The Path to a Net-Zero Economy
Fullerton Financial • October 29, 2021
While the looming threat of extreme weather remains ominous, the transition to net-zero offers significant investment opportunities.
Scientists attribute extreme weather events all over the world to a global warming trend. Since the late 19th century, the average global temperature has increased by 2 degrees Fahrenheit (1.1 degrees Celsius).
To reverse this phenomenon, scientists say we must reduce and maintain the average global temperature increase to 2.7 degrees Fahrenheit (1.5 degrees Celsius) above pre-industrial levels.
To facilitate this worldwide effort, 200 countries have signed the Paris Agreement, an accord designed to reduce global warming. To ward off the most destructive effects of climate change, scientists say, carbon dioxide emissions worldwide need to be cut in half by 2030 and, by 2050, reduced to net-zero.
What does net-zero emissions mean? It is a balance between the amount of greenhouse gases produced, and the amount removed from the atmosphere. Achieving this will require a remarkable transformation of today’s global economy: Scientists say we must replace fossil fuels as our primary source of energy with more environmentally friendly options such as wind and solar power. It also will require removing what emissions remain via solutions such as restoring forests and generating carbon capture and storage capabilities.
The effort to reverse global warming is measured via “temperature alignment.” This is a forward-looking benchmark that compares the level of emissions today against the potential for reducing them by a certain date in the future. The measurement is applied to both macro and micro entities, such as governments, individual companies and even investment portfolios.
One approach to measuring temperature alignment is to weigh the role a single company plays in the economy today and evaluate its emissions trajectory plan by 2050. That data is then extrapolated to provide a picture of the overall global economy transforming at that same speed. The more aggressive the efforts to reduce emissions, the more favorable the global economic outcome.
While the looming threat of extreme weather remains ominous, the transition to net-zero offers significant investment opportunities. It signals a move to long-term planning, which is a departure from the past two decades when reaching quarterly performance goals was a key factor among public companies. Moving forward, businesses will be held to a higher standard, which includes transition plans for net-zero carbon emissions pertaining to all aspects of their operations — including the acquisition of raw materials and shipping/transportation capabilities.
Each industry and market sector are expected to be affected by this transition. It is not just a matter of investing in green energy sources. Every company will need to adopt long-term net-zero sustainable solutions to meet these benchmarks, from retail and manufacturing to technology and health care. According to U.S.-based asset manager BlackRock, today’s markets have not fully priced the future impact of climate effects into the value of securities.
Therefore, companies with optimum transition plans will be better positioned for long-term returns. Unfortunately, the reverse may be true as well. Even long-established blue-chip companies could suffer if they do not adapt to the changing global economy. The demand for compliance will come from consumers, workers, shareholders, legislators, voters and institutional investors who increasingly experience the financially devastating impacts of climate change.
When it comes to investing, we generally talk about the risk of losing money due to market volatility, inflation, liquidity, concentration or default. Going forward, many asset managers believe the greater risk will be caused by climate change itself. In short, how much will it cost to continue restoring and rebuilding communities affected by extreme weather without implementing mitigation strategies to prevent these disasters?
Investors share the same risks as the securities they invest in. For example, companies bear the physical risk to assets and their ability to stay in business in the wake of changing weather patterns and natural catastrophes. Analysts also have identified a transition risk, which is the potential for short-term revenue losses and long-term profitability due to a company’s transition to a low-carbon model of business (e.g., energy companies with large fossil fuel reserves). The greatest risk of loss may come from companies that continue to depend on producing or consuming fossil fuels longer than is feasible in the net-zero economy.
In 2020, BlackRock conducted a survey of corporate and public pension plans, sovereign wealth funds, insurers, asset managers, endowments, foundations and global wealth managers. Among them, more than half (54%) considered sustainable investing to be a foundational consideration for analysis and decisions moving forward. However, an interesting caveat was how much opinions varied by region. Not so much in theory, but rather in how quickly they are integrating this investment strategy.
For example, 86% of survey respondents from the region of Europe, the Middle East and Africa (EMEA) were actively analyzing sustainability data, while those in Asia-Pacific (APAC) and the Americas (AMRS) were in the early stages of this process.
Many of the portfolio strategies that institutional asset managers use to evaluate and select investment holdings also can be deployed by individual investors. Consider the following guidelines to align your investment allocation with the objectives for a net-zero economy:
- Scrutinize issuers that present significant climate-related risk, such as high carbon use or production, poor long-term planning or low ESG stewardship.
- Reduce exposure to high-carbon emitters and companies not making forward-looking commitments to transform to the net-zero economy.
- Incorporate sustainable sectors (e.g., clean energy, green bonds) as part of your asset allocation strategy, diversify investments among holdings.
- Ensure your issuers and investments are meeting temperature alignment benchmarks by monitoring available data and published transition plans. Review this benchmark with the same rigor as traditional financial data.
- Use the power of citizen and shareholder vote to support legislators, board members and asset managers committed to investing in and supporting the transition to a net-zero economy.
- Use the power of consumer spending to support companies actively transitioning to a net-zero economy.
The trend of incorporating environmental, social and governance considerations into investment research and decision-making have been emerging for quite some time. Now it is poised to take the spotlight as a leading measure by which companies are evaluated for investment prospects. This creates an interesting opportunity for both investors and consumers to put their money behind their beliefs.
As extreme weather events continue to wreak havoc on homes, businesses, major corporations and governments around the world, the individual levers of voting and spending habits could have a greater impact than ever before on household financial security and the future of the environment.
If you are interested in learning more about sustainability-integrated portfolios and their potential for risk-adjusted returns, contact your financial professional today.
Even with a will in place, your estate plan might not be as complete as you think. Life changes, such as getting married, buying property, or watching your family grow, can quickly make once-adequate estate plans outdated or incomplete. If you don’t have documents like a healthcare power of attorney or a living trust in place, there could be important gaps you’re not aware of. A quick review of your estate planning paperwork can go a long way in making sure everything still reflects your current wishes and needs. Signs That It’s Time to Revisit Your Plan You Don’t Have a Power of Attorney in Place A power of attorney allows someone you trust to make decisions on your behalf if you’re unable to. These documents are often divided into two categories: financial and healthcare. The financial power of attorney gives your designated person the ability to manage money, pay bills, or handle investments, while the healthcare version allows someone to make medical decisions based on your preferences. Without powers of attorney in place, your loved ones may be left scrambling during a crisis. Courts may need to get involved, and that can delay decisions and add unnecessary stress during already emotional situations. Your Will Hasn’t Been Updated in Years If it’s been more than a few years since you last reviewed your will, there’s a good chance it needs updating. A lot can change in five or ten years. Children grow up, family dynamics shift, and financial situations evolve. Your current will may not account for grandchildren, stepchildren, or even charitable organizations you now want to support. It’s also worth checking who you’ve named as executor. Is that person still the best choice? Are they still willing and able to serve in that role? A quick review every couple of years, or after any major life event, can help keep your plan aligned with your current intentions. You Don’t Have a Trust and Your Estate Is Growing You don’t need to be ultra wealthy to benefit from a properly structured trust. A revocable living trust can be a valuable tool for anyone who owns a home, has significant financial assets, or wants to reduce the burden on their loved ones after they pass. Trusts can help bypass probate, which often leads to fewer court delays and lower costs for your heirs. They also offer more control. For example, you can set rules for how and when beneficiaries receive their inheritance, which is something you can’t do with a basic will. If your estate has grown in recent years, adding a trust might be a smart next step. Your Beneficiaries Are Out of Date or Missing Beneficiary designations on retirement accounts, life insurance policies, and bank accounts can override the instructions in your will. That’s why it’s critical to keep them updated. You may need to update your beneficiary designations after a marriage, divorce, the birth of another child, or a death in the family to ensure those changes are reflected on all relevant accounts. Also consider naming contingent beneficiaries in case your primary choice is unable to inherit. Overlooking this detail can result in assets being passed through probate, even if everything else is in order. You’ve Moved to a New State Estate laws affecting probate rules, powers of attorney, and advance healthcare directives can vary from state to state. While most documents created in one state remain valid if you move to another, they may not align with your new state’s specific requirements or best practices. If you’ve relocated, especially across state lines, it’s worth having your documents reviewed by an estate planning professional familiar with local regulations. They can help ensure your plan is still structured to meet your goals and avoid unnecessary complications. Your Estate Planning Goals Have Changed When you first created your estate plan, your primary goal may have been ensuring your spouse or children were provided for. This is particularly common for people who initially draft their plans in their 30s or 40s. Over the years, a person’s priorities may shift, their family may grow, or they may experience unexpected life changes. Maybe your adult children are now financially independent and can take care of themselves, and you’d prefer your resources go toward charitable causes or protecting assets for your grandkids. Your documents should reflect your current goals and financial picture, not provide safeguards for contingencies that are no longer relevant. If you’ve built more wealth, your kids have grown up, you’ve separated from your spouse, or you’ve simply rethought how you want your legacy to look, it’s worth reviewing whether a plan you drafted decades ago still supports your goals. Are You a Phoenix, Peoria, Tempe, or Scottsdale Retiree Who Needs Estate Planning Assistance? Creating an estate plan isn’t a one-time exercise. It should grow and change with your life. If it’s been years since you looked over your documents, or your financial or family situation has changed since you drafted them, it may be time for a review. Fullerton Financial Planning offers comprehensive estate planning services for retirees, savers, and families throughout the Valley. Our estate planning professionals can help you identify what’s missing and modify plans based on your current life and preferences. Call us at (623) 974-0300 to schedule a meeting.
For many investors, retirement savers, and households, estate taxes feel like a distant concern; something only the ultra-wealthy need to think about. The truth is a bit more complicated. The current limits are fairly high, and the vast majority of households are exempt. However, the exemption amount can drop, potentially exposing more families to steep estate taxes. Whether or not your estate ends up being taxed, planning ahead can make a meaningful difference in how much of your legacy stays with your loved ones. What Is the Estate Tax, and Who Does It Affect? The federal estate tax applies to the total value of your estate at the time of your death, including your home, savings, investments, and other assets. As of 2025, estates valued under $13.99 million per individual or $27.98 million for married couples are exempt from federal estate tax. Unless Congress takes action, the exemption is projected to decrease by roughly half to $6.8 million per individual or $13.6 million for married couples in 2026. In addition to federal taxes, some states impose their own estate or inheritance taxes, each with different rules and exemptions. Arizona, for example, currently has no estate or inheritance tax, but it’s still important to keep an eye on federal changes and how they might affect your long-term planning. Take Advantage of the Annual Gift Tax Exclusion One of the simplest ways to reduce the size of your taxable estate is by making gifts during your lifetime. In 2025, you can give up to $18,000 per person per year without triggering gift tax reporting. Married couples can combine their exclusions to give up to $36,000 per recipient each year. Gifting over time can gradually reduce your estate’s value while transferring funds to your intended beneficiaries without tax. Refine the Way Your Trusts Are Structured Not all trusts are designed to reduce estate tax exposure. Irrevocable trusts, such as irrevocable life insurance trusts (ILITs), charitable remainder trusts (CRTs), and grantor retained annuity trusts (GRATs), can remove specific assets from your estate and transfer them in a tax-efficient way. Reviewing how your trusts are structured and funded with an estate planning professional may uncover opportunities to improve tax outcomes or adapt to changing laws. Review Your Beneficiary Designations and Asset Titles Certain accounts, like retirement plans or life insurance policies, pass directly to named beneficiaries outside of probate. However, they’re still considered part of your taxable estate in many cases. Reviewing how these accounts are structured with an estate planning professional can help families minimize the risk of double taxation, reduce administrative delays, and ensure their plan is as tax-efficient as possible. Larger Estates May Want to Explore Lifetime Giving Strategies Estates that exceed the estate tax exemption threshold may benefit from more complex strategies than the typical family might require. These include grantor retained annuity trusts (GRATs), family limited partnerships (FLPs), or even strategic life insurance planning to offset potential taxes. These tools are inherently complex, which is why families often benefit from the assistance of a team of financial planners , tax professionals , and estate planning experts working in conjunction on a comprehensive plan. Work With Professionals Who Stay Abreast of Changes to Estate Tax Law Unless new legislation is passed, the current estate tax exemption is scheduled to revert to roughly half its current amount in 2026. That change could pull many more families into taxable territory, particularly those with valuable real estate, closely held businesses, or significant investment portfolios. The exemption amount and rate have changed frequently. In 2001, the exemption was just $675,000 with a 55 percent top rate. It rose to roughly $5 million in 2011, indexed for inflation, with a 35 percent rate, which increased to 40 percent in 2013. It wasn’t until the Tax Cuts and Jobs Act that the exemption doubled. If recent history is any indication, households should plan as if the current exemption and rate will not reflect the tax situation at the time of their passing. Having a plan that’s thorough and flexible, and working with professionals who can track changes and recommend modifications when needed, can help ensure your estate plan stays aligned with your goals. Don’t Overlook Step-Up in Basis Rules For many families, the step-up in basis can be just as important as estate tax planning. When heirs inherit certain assets, like real estate or stocks, the value is typically stepped up to the fair market value at the time of death. This can significantly reduce capital gains taxes when those assets are later sold. Trust structures and asset transfers can be designed with this rule in mind. Coordinate With Your Broader Financial Plan Effective estate tax planning doesn’t happen in isolation. It’s important to coordinate with your overall retirement plan, charitable goals, and income tax strategy. For example, decisions about when to draw from retirement accounts, whether to convert traditional IRAs to Roth accounts, and how to use donor-advised funds can all impact your estate’s long-term tax exposure. A team that incorporates financial advisors, tax experts, and estate planners can help align your estate plan with your broader financial picture. Planning Isn’t Just About Taxes for Arizona Families While reducing taxes is an important goal for many families, estate planning is ultimately about ensuring your wishes are carried out, your family is protected, and your legacy is preserved. Working with a financial professional can help you identify gaps, explore opportunities, and build a strategy that fits your goals today and in the future. Learn more about your exposure to estate taxes and receive guidance on tax planning strategies that may reduce their impact by calling Fullerton Financial Planning at (623) 974-0300.
Charitable giving isn't just a way to support causes you care about. It can also be a powerful tool for shaping the kind of legacy you want to leave behind. Whether you're passionate about education, health care, faith, or local community development, the way you give can reflect your values. Charitable giving can do more than allow you to make an impact after you’re gone. It can offer tax advantages and play a useful role in your broader estate plan. With the right approach, it’s possible to support meaningful causes, reduce estate tax exposure, and preserve more wealth for your heirs. Defining the Legacy You Want to Leave Legacy planning and estate planning are two separate but intertwined processes. Legacy planning is less focused on how assets will be distributed and more about defining and actualizing the imprint you want to leave on the world. Legacy planning can involve people, causes, or communities that matter most to you. For many individuals and couples, this includes supporting nonprofits, faith-based organizations, or universities that reflect their values. Some choose to leave a specific dollar amount or percentage of their estate to a favorite charity. Others go a step further and build giving into the structure of their estate, using tools that allow for ongoing or strategic impact. Incorporating Charitable Giving Into Your Estate Plan Bequests in a Will or Trust You can name a charity as a beneficiary of a specific amount, a percentage of your estate, or a particular asset, like real estate or stock. This is one of the simplest ways to give and can be adjusted as your priorities evolve. Beneficiary Designations Retirement accounts, life insurance policies, and donor-advised funds can be directed to charitable organizations by simply updating the beneficiary paperwork. This bypasses probate and allows for fast, direct transfers. Charitable Trusts A charitable remainder trust (CRT), for example, provides income to you or your heirs for a set period before passing the remainder to a charity. This can reduce your taxable estate and may offer income or capital gains tax benefits as well. Tax Benefits of Giving Strategically Charitable giving can provide immediate and long-term tax advantages depending on how it's structured. For example: Assets donated to qualified nonprofits are typically excluded from your taxable estate. Donating highly appreciated assets, like stock or property, can help you avoid capital gains tax while still getting a deduction. A charitable trust can generate income tax deductions, provide lifetime income, and reduce estate tax liability. Balancing Giving With Family Goals Leaving something behind for loved ones and giving to charity aren’t mutually exclusive. In fact, many families find that charitable planning opens up new conversations about values, priorities, and what legacy really means. In some cases, family members are involved in helping direct donations or even managing a donor-advised fund that allows them to continue giving over time. Your estate plan can be designed to provide for your heirs while also reflecting the impact you want to make beyond your lifetime. The key is to be intentional and diligent in researching and vetting organizations. Map out what matters to you and find a strategy that reflects both generosity and financial wisdom. You can maximize the impact of your legacy planning by finding reputable partners you trust to wisely use your dollars. Working With Estate, Tax, and Financial Planning Professionals Who Understand Your Vision Legacy planning isn’t one-size-fits-all. The best approach depends on your assets, your goals, and the types of causes you want to support. A team with investment management and financial planning experience can help you evaluate options, establish trusts, or efficiently invest in donor-advised funds that align with your goals. Most people give to charity because it aligns with their values, not because of the tax benefits, but there’s nothing wrong with giving in a way that does both. Learn more about making charitable giving a lasting part of your legacy by calling (623) 974-0300 to schedule a meeting with Fullerton Financial Planning.
