Journey to Finance
Some people know finance is their future. For me, the decision was based on need. The looming specter of six-figure student loans cast a dark shadow on my plans to be an archaeologist. I wanted a career that had the intellectual feeling of archaeology, but with more hope of digging myself out of debt. I found sustainable finance by pure chance. A roommate connected me with a venture capital firm specializing in green energy.
Graduating college, it took more than 50 interviews to find a firm that appreciated my non-traditional background and gave me a chance in a rotational investment management program. I started from scratch, opening Excel for the first time in my life on my first day of work and learned bond basics on the job. Taking night classes and studying for the CFA exam led me to the municipal bond market where I finally found my ideal fit. Bond analysis is a complex puzzle, perfect for curious minds seeking connections between financial markets and real-world outcomes.
A decade later, I transitioned to global bonds and sustainable debt investing. Bonds, though often overlooked, are uniquely tangible and integral to our daily lives. They finance the infrastructure we use every day — the schools we attend, the roads we drive — and can direct money toward specific projects. These properties make them vulnerable to climate risks, yet crucial to financing a sustainable economy.
Unearthing Climate Risks and Opportunities
Climate change poses significant challenges to our globalized world, demanding innovative research for evaluation. The human and economic toll of climate change is already evident, with rising temperatures causing increasing deaths, and climate disasters claiming the lives of more than 12,000 people globally in 2023. Food scarcity, wildfire smoke, water shortages, and flooding are impacting the quality of life for millions.
The challenge for investors has always been how to navigate these risks and incorporate their analysis into the investment process. There is still no consensus on the potential impact to financial markets or how much risk is currently priced into the markets. Academic journals largely ignored climate-related financial risk until about 2010.
However, a there is growing body of literature on asset pricing not reflecting the risk and we could see global gross domestic product losses up to 12% for every degree of warming. Under this scenario, a 3 C temperature increase could cause declines in output, capital, and consumption that exceed 50% by 2100 — a material risk for investors. Even today, we see that sovereign debt issued by countries with very high physical risk from climate change have a default probability more than 18% higher than countries with low risk.
This highlights why investing with a global perspective is critical. The emerging markets and developing economies account for 95% of the increase in global greenhouse gas emissions. Despite this, they only account for 14% of global climate finance. There is a massive funding gap, and the bond market will be an important tool going forward in filling it. The growing market for green, blue, and sustainable bonds offers unique opportunities, but also requires critical evaluation of each project.
One of the reasons I have chosen my current firm is because values-based investing is at Saturna’s core and has been for since the company’s inception more than 30 years ago. Our approach to assessing climate resilience is comprehensive, examining carbon emissions trends, sector-specific risks, governance, and opportunities in the low-carbon transition. We also look to an investment\’s ability to effect positive change, including bond issuers\’ potential positive impact.
Looking Toward the Future
As we face an uncertain future, the need for sustainable debt investing grows. My work reminds me daily of the important connections between people, planet, and investments. When I stepped out of that tomb in Egypt and felt the blazing sun on my skin, I had no idea that my current job even existed in the world. My hope is that future investors look beyond traditional boundaries and uncover unexpected opportunities in the world of finance.
We need people with diverse backgrounds and intellectual curiosity to forge the way ahead in the fixed income market. There has never been so much opportunity for change, nor risk if change is not realized.
Article by Elizabeth Alm, Senior Investment Analyst and Portfolio Manager focused on integrating sustainability into fixed-income investment strategies at Saturna Capital. She has been at Saturna since 2018 and is a portfolio manager on several fixed-income mutual funds with strategies in global and emerging market sustainable bonds and US domestic markets.
Prior to joining Saturna, Ms. Alm spent 11 years at Wells Fargo Asset Management as a senior research analyst, focusing on high-yield and investment-grade municipal bonds. As part of her previous role, she also worked on the management of several municipal SMA strategies. Ms. Alm is a Chartered Financial Analyst® (CFA®) charter holder. Originally from Connecticut, she graduated from New York University with degrees in Economics and Anthropology, including field work completed in Luxor, Egypt.
