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Investing to Combat Climate Change

Investing to Combat Climate Change

November 30, 2020
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               Pick up the newspaper today and you will see it: Headlines about wildfires, flooding, hurricanes, political instability, and refugee crises. The evidence is clear that each of these disasters (and many more) are driven by man-made climate change. Many of us are looking for ways to increase our impact, beyond using reusable bags at the grocery store or buying a Prius, but the options seem limited, confusing, and opaque. But, there is one thing that you can do to effectively combat climate at a scale much larger than your household, and that is Investing to Combat Climate Change.

 

                Although socially responsible investing has been around in some capacity for at least hundreds if not thousands of years, it has changed dramatically over the last few decades, and in particular in the last 10 years. Money has been pouring into ESG (Environmental, Social, and Governance) investments at a tremendous rate over the last decade, resulting in $17.1 trillion by the end of 2019 being investing in the United States according to ESG principles, or approximately 1 out of ever 3 dollars nationwide. This means that there has been an explosion of investment choices, many available at low cost to ordinary retail investors. Long gone are days of worrying that you will have to trade low returns for environmental stewardship. In fact, the vast majority of data points to ESG investments performing as well or better than their traditional, carbon spewing peers.

 

Taking Stock of Your Investment Portfolio Climate Impact

                The first step to investing to Combat Climate Change is to take stock of your current investment portfolio climate impact. Do you have a portfolio that is already well ahead of the curve, or are you heavily invested in fossil fuel producers and companies with a poor environmental track record? Unfortunately, this is almost impossible to determine from reading the prospectus or contacting the company where you hold your investments. Luckily, technology is on your side here. Try using a free online resource like fossilfreefunds.org to examine your exposure to fossil fuel companies and measure the overall carbon footprint of your investments and compare them to other similar funds. There is a little bit of legwork involved and there are some limitations, as not all funds are tracked and you can only view results for an individual investment, not a portfolio, but it is a great place to start.

               

If you work with a financial advisor, now is the time to make him or her earn their fees or commissions. Tell your advisor that you are worried about climate change and want to see the climate impact of your current portfolios and how they can be improved to combat climate change. Financial advisors have access to much more information through subscription software, which makes it easy for them to pinpoint sustainability and carbon intensity of investments. At Green Future Wealth Management, we can analyze your climate impact all the way down to telling you how many tons of CO2 stay out of the air or how many trees stay planted based on your investment decisions. If your financial advisor tells you that analyzing your climate impact can’t be done or that you won’t make as much money if you Invest to Combat Climate Change, they are wrong. What they are really saying is that they don’t know how to Invest to Combat Climate Change, or they won’t make as much money if you Invest to Combat Climate Change. In that case, it is time to go shopping for a new financial advisor. Try using the directory at USSIF.org to find an advisor in your area who focuses on sustainable investing, or search for an advisor with the CSRIC designation, which means that he or she has specific training in this area.

 

Investing for Climate Change in Your 401(k)

                If you are like most Americans and keep the vast majority of your invested net worth in your 401(k) or 403(b) at work, it gets a little trickier. This is because you have a limited number of investment options within your plan, and most plans have very few ESG investment options. A good place to start is to talk to your HR and let them know that this is something that you want to have access to within your plan. Better yet, get a bunch of people who feel similarly at your workplace to request a meeting with HR to discuss this. The good news is that your 401(k) investment lineup can be changed, but it often requires being a squeaky wheel in order to get it done.

 

                Climate change is real, and it is one of, if not the biggest threat of the 21st century. Most scientists feel as if the window of time for action is very short, and in many cases we must act now. In addressing the World Economic Forum in Davos in 2016, Greta Thunberg gave a speech where she said “I want you to act as you would in a crisis. I want you to act as if our house is on fire. Because it is.” We are in a crisis, and the greatest impact that you can have beyond voting, is to Invest to Combat Climate Change, and encourage your employer, your house of worship, the organizations you belong to, and your family to do the same.