Ecofin Global Water ESG Fund with Joe Flores of TortoiseEcofin

Joe Flores is a Managing Director at TortoiseEcofin, a sustainable investment firm that strives to make a positive impact on clients and communities by investing in energy infrastructure, the transition to cleaner energy, and by providing capital for social impact projects focused on education and seniors housing. While the firm has a variety of offerings, this episode is focused on water.

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Linda Rogers: [00:00:00] My name is Linda Rogers and this is Investing Forward.

Linda Rogers: [00:00:32] We're back talking about water after seeing quite a bit of interest in the topic on my website, blog, and with clients. If you have started looking into water investments, you may have found that there actually aren't that many water-focused ETFs and they pretty much all track different indexes. Invesco was on Season 2 Episode 5 talking about PHO, and I really enjoyed that conversation so you should take a listen if you haven't already. One thing I know I learned was that was mentioned was that in addition to identifying companies creating products that conserve and purify water for homes, businesses and industries, there's also a screen they do to identify companies that participate in the green economy. In my search for some other water funds out there, I came across Ecofin Global Water ESG Fund. Ecofin focuses on sustainable investments and is dedicated to uniting ecology and finance. So right there, that's pretty unique. And they have sustainability baked into seemingly everything they do and the investment products they offer. Their water fund, ticker E-B-L-U or EBLU, has some ESG factor requirements in its methodology, and it's one of the lower-cost water funds. Joe Flores from the team is here to join me and tell you more about his company as well as the water fund.

Linda Rogers: [00:01:47] Well, thank you so much for joining me today. Why don't you go ahead and introduce yourself?

Joe Flores: [00:01:53] Well, thanks for having me, Linda. My name is Joe Flores. I'm a managing director at TortoiseEcofin. And yeah, very, very excited to be here. Based in the Midwest, just outside of Chicago, where we are experiencing a little bit of a cold snap. It's like I woke up and I was like in the 40s today, which is kind of crazy for June. But yeah, but happy to be here. Thanks for having me.

Linda Rogers: [00:02:15] Of course. And do you want to tell a little bit just about your background? For example, I know you've got the  CAIA, which I haven't seen that many people have. Maybe you can talk about that in some of your background.

Joe Flores: [00:02:26] Yeah. Yeah, absolutely. So I've been in the industry almost 25 years, which is kind of crazy to say. Kind of born and raised in the Midwest here in the Chicago area and started work just right toward the end of the 90s with an old mutual fund company called Kemper Mutual Funds, which is now part of DWS I believe but started there on the inbound sales desk and kind of worked my way up through business development and relationship management type roles. Had a couple of pit stops with, with other firms, you know, doing various different types of distribution roles and whatnot. But, but landed with, with TortoiseEcofin back about, gosh, baker's dozen years ago, 2010 is when I started with the firm. So it's been pretty wild that it's already been 13 years but yeah been with the firm for about 13 years or so. Work with a variety of different clients. Over my career, I've worked with family offices, I've worked with registered investment advisors, broker-dealers, insurance companies, pretty much any, you know, any type of client institutional asset managers, institutional allocators. So yeah, I've talked with just about everybody. But yeah, back to the point on the CAIA, you know, it was interesting, about 10 years ago or so, my boss at the time had said, hey, you know, you should think about doing something from a continuing education standpoint. And I agreed. And I didn't really have the desire to manage money, I guess, really. So the CFA wasn't necessarily in my wheelhouse. I was a little intimidated by that, to be frank. But, you know, the CFP, I didn't I didn't really I don't know if I'll ever do that. I give a lot of credit to, to folks like yourself that, you know, have gone down that path and do financial planning for individuals. But I didn't know if that was exactly in my wheelhouse. But the alternative investments world was really starting to kind of percolate and become a little bit of a bigger part of allocations. So and I just found it interesting. I thought at least I thought at the time that hedge funds were interesting, which they are. But, you know, the CAIA covers a lot of different things private equity, real estate, a whole host of non, I guess, anything outside of stocks and bonds, really. So yeah. Took the CAIA, took me a little bit of time to get it under my belt, but I ended up getting that designation back in 2014.

Linda Rogers: [00:05:01] Yeah, no I was going to say, don't sell yourself short. I would put it right up there with the CFP, CFA. I mean, it's hard. It's a hard test. I looked at the materials before for the same reason, just very fascinated with that space. The CFP for sure does not cover the alternative space in the proper detail.

Joe Flores: [00:05:18] No, they've, they've done a fantastic job and I've gotten to know a few of the folks over at the CAIA organization. And yeah, they just continue to make headway and build out just a fantastic program and a really good community of other Charterholders. So yeah, thanks for bringing that up.

Linda Rogers: [00:05:36] Yeah, Very cool. Well, good. Tell me some more about TortoiseEcofin.

Joe Flores: [00:05:40] Yeah, absolutely. So TortoiseEcofin is headquartered in Kansas City, Missouri, actually, technically Overland Park, Kansas. So it's actually on the Kansas side, but Kansas City broadly. So a lot of Chiefs fans and Kansas Jayhawk fans down there. But the group is headquartered down in Kansas City. We have an office in London as well, which is where some of my colleagues that focus a little bit more of their time on energy transition strategies and decarbonization strategies broadly. But as it relates to Ecofin, Ecofin is a sustainable investment management firm thematically focused on a couple of different areas. So climate is going to be one of those, water is going to be one of those - kind of ties into climate as well a little bit. Social infrastructure is an area that Ecofin is involved with. And then finally, waste and waste transmission are kind of the big areas that Ecofin is involved with. So on the whole, Ecofin manages a little over $2 billion currently and that's across a lot of different vehicles and different strategy types. But again, thematically focused on those areas. So been around for a long time. I guess the roots of Ecofin go back to the early 90s, but really kind of started to take shape in the mid 2000s or so and have built out a pretty good reputation and, and a pretty good breadth of offerings I guess, since that time.

Linda Rogers: [00:07:14] Great. How did you find yourself working there?

Joe Flores: [00:07:17] Yeah, absolutely. So like I said, Ecofin has been has been around since the early 90s. Definitely more focused on the sustainability side of the business. Tortoise has had roots back to the early 2000 or so and really had made a name for themselves in energy infrastructure and, you know, pipelines, in that world. And when I was I guess this is 2010 timeframe or so, I had received a phone call from a recruiter that I'd known for a few years and asked me if I knew anything about master limited partnerships and MLPs. And I did, thankfully, due to an opportunity that I had in the mid 2000 with another firm, but had learned a little bit about MLPs and thought, you know, this was funny for me at the time. The ten-year Treasury was yielding about 3.75. And I thought to myself, well, you know, there's no way it's going to go lower, you know, and people are always going to need income and retirees are going to need income. And that's what, you know, in a lot of cases in MLPs, you know, people will utilize MLPs for income replacement. So I took the leap and joined Tortoise at the time. And then over the course of the ten years, you know, 2010 to 2020, the firm had evolved as well, too, and built out capabilities within some of the strategies that Ecofin offers. And so, yeah, it's been kind of an interesting journey, but initially it was the MLP story that was interesting for me. And then it's evolved into, you know, kind of a broader real assets story with a bent toward sustainability. So that was kind of an interesting, interesting journey for us. But a lot of really, really cool things and a lot of just fascinating things to learn about as well too. I didn't really know much about energy transition. I didn't know much about renewables and it's just been a fantastic learning experience for me.

Linda Rogers: [00:09:17] Yeah, and that's a unique path from other people I've talked to on the podcast. So that's why I'm so excited to have you and your perspective. So what would you say is the case for investing in water-focused companies? It's going to kind of be our theme for today, even though I know your company does cover other things.

Joe Flores: [00:09:33] Yeah, no, absolutely. Yeah. The water you know, it's interesting for me, for the water story, Linda, And you know, as I think back to my career, you know, talking about, you know, the mid 2000 at the time I was with an organization that's now part of Guggenheim Investments, but I was part of an organization called Claymore. And we had brought to market a water strategy that was that I didn't know much about at the time. But it was interesting to hear that, you know, if you think about the infrastructure that's built, you know, to transport water and to deliver water in the US, a lot of that infrastructure was built, you know, decades ago, if not almost a century ago. I remember hearing a story about, you know, some of the pipes that were actually bringing water down into New York City, you know, two of which are a couple of them were, you know, 80, 90 years old. One was over 100 years old. And, you know, the case at the time was, well, these pipes and all this infrastructure is really, really old and needs to be replaced. And there was a little bit of a groundswell in terms of interest in investing in water at the time. And what we found was people were interested. People did want to talk about water. And then 2008 happened and the great financial crisis sucked up all of the oxygen, so to speak, you know, within that room. And it really it made a big impact on municipalities and, you know, the ability for new infrastructure projects to take place at the municipal level. And so that can, I guess, the proverbial can ended up getting kicked down the road a bit. Well, the problem was there was still that need to invest in the infrastructure. So while we you know, while a lot of towns and municipalities ended up kicking the can, those water pipes and some of that infrastructure just continue to get older and older and older. So we still find ourselves in that position where the investment needs to take place to upgrade water infrastructure. And, you know, both in front of the meter and behind the meter, so to speak. And that challenge is still there today. And it's becoming more and more of a of a problem and more more of an opportunity for if you look at it, you know, from that standpoint, I guess. But definitely it's something that is really it's non-negotiable. I mean, everybody needs clean water. Everybody needs, you know, safe access to drinking water. So it's just one of those opportunities that it's still there. It's not going away. And we would you know, there's I guess there's figures that are out there that you would think that there's probably somewhere in the need of 500 billion to $1 trillion invested in infrastructure just to, you know, to make sure that everybody's on on a straight and narrow path for going forward. So there's still a great opportunity for water and water infrastructure that's just domestically here as we think about it, you know, on a global basis. There's about 2 billion people currently in the world that lack access to safe drinking water. There's over 2 billion to almost 2.5 billion people that live in countries that there's significant water stresses and stressors where they just they don't have access to water either from a sanitation standpoint or from a drinking standpoint. So it is a you know, we think about some of the issues domestically here as replacing water infrastructure and modernizing the water infrastructure grid in other parts of the world. It's just a function of getting access to clean water, you know, to empower the local economies there. And that's just a big challenge that we see globally.

Linda Rogers: [00:13:19] Good. So Ecofin Global Water ESG Fund, that is the water fund that you have on the market. Can you talk about how it differs from some other water-focused ETFs? 

Joe Flores: [00:13:29] Yeah, absolutely. It's a great question. You know, I think probably the biggest differentiator for us, for the strategy, Linda, is the fact that when we launched it, we recognized that some of the other strategies out there, they may allow for inclusion of some companies that may not necessarily be exactly a water company as you might think of, you know, from the onset. So we were very intentional about having a minimum water exposure. You know, how much revenue is actually coming from, you know, an underlying company's revenue streams. So as we think about it from a purity standpoint, companies have to have at least 50% of their revenues coming from water industry-related activities, or they must be able to generate at least 40% of their revenues from the water industry. They have to be ranked in the top five companies by total revenue coming from any one particular water sub-industry. And I can touch on that in a second I guess. And then who's the principal source of revenue comes from the water industry itself. So we put some parameters around how much is actually being generated from water-related activities. I mentioned, you know, the sub-industries as far as water goes, you know, we think about some of the sub-industries as you know, water, utilities, water infrastructure companies which are going to be different, right? The infrastructure companies are the ones that are actually, you know, providing water distribution or they're helping to increase water infrastructure and modernize that water infrastructure, water equipment and services companies that are actually, you know, putting the pumps and the valves and the filtration pieces together, you know, to supply to some of those utility companies and those infrastructure companies. So, again, it's really it really comes down to the 50% minimum, you know, from a revenue standpoint or a combination of that, at least 40% of the revenue in some of those other items that I mentioned before too. Um, you had mentioned, I think when we were kicking things off a little bit before too, is just as far as the sustainability component and what makes it a little bit different. Um, you know, that was an important part for us. Linda as we were putting the strategy together, you know, we recognized that factors, environmental factors and ESG factors, right, that those were becoming more and more material as we as just the asset management industry was maturing in the sustainability world particularly. So we had partnered and we've utilized information that Sustainalytics has put together. Sustainalytics, for the audience that's listening to this, Sustainalytics if you're not familiar, it's the largest pure-play investment research and ratings firm dedicated to responsible investment and ESG research. So as we were putting the methodology together for the fund, we wanted to look at criteria that was important from a sustainability standpoint. So what we included in EBLU's methodology was that it had portfolio companies had to have an ESG risk rating less than 30 in order to be included into the process, into the underlying fund. At least 80% of the market cap of the index must meet the required ESG risk rating criteria. And we do also we're very cognizant of if somebody actually if a company falls out of those risk ratings. That's an important part for us as well, too. So any existing company, portfolio company whose ESG risk rating is between 30 and a 40, and this is I had to have this explained to me not too long ago, but it's Sustainalytics it's almost it's similar more to golf. So the lower the number, the better. So if you start to see, you know, the ESG risk ratings drift above 39.99, right, so getting closer to 40 for three consecutive quarters will be removed. And then any constituent company where the risk rating increases to 40 or above will automatically be removed at the next balance. So it's you know, if you think about sustainability and the integration of ESG factors into the methodology, it's a very, very critical piece for us. And we think that's a little bit different than some of the other strategies that are out there on the market today.

Linda Rogers: [00:18:40] Yeah, no, it definitely is. And I'm wondering if you can share an example or two of a holding that's in the index that kind of demonstrates what exactly you're trying to get at.

Joe Flores: [00:18:52] All of this information. It's a great question. All the information is available on Ecofininvest.com. But one company that I can mention here that and you can actually see this in our Sustainability and Impact report, which is also on our website, but is a company called Ecolab. And I know Ecolab and I think many of you probably know Ecolab because I feel like especially I pay attention to hand sanitizers now and you tend to see a lot of the hand sanitizers in grocery stores and whatnot. And that's an Ecolab obviously does that as well because their brand name is all over it. But Ecolab is a portfolio company that falls into our master theme of technology and process innovation. So really, how does technology, how can we make things better with technology? And that's something that Ecolab is involved with. So Ecolab provides water and hygiene and infection prevention solutions and services all over the world. They have a few different divisions, but the global industrial segment is the one that we're actually very, very interested in because it offers water treatment and cleaning and sanitizing solutions. The company's been around for just about 100 years or so. It's headquartered in Saint Paul, Minnesota, and they are Ecolab is the global leader in terms of water solutions. Again, hygiene and infection services, prevention services that help protect over 3 million people, 3 million customers, I should say, on a worldwide basis. Ecolab is part of one of those leaders within the water world, and they've been able to help conserve over 206 billion gallons of water in 2020. They've been a fantastic partner in terms of helping to reduce waste in 2020. They actually helped customers avoid 77 million pounds of waste, which is just a fantastic part of the overall story from a sustainability standpoint. And then also finally from kind of basing off of a 2018 baseline going into 2020, Ecolab actually reduced overall water impact by about 12% on a per unit production basis. So they've been just really, really a strong leader as far as being out in front of the water industry and helping to helping to reduce and also increase just opportunities for safe water and access to clean water.

Linda Rogers: [00:21:42] Yeah. Good. That's a great example. Anything else that you want to share with investors interested in sustainable investing?

Joe Flores: [00:21:50] Yeah, I would just say that everybody and we talk about this on our podcast, Linda, it's a little bit of a journey that everybody is kind of figuring out on how to go about and where they want to go to. So I think there's some fantastic resources, you know, podcasts like yours, you know, podcasts like Sustainability Matters, one shameless self-promotion there. But I mean, but you know, sustainability is definitely something that is on the rise. And there's a lot of fantastic resources that are out there for investors to utilize almost probably too many to name into, I guess, at this point. But there's room in the tent for everybody. And I think that's what everybody just needs to understand is that, you know, we're all trying to grow in the same direction, but we can absolutely use more hands and more minds and great thought leadership, you know, from different corners of the world, from the investment world, from corporate America, from public and private opportunities as well, too. So I think there's just a there's a great opportunity for the sustainability standpoint on a going forward basis for investors.

Linda Rogers: [00:22:57] Yeah. And I will definitely put a link to your podcast, which I have listened to. That's how I found you and also really enjoyed it. Is there any other way? What's the best way for people to stay in touch with you? Are you active on social media or is the podcast the best thing to listen to?

Joe Flores: [00:23:13] I would say from an accessibility standpoint, feel free to check me out on LinkedIn. I'm pretty active on LinkedIn from a social standpoint. You know, from the podcast side, we do try and release podcasts on a pretty consistent basis. So you can either check out Spotify or check out iTunes for wherever you get your podcasts from, but we generally try and update some type of episode maybe every other week or so for the most part. One that will be coming I think that some of your listeners will probably be interested in is we actually interviewed a woman from, Kathryn Sorensen, who was a professor at Arizona State University, very involved with water and water conservation and increasing water efficiencies as well, too. And that's actually going to be coming up pretty soon. But a great resource, though, as well.

Linda Rogers: [00:24:03] Awesome. Well, thank you so much for joining me.

Joe Flores: [00:24:05] Yeah, thank you for having me, Linda. I really appreciate it.

Linda Rogers: [00:24:08] You can find links to Joe's LinkedIn page, Ecofin's Sustainability Matters podcast, and EBLU's product page at InvestingForwardPodcast.com.

Linda Rogers: [00:24:19] My name is Linda Rogers and this is Investing Forward. If you liked what you heard, leave us a rating. Subscribe and stay tuned for next time. No.

Linda Rogers: [00:25:18] Linda Rogers is the owner of Planning Within Reach, a Registered Investment Advisor. Planning Within Reach produces the podcast and makes it available on its website and through other distribution channels. Linda Rogers and any guest on the podcast are providing their own views and opinions and are not necessarily the views and opinions of Planning Within Reach. Nothing on the podcast should be construed as a solicitation or offer or recommendation to buy or sell any security. Investment Advisory services are only provided to investors who become Planning Within Reach clients pursuant to a written investment management agreement. Clients of Planning Within Reach may hold positions in securities discussed in this podcast. Past performance is no guarantee of future results. All investments involve risk and may lose money. The Investing Forward Podcast is for informational purposes only and should not be relied on for any investment decisions. Consult with a financial advisor, accountant, attorney, or conduct your own due diligence.