this company is having on the world that I live in? That’s the opposite of ESG. So the two techniques are both important, but they’re very different.
Those two approaches show different things. Sometimes you can’t have the best of both worlds. It’s not a black-or-white world; it’s a gray world. You might want to invest in a company because it has the most brilliant technology, even though it has terrible board diversity because it’s a really small company and only has a couple of white males that are running it.
Young people are now seeing through that haze and understanding that there isn’t a perfect answer. There’s not a perfect ESG fund, there’s not a perfect impact company. There’s nothing perfect in this world. Young people got disenchanted over the last year because the people who were selling those ESG products gave the illusion that they were perfect answers to a terrible problem.
Equities: One challenge for impact or sustainability funds is potentially lower returns for investors, which might damp enthusiasm for the asset class. How are investors viewing the prospect of potentially lower gains being offset by more “ethical” goals?
JG: So what if it’s a lower return? If you’re getting a good return and you’re doing good — maybe that’s all that someone wants.
Besides, I don’t think you can generalize return information on sustainability. You end up taking the other side of the sector bias on ESG. ESG funds rebounded [in 2023] because fossil fuel companies underperformed large-cap tech. So I think you’ve got to throw out that return question. Any individual investor must decide: What return do I need to live the lifestyle that I want?
If a person needs 10% annualized returns to meet their financial needs, then any portfolio is going to struggle. But I think if you have a moderate need, most clients need about 5% to 6% — that’s manageable.
Hindsight is 20/20, so it’s easy to poke holes when it comes to returns. I don’t think you have to sacrifice returns.
Parris Kellermann is editorial director at Equities.