ESG vs Sustainable Investing for High Earners | Pete Krull with Dan Pascone | Ep #42

Pete Krull didn't set out to become one of the more prominent voices in sustainable investing. His degree is in communication, not finance. He started at Merrill Lynch in 1998, then went independent in 2004, using LPL as his broker-dealer and launching what was then called Krull and Company.

Around that time, conversations with his wife Melissa, who holds PhDs in microbiology and molecular genetics, about climate and the environment, along with an introduction to green architect Bill McDonough and his book Cradle to Cradle, pushed him toward a specific idea: build portfolios the way McDonough thought about materials, by asking what's actually leading toward a cleaner, more resilient economy, rather than just screening out the worst offenders.

That firm eventually became Earth Equity Advisors. Pete has been running it for 21 years.

Most people assume ESG (environmental, social, and governance) measures how much a company helps or harms the world. Pete's point is that it's closer to the opposite: ESG measures the risk the world poses to the company. A manufacturing plant on the Florida coast carries more environmental risk than an identical plant inland, because it's more exposed to hurricanes, not because it pollutes more. That's useful information for due diligence, but it isn't the same thing as sustainability.

When large asset managers build ESG funds, they typically start with an existing index, layer ESG risk scores on top, and shift allocations slightly. The result, using Exxon as Pete's own example, is reduced exposure, not eliminated exposure. He calls it a "less bad portfolio," not a sustainable one.

Pete's own approach starts from the opposite direction. Instead of screening an existing index, he asks which industries, sectors, and companies are actually leading a shift toward a cleaner, more resource-efficient, more resilient, and more equitable economy, then builds from that list. His individual stock portfolio draws from a universe of about 750 companies across nearly every S&P sector; the one exception is the fossil fuel energy sector itself.

His fund portfolios layer five specific themes on top of a standard large-cap, mid-cap, small-cap, international, and emerging-markets core: energy transition, water, infrastructure, green real estate, and biotech.

Whether any of this actually makes money is, understandably, the first question most investors ask. Pete's own view is that sustainable investing reflects a structural, long-term shift in the economy rather than a short-term trade, and he points to a Morgan Stanley report covering the first half of 2025 that found sustainable funds outperformed traditional funds over that period.

He's also careful to note the other side: portfolios built around growth-oriented themes like his can lag in value-driven markets, and a single stretch, six months or several years, doesn't prove a long-term thesis in either direction. Past performance never guarantees future results.

What Pete pushes back on hardest is treating this as a political question. He points to a study led by Jeremy Grantham's research group that looked back roughly 50 years and found that removing any single sector from the S&P 500 produced a performance difference of less than 50 basis points over the long run.

His own data also showed clean energy outperforming during the first Trump administration and fossil fuels outperforming during the Biden administration, the reverse of what most people assume. It's a reasonable prompt for anyone building a portfolio around a theme: separate the economics from the headlines, because they don't always move together. We've made a similar point in Fear vs. Greed: How to Stop Yourself From Sabotaging Your Investments, where reacting to the news cycle is usually more expensive than ignoring it.

Ask Pete which of his five themes he has the highest conviction in over the next three to five years, and he doesn't hesitate: infrastructure. He lives in Asheville, North Carolina, where Hurricane Helene caused significant damage roughly a year before this conversation, more than 500 miles inland, in a place many residents didn't expect to face a hurricane's full force. The storm knocked out transportation routes, communication networks, and utility infrastructure simultaneously.

Pete's argument is straightforward: infrastructure built for a calmer climate is going to keep failing as storms intensify, and rebuilding it, more resilient roads, grids, and communication systems, is going to require real capital regardless of who's in the White House.

Pete's fifth theme, biotech, shows how he thinks about innovation as part of sustainability. Bringing a new drug to market today typically costs around $1 billion and takes roughly a decade, largely because so much of that time and money goes into testing which compounds might work for which conditions. Pete's thesis is that AI-driven models can run those same questions as simulations first, narrowing the list of compounds worth testing in the real world before a single trial begins.

If that compresses even a portion of a $1 billion, ten-year process, it changes the economics of an entire sector, one that Pete notes has actually underperformed for the past three to four years even as the underlying technology has improved.

Most investors who want their portfolio to reflect their values stop at the label: does this fund say ESG, green, or sustainable on the tin? Pete's entire argument is that the label tells you almost nothing. The only way to know what you actually own is to look at the holdings themselves, the same due diligence that matters for any specialized or thematic investment, not just a sustainability-branded one.

That's true whether the pitch is a sustainable fund, a private real estate syndication, or any other investment marketed around a specific thesis: the story on the label and the substance underneath it are two different questions. We walk through a version of that same checklist in 6 Private Market Questions to Ask First.

Whatever you think about sustainable investing specifically, Pete's conversation raises a question every executive with a growing portfolio eventually runs into: how much of your money should be tied to a specific thesis, whether that's a sector, a theme, or a personal value, versus built for pure diversification?

In Life Driven Investing (LDI), the way we build portfolios backward from your own timeline, we sort every dollar into Four Liquidity Bands: 0 to 2 years, 3 to 5 years, 6 to 10 years, and 10-plus years. A growth-tilted, thematic allocation like the one Pete describes, which he himself says can lag in value-driven markets, belongs in the 10-plus year band at the earliest, funded only after your nearer-term needs are covered elsewhere.

A values-aligned tilt is a legitimate thing to want in a portfolio. It's still one piece of the plan, not the plan itself, which is the point we make in more detail in Stop Confusing Your Portfolio With Your Plan.

This conversation is for the corporate executive in their 40s or 50s, earning $500,000 or more, who wants their portfolio to reflect their values without losing a clear-eyed view of risk, diversification, and how that allocation fits into the rest of a financial plan. It's for the executive who has heard the terms ESG and sustainable investing thrown around, suspects there's more nuance to it than the marketing suggests, and wants to understand what they'd actually be buying before adding a thematic tilt to a portfolio that also has to fund a hybrid retirement, cover a child's education, or absorb the next liquidity event.

If this conversation raised questions about whether your current investment strategy reflects your values, your risk picture, or the structural shifts Pete describes, a Free Wealth Strategy Call is a working session to look at what you actually own and how a coordinated investment and tax plan built around your version of a rich life could come together.