'There is no transition to a climate neutral world without commodities,' says Auspice founder
Despite longstanding perceptions, Auspice Capital Advisor’s Tim Pickering believes ESG investing and commodity strategies aren't mutually exclusive.
His argument is the aversion to commodities within ESG frameworks stems largely from a misunderstanding of how exposure can be structured.
“We get that commodities and commodity production and extraction is an inherently invasive process but depending on how you get that exposure, you could have no carbon footprint,” noted Pickering, Auspice’s founder, president and CIO. “Is there a way to get that exposure as an investor in a less invasive way?”
That’s why Auspice addressed this issue directly in 2021 with a white paper examining the intersection of ESG and commodity futures. The paper made a clear distinction between investing in resource extraction companies and using commodity futures, which “don’t affect commodity consumption, they don’t affect commodity production, and they don’t have a carbon footprint,” noted Pickering.
That distinction became central to the launch of Auspice’s newly launched Auspice Commodity Evolution (ACE) commodity strategy. But he also acknowledged that not all investors are comfortable with traditional commodity portfolios, especially when fossil fuel exposure conflicts with ESG mandates. Rather than dismiss the feedback, Pickering said the firm started rethinking what a commodity portfolio could look like in an ESG-aligned context.
In designing the ACE fund with and particularly for Concordia University, the firm modified its broad commodity index, replacing fossil fuel-heavy components with markets aligned more closely with energy transition themes, pointing to metals like lithium, tin and cobalt, plus uranium, ethanol, carbon credits, and agricultural products linked to biofuels. Natural gas was added as a point of debate, with some institutional clients historically viewing it as a bridge fuel and others not.
Pickering reflected on the process, emphasizing the need for flexibility in how ESG is defined across different mandates and portfolios.
“Maybe there are elements of their investment thesis or their future looking views on ESG that just don't fit the criteria. Maybe they're very fossil fuel sensitive … But is there a way to get commodity exposure? Maybe there's an evolution in what those important commodities are, and maybe it's going to take a long time but there's some sort of transition happening over time,” he emphasized.
Consequently, Pickering sees commodity futures as a smart investment tool, particularly for those seeking diversification and inflation protection.
“If you want exposure to commodities, maybe you want non-correlation to equities and fixed income, and maybe you want inflation protection,” he said, adding futures, in his view, offer that exposure without the operational footprint of owning commodity-producing companies. Additionally, Pickering highlighted that commodities meet institutional investors’ long-term goals.
“Commodities, as a whole move in 10, 12, plus-year cycles. Some argue, including us, that we are at the dawn of one of those commodity cycles. But that doesn't mean commodities, or any asset class, is for all investors.”
He underscored his argument isn’t whether one commodity is worthless and another is worth more noting oil still holds weight in global markets, while “lithium and cobalt have been going down for a couple of years.” That kind of volatility underscores the need for a forward-looking view on what constitutes strategic commodity exposure, argued Pickering.
“There was a statement made by Mercer and they said commodities are going to remain an essential part of the economy. Investors should note that there is no transition to a climate neutral world without commodities.”
From wind farms to electrification, the shift to renewables still depends on raw materials, added Pickering. That evolving landscape opens space for a different kind of commodity portfolio, one that meets both performance goals and ESG criteria.
ACE for institutional investors
Brennan Basnicki, partner and product specialist at Auspice, explained the launch of the ACE fund was directly shaped by a Request for Proposal (RFP) from Concordia University’s pension and foundation, an investor with particularly stringent ESG criteria.
The RFP specified a desire for commodity exposure tied to energy transition themes, ideally through a fundamental, discretionary strategy. That posed a challenge for Auspice, which traditionally operates as a systematic manager with a petroleum-heavy legacy. But as Basnicki noted, the firm was intrigued by the opportunity.
“They had a fundamental outlook that could be outlier opportunities in many of the so-called energy transition markets. And that was really the driver,” he said.
Rather than dismiss the request, Auspice worked with Concordia to create a custom solution, curating a basket of commodities deemed critical to the transition economy. The process, Basnicki acknowledged, was “more of an art than a science.”
He pointed to examples like cobalt and aluminum, commodities vital to electrification, yet deeply problematic from a social or environmental standpoint.
“Seventy per cent of cobalt is mined in the Congo and 20 per cent in Russia. “It fails miserably from an S and G perspective, but very important from an E perspective,” he noted. “When you get exposure via futures, you have no carbon footprint, so you don't affect consumption, you don't affect production. Whereas, if you invest even in the most proactive, responsible company in the mining sector or resource equities, they still have a carbon footprint, even if they're trying to remove that.”
Basnicki believes the ACE strategy offers institutional investors something they’ve struggled to find in traditional energy transition and real asset exposures: daily liquidity, full transparency, and lower fees, all of which he argues is “hard to find in most real asset portfolios”.
While inflation protection has long been a core reason for allocating to commodities, Basnicki noted that most energy transition investments are tied up in private markets.
He contrasts that with ACE, which aims to achieve similar objectives - participation in the energy transition and inflation sensitivity without the typical downsides.
“This is complementary in every one of those regards,” he added.
“There's an evolution happening. It's probably going to be a lot of time but let's think about what that is. There may be opportunities in some of these greener commodity markets,” said Pickering.
