Forward-thinking Climate Action Strategies with Terra Alpha Investments

As we work towards our commitment to reach net zero by 2030 at The Russell Family Foundation (TRFF), we are leveraging our resources, including our investment portfolio, towards a sustainable and equitable future for all. One of our recent investments is with Terra Alpha Investments, a leader in net zero investing, whose investment philosophy is to invest in companies that are profitably leading the transition to a sustainable economy. They are the first US investment management firm to be approved by the Science Based Target Initiative (SBTI) for their Paris-aligned targets, hence demonstrating their rigorous approach and commitment to sustainability. 

Terra Alpha Investments (Terra Alpha) is an employee and investor-owned investment management firm, founded in 2015, that works to align its portfolio with planetary boundaries and serve societal needs. Beyond recognizing the value of our planet’s natural resources, Terra Alpha actively engages with corporations to both drive returns and catalyze positive change in the economy. 

Investing for a sustainable future 

Terra Alpha uses two frameworks, Environmental Productivity (EP) and Enduring Business Models (EBM), which underlie its approach to sustainable public equity investing. The EBM framework helps Terra Alpha understand a company’s business model and its long-term risks and opportunity for growth and profitability. 

The EP framework is designed to assess how a company uses and impacts natural resource systems (e.g. clean air and freshwater, healthy soils and forests, and critical ecosystems). This framework involves determining the company’s greatest areas of impact on nature and its ability to reduce those impacts. The evaluation is divided into a qualitative assessment of how the company addresses its risks and opportunities, and a quantitative assessment of its commitment to and performance against its environmental targets and embedded risks.    

The combination of these frameworks helps Terra Alpha to identify companies that may offer both competitive financial returns and superior environmental returns. Environmental returns are measured in various ways, from carbon, water, and waste intensity scores to lower overall portfolio absolute and relative environmental impact. 

However, Terra Alpha doesn’t just invest in companies with low absolute emissions, rather it compares individual companies to their peers and their prospects for lowering absolute and comparative emissions. Terra Alpha considers a company with high emissions that is a leader in their industry in the transition towards sustainability to be an opportunity. 

For example, a portfolio holding is Waste Management Inc. (WM), the largest US waste management company. As such, they have a very high absolute emissions from the waste streams created by our current linear economy. WM has committed to reducing the high level of methane emissions from their landfills through a combination of improved containment and conversion of methane to energy.  They are also a leader in recycling which is a step away from a linear and towards a circular economy.

Another current portfolio company whose business is integral to the transition to a sustainable economy is Quanta Services, Inc, which is a contracting services company with a focus on electric power, renewable power, and underground utility infrastructure solutions. The company has a critical enabling role in the upgrading and expansion of the US power transmission and distribution grid to improve its efficiency and connectivity to new renewable power sources. 

Terra Alpha seeks to patiently invest in the companies in its portfolio which allows the opportunity to build relationships with management. Therefore, it can advocate for improved disclosure and business practices that help any company to reduce its negative environmental impacts.

Since 2017, Terra Alpha has focused on science-based emissions targets, actively encouraging companies in that direction. Science-based targets help companies set  clearly-defined pathways for emissions reduction, based on their industry and science. In 2022, Terra Alpha became the first US-based financial institution to receive approval by SBTi for its emissions reduction targets aligned with the Paris Agreement, demonstrating its rigorous approach and commitment to sustainability. 

In addition to the firm’s commitment to science-based targets, Terra Alpha joined the Net Zero Asset Managers initiative in 2021, setting its own goal portfolio goal of 95% SBT coverage by 2030. As of 2023, its portfolio was 77% invested in companies with validated science-based GHG emissions targets. 

Mission alignment with TRFF 

Terra Alpha shares a similar drive for mission-aligned investing with TRFF, and began its relationship with us through discussions around the net zero process and protocols. For Terra Alpha, this meant having the opportunity to talk to us as an asset owner in the early stages of our decision to commit to net zero and thinking about this decision from an asset owner’s perspective, in terms of portfolio-level impact. 

Our relationship with Terra Alpha has been deeply collaborative, and rooted in a shared commitment to advancing sustainability through strategic investments. We have engaged in joint learning, including when Terra Alpha presented to TRFF’s Investment Committee at our Investment Committee annual retreat in 2022. This provided a platform to explore the practicalities of aligning investment strategies with climate goals. 

Through opportunities to exchange insights, TRFF has been able to share the perspective of an asset owner navigating net-zero commitments and Terra Alpha has been able to share its expertise as an asset manager implementing science-based targets. This collaboration has fostered a mutual understanding of the challenges and opportunities in sustainable investing.

Terra Alpha demonstrates the power and potential of mission-aligned investing for a sustainable future. By focusing on companies that profitably and effectively lead the transition to sustainability, Terra Alpha proves that financial returns and environmental impact can go hand in hand. Their emphasis on engaging with companies to set and achieve science-based targets, rather than avoiding industries with high emissions outright, underscores the importance of driving economy-wide transformation. 

For TRFF, partnering with Terra Alpha is not only a testament to our shared vision, but also a strategic step toward reshaping investment practices to prioritize a sustainable and equitable future.