SANTA FE, N.M. — In 2017, the Guardian reported on a study by the Climate Accountability Institute that found that 100 companies are responsible for 71% of the world’s emissions. Not surprisingly, ExxonMobil, Shell, BP and Chevron were among the highest investor-owned emitters.
I called the manager of my IRA. “I want you to sell any holdings I have in fossil fuels,” I said. “OK,” she said slowly, “we will sell any stock you own, but what about funds that hold some fossil fuels, some good diversified funds hold small amounts of fossil fuels, and, what about utility stocks that use fossil fuels? They pay pretty good dividends.”
“I want out,” I said. “Find me some environmentally conscious funds, including bond funds.” And they did.
About a year later she said, “We are moving a lot of our clients to those funds, not just because they are environmentally conscious but because they have actually done better overall.”
Socially responsible investing (SRI), which simply means investing in companies that align with your values and avoiding those that do not, is now wildly popular.
As SRI manager Hamish Chamberlayne recently stated, “The big picture is that in the next few decades the global economy is going to transform to a low-carbon economy and it will be one of the biggest investment events of our lifetime.”
The global economy is about $80 trillion. The transition to low carbon will create major risks and opportunities requiring a new level of investor understanding. You don’t want to be the loser holding on for high-risk, short-term gain.
One place to start is with ESG investing. ESG is often used interchangeably with socially conscious investing and sustainable investing. ESG considers environmental, social and governance factors in the investment decision making process. In other words, ESG rated companies care about the environment, take good care of their employees, and are better managed.
Among the environmental criteria in an ESG rating are waste and pollution, resource depletion, greenhouse gas emissions, deforestation and climate change. Social criteria looks at employee relations and diversity, working conditions, service to local communities, health and safety, and conflict. Governance considers tax strategy, executive pay, donations and lobbying, corruption and board diversity.
My friend Jake is a financial adviser. I recently asked Jake about ESG investing. “ESG companies simply tend to be better performing companies and there is a push for more and for companies to improve their ESG profiles,” he said. “They offer a better business model.”
It seems that more and more investors are proactive about how they want their funds invested. I asked Jake if it was hard to create completely ESG portfolios.
“Things have changed a lot in the last five years,” he said. “It is no longer difficult or time consuming. ESG portfolios are increasingly standardized.”
Interestingly, Jake told me that some fossil fuel companies have improving ESG ratings. Some oil and gas companies are working to protect the environment, are diversifying into alternative fuels, are well managed, and treat their employees well.
There are no simple answers.
Recently, marketwatch.com reported that the New York state $226 billion pension fund was dropping many of its fossil fuel stocks, and that it would sell shares in companies that contribute to global warming.
Some green energy advocates suggest that rather than divestiture, it may be wiser to stick with those companies that are transitioning to cleaner alternative fuels, especially utilities, and work as shareholder advocates. Currently, 30% of greenhouse gases come from power plants.
Chris Meyer, a stewardship manager of the Praxis fund, says the utility sector is ripe for transition to green energy.
ESG growth is accelerating because the world is changing and most investors are no longer passive. As the millennial generation ages, invests, saves and inherits, there will be an increasing demand for funds that “do well and do good.”
You may be able to have a strong say in how your personal funds or IRA is invested but what about company pension plans? Some employer plans have flexibility. Check with your pension provider. The first step is to find out how these funds are invested. The pension managers may be open to sustainable, ESG alternatives.
And if you do not have one, seek out a financial adviser who understands your goals.
Greening your investments may be one of the most important steps you can take to secure your family’s future.
Judith Polich, a longtime New Mexico resident, is a retired attorney with a background in environmental studies and is a student of climate change. She can be reached at firstname.lastname@example.org