Sustainable Living: Eco-Friendly Investing — The Cha Ching factor

“I’m convinced if JD Rockefeller were alive today, he would see that the future is in clean energy and be the first to invest.”
— Stephen Heintz, president of Rockefeller Brothers Fund

In 2014, Archbishop Desmond Tutu called for a worldwide boycott against the fossil fuel industry. He went on to describe investing in renewable energy as, “the correct moral choice.”

True. But anyone who still thinks that investing in renewables is merely a moral choice hasn’t checked the market lately. Today, the smart money is in sustainable investing.

Scientists warn that the only way to avoid the catastrophic consequences of climate change is to leave two-thirds of all known coal, oil and gas reserves in the ground. Despite this, corporations are spending $1.8 billion a day exploring for and exploiting even more fossil fuels. Extraction on public land and in federal waters accounts for 25 percent of all greenhouse gases generated by the United States. And often without realizing it, our personal investments have been bankrolling these misadventures.

Five years ago, when I wanted to put some of my paycheck in a greener, cleaner mutual fund, a financial advisor told me that investing in the renewable energy sector was great for your conscience, but that it would never make much money, basically reminding me that no good deed goes unpunished.

I invested in the Calvert Equity Fund anyway. Since then, Calvert has not only performed really well, but beaten the S&P 500 four out of the past five years.

This isn’t just my dumb luck. In 2020, 11 of 12 mutual funds that were categorized as sustainable beat the S&P 500. According to a Goldman Sachs report, sustainable equity funds significantly outperformed traditional fund peers. Really green funds like Invesco Solar ETF power have more than doubled their value in just the past 12 months.

Just as green investments are picking up speed, funds tied to fossil fuels have been losing ground. Despite the recent jump in oil prices, an avalanche of divestment has been hitting the fossil fuel industry hard. Princeton University divested. So did Mexico City. Even the Vatican, not necessarily known for thinking outside the box, got out.

On the flip side, as more and more people are investing in sustainable funds, they keep performing better. BlackRock CEO Larry Fink recently predicted that, “As investors choose to tilt their investments towards sustainability-focused companies, the tectonic shift we are seeing will accelerate further.”

Plus, while wind and solar power keep getting cheaper to produce, resources buried in the ground in the form of oil and gas are becoming more expensive to access. As the industry has to expend more energy digging deeper into the earth, it’s beginning to cost more to produce than a barrel of oil is worth. As 350.org’s Bill McKibben noted, “At this point, we’re scraping the bottom of the barrel. We’re doing tar sands. We’re doing shale oil. Fracking … mountain top removal … deep sea drilling. We’re taking apart the Earth to look for the last bits of gas, oil and coal.”

Between new government regulation on fuel emissions, resources drying up and investors dropping out left and right, markets are realizing that investing in fossil fuels is a risky proposition.

Another boon for renewables is that while climate change has no silver lining, bad news about it does. Research shows that as climate news coverage increases, the price of green stocks go up, while so called brown stocks go down. Given the number of weather related disasters plastering our new feeds lately, you don’t have to have an MBA from Wharton to predict which way climate friendly investments are trending.

When looking to invest sustainably, especially in the big funds, keep in mind that there are almost no perfect companies. Because there aren’t that many completely green companies out there, large funds have to cast a wider net.

Some companies are included in fund portfolios because they’re innovators. They aren’t green themselves, but might manufacture new materials to make cars lighter, thus more fuel efficient. Or they’ve discovered enzymes that help cattle produce less methane when digesting food.

Other companies that make the cut are what I’d call “the improvers” — utilities, for example, that weren’t traditionally environmental, but are quickly transitioning to renewable energy. Take CMS Energy. In 2005, it produced 70 percent of its electricity with coal. It now plans to completely end the use of coal by 2025, making it a leader in Michigan’s clean energy transformation.

Even when you know what to look for, some fossil fuel companies like to play hide and seek (OK not seek so much). An ordinary mortal would have to stumble through hours of research and data just to try to make sense of all the holdings listed in a large mutual fund: What does this jumble of acronyms mean exactly? And why are they so frustratingly opaque?

No need to get lost at the shopping mall of sustainable choices. The best way to figure out if a fund is serious about going green is to let someone else do the hard work. There are a few great websites that make it easy to find out what a fund is doing right (and wrong). Visit As You Sew and Fossil Free Funds (see sidebar).

If you already have money in the market, companies are more beholden to investors than one would think. I used to treat proxy ballots like junk mail. Then, one day, I got out my magnifying glass and actually read one. I discovered that there were issues that I cared about and could vote on. It was that easy.

If you believe that corporations have as much power over us as governments do (or more), get out the vote. Shareholder activism works. JP Morgan Chase recently voted to remove former ExxonMobil CEO Lee Raymond from its company’s board after shareholders expressed dissatisfaction with Raymond’s position on climate change — namely, being a champion of disinformation and claiming that global warming could be caused by things like “the wobble of the earth.”

After consulting with a financial advisor who I trusted, I decided to switch my IRA account to Invesco Solar, because capital gains within retirement funds don’t get taxed when you liquidate. Neither does switching to a more environmentally focused plan within a 529 college fund. Note: Small funds like Invesco Solar aren’t for everyone. Because they only include 40 stocks concentrated in solar, they’re considered more volatile. But so far, that gamble has yielded a 40 percent three year return.

In 2015, University of Michigan’s president, Mark Schlissel, was dismissive of student demands for divestment from fossil fuels. The students persisted. This past March, UM announced that it was divesting from fossil fuels and investing $140 million in renewable energy.

How did an institute with deep ties to the Detroit car industry reverse course in just six years?

“It’s not that they brought in new officials at University of Michigan,” explained McKibben, “It’s that the world shifted.”

How To Go Green:

FossilFreeFunds.org: Look up the climate impact of popular mutual funds, find out if your savings are being invested in dirty energy sources, and find greener options.

AsYouSew.org: Examine companies and ESG funds to see where they stand on fossil fuels and other social issues. They also assess the climate-related risk of companies within a fund.

GoFossilFree.org: Google “GoFossilFree (Name of University)” to find out if a school has divested from fossil fuels yet. If it hasn’t, this site makes it easy to sign a petition or write a letter to the school president.

The Shareholder Action Guide: A handy book about how small shareholders can change the way big corporations do business.

Do The Math (by 350.org on YouTube): Inspiring and action-packed movie about fighting the petroleum industry. (Only 42 minutes!)