I am writing concerning a risk management opportunity that we are uniquely equipped to address in the great state of Texas. My credentials include working in risk management at Bank of America, Barclays Capital, and a $10B hedge fund in Greenwich, so I hope this note finds you in good graces. I will focus on data, with source material linked. Concerning small caps, I would like to present the current performance of companies focused primarily on fracking: In contrast, I would like to note that Lazard Investment Bank pegs the levelized cost of wind and solar below that of gas: Texas produces 18.6% of its energy by wind, largely due to the success of the CREZ program which connected sites appropriate for wind generation to metropolitan areas. This year is notable in that it is the first year the cost of solar has fallen below that of gas. Solar produces power during peak energy usage in Texas, which makes it even more attractive than wind. I am optimistic that our governor would love to hear about demand for a similar program. Concerning large caps, I would like to note empirical research on the ESG index: "The results show that the business case for ESG investing is empirically very well-founded. Roughly 90% of (2200) studies find a non-negative ESG-CFP relation. More importantly, the large majority of studies reports positive findings." With this perspective, it may make fiduciary sense to substitute portfolio energy holdings with those of higher rated companies. For example, NextEra has a rating of AAA, whereas Exxon and Chevron have ratings of BBB. As of this week, ESG ratings are publically available to search via MSCI. I would like to conclude with the “scenario analysis” that prompted this message: As the IMF has stated: "There is growing agreement between economists and scientists that the tail risks are material and the risk of catastrophic and irreversible disaster is rising, implying potentially infinite costs of unmitigated climate change, including, in the extreme, human extinction." Kind regards, Jordan
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