July 1, 2025

Dear Sustainable Equity Strategy Clients and Friends:

The first half of 2025 has taught a masterclass in volatility. At one point in early April, the S&P 500 was down more than 20% from its year-to-date high. Since then, the index has rebounded 26%. Markets have swung sharply in response to shifting U.S. trade policies, geopolitical strife, dampening consumer and investor sentiment, and an ongoing debate about the direction of inflation, interest rates and fiscal policy. For many investors, it has been a time of uncertainty and second-guessing. Clients of the Strategy stayed nearly fully invested through it all, adhering to our philosophy of long-horizon investing. Further volatility surely lies ahead. But steadiness has its rewards: even as war began between Israel, the United States and Iran, the equity and bond markets demonstrated remarkable resilience and the S&P 500 finished the quarter at an all-time high.

Mindful of his admonition that “The stock market is a device for transferring money from the impatient to the patient,”¹ our team decided to make a pilgrimage to honor one of our investment heroes, Warren Buffett. Anticipating Mr. Buffett might announce his retirement from the company he has helmed for six decades, Berkshire Hathaway, we traveled to Omaha to witness what is likely to be his final turn presiding over Berkshire’s storied annual meeting, the “Woodstock of Capitalism.”

Buffett’s investment history offers perspective on volatility. His career weathered, among other turbulent events, the Vietnam War and associated citizen unrest, the Arab Oil Embargo, the resignation of President Nixon, double-digit inflation, 1987’s Black Monday, the Dotcom Bomb, the Great Financial Crisis, and the Covid pandemic. Through it all, Buffett’s approach has remained steadfast: buy high-quality businesses, hold them through thick and thin, and let time and compounding do the heavy lifting. Since Buffett took control of Berkshire Hathaway in 1965, the company’s shares have earned a compound annual return of 19.9% compared to a return of 10.4% for the S&P 500.² In a vivid example of the power of compounding, $100 invested in Berkshire Hathaway shares in 1965 would be worth $5.5 million at the end of last year.³ In contrast, the same sum invested in a yet-to-be-invented S&P 500 index fund would be worth around $39,000 today, dividend reinvestment included. Our sense of loss upon Buffett’s announcement that he would step down as CEO was tempered by our appreciation of the grace, wisdom and humility that characterized his extraordinarily successful career as an investor.

“I buy [stocks] on the assumption that they could close the market the next day and not reopen it for five years.”⁴ Warren Buffett, Berkshire Hathaway 1997 Annual Meeting

The Sustainable Equity Strategy (SES) attempts to emulate the many lessons taught by Mr. Buffett, most particularly owning for long, preferably indefinite, holding periods a concentrated portfolio of high-quality businesses supported by or aligned with secular trends that will endure through the many economic cycles to come. Buffett frequently refers to the long-term driver of America’s secular growth, repeating that the “American Tailwind” is the reason for Berkshire’s success, not the other way around.⁵ Extending Buffett’s playbook, we believe intensifying environmental risks and opportunities are poised to have more enduring effects on the prospects for company performance than the shorter-term concerns which preoccupy most investors: the direction of interest rates and fluctuation of the ordinary business cycle. We believe Mr. Buffett would appreciate SES’s integration of material environmental factors into an assessment of company risk, opportunity and impact on future cash flows, although he may only recently have recognized their significance. Berkshire Hathaway’s Q1 2025 results were materially impacted by climate driven catastrophe losses, particularly from Southern California wildfires, which led to a sharp drop in insurance underwriting profits and overall earnings.⁶ Buffett’s successor, Greg Abel, acknowledged at the annual meeting that the $48 billion in wildfire claims facing Berkshire’s PacifiCorp complicates his readiness to continue allocating capital to the utility sector. Buffett echoed Abel, noting that due to such risks the public utilities business “is not as good a business as it was a couple of years ago.”⁷

While 8.5-years is far shorter than Mr. Buffet’s 60-year run, we are encouraged by the early results from our strategy. Year to date through the 2nd quarter of 2025, the SES returned 11.69% gross/11.24% net of fees vs. 6.20% for the S&P 500 and 9.47% for the MSCI World. More relevantly, given our long-term horizon, our annualized return over the 8.50 years since inception is 16.50% gross/15.46% net vs. 14.69% for the S&P 500 and 12.16% for the MSCI World. (Past performance is no guarantee of future results.) Please see the one-pager attached to the end of this letter for additional performance details and further disclosures. During the 2nd quarter, we made no sales. We did take advantage of the April swoon in the market to add attractively priced shares to our positions in Nvidia, Synopsis and Chipotle Mexican Grill.

“Someone is sitting in the shade today because someone planted a tree a long time ago.”⁸ Warren Buffett While not as widely acknowledged a milestone as Buffett’s 60-year track record, 2025 marks the 80th anniversary of Alan Turing’s publication of his groundbreaking work on a programmable digital computer. Dr. Turing is likely as much of a celebrity to computer scientists as Buffett is to investors. Turing is most famous for inventing and building a machine at Bletchley Park that could decipher the coded communications of the Nazi war machine, an achievement that some believe shortened WWII by two years, saving perhaps 14 million lives.

With the war over, Turing turned his attention to hypothesizing and building intelligent machines. Commenting later in a BBC interview, Turing said, “…our digital computer, suitably programmed, will behave like a brain...I think it is probable for instance that at the end of the [20th] century it will be possible to programme a machine to answer questions in such a way that it will be extremely difficult to guess whether the answers are being given by a man or by the machine.”⁹ The “Turing Test,” as it became known, reflected his belief that the operations of the human brain could be simulated by a computer. Turing’s work laid the foundation for artificial intelligence (AI). In recent years, groundbreaking progress in AI has made clear that intelligent machines will have a pronounced impact on every aspect of human activity. While we are concerned that unregulated development of AI could expose us to unanticipated risks, as well as potential grid destabilizing spikes in energy demand from AI data centers, we are also convinced that AI will play a transformational role in solving the challenge of making the global economy more sustainable. According to a 2025 study by researchers from the Federal Reserve Bank of St. Louis, Vanderbilt University, and the Harvard Kennedy School, AI adoption is growing at as much as double the rate of previous transformative technologies such as the personal computer or the internet.¹⁰ Real-time examples of how AI is deployed within our SES portfolio companies abound:

Energy and Utilities: Smart grids and AI-driven systems balance supply and demand, minimize losses, enable more efficient energy use, and can accelerate the transition to cleaner energy. SES portfolio company Constellation Energy has implemented AI and machine learning tools at its nuclear power plants.¹¹ These tools analyze large volumes of operational data to improve sensor calibration, fuel usage, and overall plant efficiency, resulting in enhanced operational reliability and lower costs. AI is helping to prevent shutdowns and optimize fuel configuration for maximum output and revenue. Additionally, Constellation supports the growth of AI data centers by providing a reliable source of low-carbon energy to companies like SES holding Microsoft, which has made commitments to continue reducing greenhouse gas emissions even as it grows its AI and cloud services datacenter business. After decades of stagnant electricity demand, the accelerating use of AI has driven U.S. electricity demand and prices up. Constellation has been a beneficiary, signing long-term contracts at elevated prices and serving its AI customers’ need for assured supply.

Agriculture: AI enhances agricultural productivity by promoting precision irrigation, crop monitoring, and resource management. These systems help reduce waste, improve yields, and support regenerative farming practices. SES holding John Deere is a global leader in agricultural technology. Through internal R&D together with smart acquisitions of AI technology companies, Deere has integrated AI and machine learning across its operations.¹² During the quarter, some of our team visited Deere’s headquarters in Indiana, partly to learn more about the management team’s vision around AI.1 The company uses AI and advanced sensors to monitor soil, crops, and pests, enabling precise application of water and pesticides—reducing usage by up to 25% and 20%, respectively. Deere’s autonomous tractors and sprayers use AI vision for real-time field optimization, cutting waste and costs. With growing recurring revenue from customer subscriptions to these tools, Deere’s business model is becoming moderately less cyclical. Management expressed the belief that by employing AI enabled tools it will achieve its goal of fully autonomous production cycles for major crops by 2030.

Waste Management: AI automates sorting, optimizes collection routes, and reduces methane emissions from landfills, resulting in more efficient recycling, less landfill waste, and lower operational costs. SES portfolio company Waste Management equips collection trucks with sensors and cameras that use AI to analyze images of waste containers during pickup, allowing real-time identification of contamination and overfilled bins and reducing contamination rates.13 The company utilizes AI-driven robotics and computer vision at waste recovery facilities to automate the sorting of recyclables, thereby reducing manual labor, and improving the quality and market value of recovered waste.

Insurance: AI-powered models improve climate change projections, monitor biodiversity, and detect illegal deforestation. These systems provide real-time insights that help businesses and governments plan for and respond to environmental risks. SES portfolio company Aon integrates advanced analytics, machine learning, and climate science to help clients better measure, manage, and transfer climate-related risks, supporting resilience and compliance.¹⁴

“Investment must be rational; if you don’t understand it, don’t do it.” and “I don't understand the [iPhone] at all, but I do understand consumer behavior.” Warren Buffett

The examples above of how several of our companies implement AI across their businesses are replicated across the entire SES portfolio and the global economy. Applied AI increases efficiency in manufacturing by optimizing resource use, reducing emissions, and supporting greener supply chains. Predictive analytics and automation help minimize waste and energy consumption. In transportation, AI optimizes logistics, reduces fuel consumption, and supports the development of sustainable mobility solutions, such as electric and autonomous vehicles. AI’s ability to analyze vast datasets, provide actionable insights, and automate complex processes is crucial for advancing sustainability across nearly every sector. By improving efficiency, reducing waste, and enabling smarter decisionmaking, AI is paving the way for more sustainable human behavior and resilient economies. A central tenet of the SES is that greater operational and resource efficiency drives margin improvement and higher returns on investment, while also delivering urgently needed benefits for our environment. Sustainability and productivity are often flip sides of the same coin, and both are significantly accelerated by AI adoption.

The SES proprietary E-Map led us to a thorough analysis of investment opportunities arising from AI’s rapid expansion. By integrating sustainability criteria with fundamental economic analysis, we identified investable companies in the AI ecosystem. The portfolio has evolved such that approximately 15% of the SES is now invested in companies we consider leaders in the “picks and shovels” of supplying the AI tools required for applications such as those described above. These companies include Nvidia (leading designer of advanced AI chips and software); ASML (dominant manufacturer of the machines required to make the most advanced chips, including Nvidia’s); Taiwan Semiconductor (most dominant manufacturer of advanced chips); Synopsys (supplier of mission critical software and IP for advanced chip design); and Schneider Electric (an energy management leader we have owned for about 8 years, its fastest-growing segment supplies critical infrastructure and cooling solutions for energyintensive AI data centers). Except for Synopsys, a company we believe is not well understood by investors, these companies have all contributed materially to the SES’s outperformance year to date.

Looking Ahead

The SES was launched to clients on January 1, 2017 on the premise that deep environmental expertise could be combined with sound investment principles to create a portfolio of companies exhibiting resilience through the many economic cycles to come. Understanding sustainability data and trends underappreciated by most investors could provide a material information edge and the SES offers a case for why actively managed sustainable investing can outperform. The SES holds about 34 companies with sustainable competitive advantages, high returns on invested capital, abundant opportunity to reinvest earnings, strong balance sheets and identifiable advantages in navigating environmental change and offering solutions to some of the world’s most pressing problems. The SES portfolio is grounded in investment fundamentals which are largely agnostic to and independent of the kinds of rapid government policy changes we’ve witnessed this year. For long-term investors such as multi-generational families, pension funds, foundations, and endowments, we believe integrating sustainability into valuation models is becoming critical. Ignoring these signals amounts to flying blind in a changing world of risks and opportunities, increasingly shaped by environmental factors.

While surely Alan Turing was aware that his work at Bletchley Park shortened World War II and saved millions of lives, he probably did not fully appreciate that 80 years on, his contributions would form the foundation for improving the lives of billions, rendering human activity more sustainable, and creating many trillions in economic value. Both Buffett and Turing planted trees in whose shade we sit, ever mindful of the responsibility we bear to expand upon their vision of a better world.

Sincerely,

The Douglass Winthrop SES Team

Please see endnotes and important disclosures below, as well as a one-page attachment below with performance and other statistics.

DWA Sustainable Equity Strategy