If you’re reading this, you probably already have a cache of reusable bags at the ready for shopping trips, are well-versed in the virtues of composting your kitchen scraps, have swapped out the majority of your old light bulbs with more efficient LEDs and have done some initial research on two- or four-wheeled electric vehicles, if you don’t already enjoy the benefits of owning one. Great! Congrats for proactively taking these and other important steps to live more lightly on our planet and mitigate climate change. But what have your investments been up to while you choose the “deep green” renewable energy option offered by MCE through PG&E, buy in bulk, eschew single-use plastics and participate in coastal clean ups? If you are fortunate enough to have been able to save for retirement, do you know if your portfolio is pursuing offshore oil leases in the Arctic while you dutifully patronize the local farmers market and bike home loaded up with seasonal organic produce?
The fact is that while more of us are endeavoring to be more conscientious consumers, reduce our carbon footprints and advocate for greener alternatives to our throw-away-based economy, our retirement funds may very well be working at cross purposes. It’s also why divesting from fossil fuel-based companies is arguably one of the more significant actions individual investors can take to speed the transition to a more sustainable future.
When I attended a recent online training with Napa Climate Now, one presenter emphasized that in terms of the economy, “the global middle class has the largest aggregate impact on climate.” It’s no secret that a large portion of this middle class also has retirement savings and investments that can be divested from carbon-based sources and marshalled to supporting cleaner alternatives. In light of pressing global challenges resulting from our reliance on fossil fuels, (i.e. rising sea levels, more extreme weather, loss of biodiversity, incessant wars, and the advent of the Covid pandemic, among others), it’s become clear that private capital will be key to spurring the transition to more sustainable technologies, not public funds alone. And the economic recovery following 2020’s tumult will present myriad opportunities and incentives for departing from our dirty old ways.
The good news is that large Wall Street firms are catching on and increasingly offering targeted funds to capitalize on growing investor demand for fossil-free, renewable energy-focused and so-called ESG-oriented investments based on environmental, social, and governance principles. The bad news is that many companies currently offering 401(k) retirement plans to employees have yet to add them to their standard menu of investment options. My 401(k) remains a case in point.
While I’m among those fortunate enough to have an employee retirement savings account, I also know that my above average mutual fund returns are based to some degree on unsustainable companies that pursue short term profits at the expense of healthy ecosystems and a livable planet. Since I opened my 401(k) back in the late 1990s, it’s consistently chugged along and increased in value based on my purely passive strategy of reinvesting dividends and playing the long game – i.e., doing nothing. Yet, the global costs associated with this personally remunerative “do nothing” strategy have only become clearer. And at the same time, my former employer isn’t doing anything on their end to offer me an alternative; I’ve grown increasingly frustrated that my investment options offered through Fidelity are limited to approximately a dozen pre-selected funds – amounting to a Hobson’s choice in that most (if not all) appear to be underwriting our climate-threatening status quo to some degree. This year, I resolved to make a change and have found some powerful online resources that can help anyone start down the path to becoming a more activist-minded investor.
How to Become More Active When Choosing Passive Investments
I don’t consider myself a stock market expert by any stretch, but have resolved to get more active identifying carbon-based funds this year and replacing these laggards with climate-oriented leaders. For starters, go to Fossil Free Funds to find out how your funds rate. This online screening tool tracks thousands of mutual funds and ETFs and assigns them letter grades according to the percentage of non-renewable energy sources contained within each. And if you want a short cut to identifying only top-rated fossil-free funds, there’s a tab for that. This site even includes a sample letter you can customize and send to your retirement plan administrator requesting fossil-free investment options if your current plan offers none. I did just that regarding my aforementioned 401(k) and asked my former employer to add a renewable energy index fund to our menu of options offered through Fidelity. I also reached out to former colleagues to enjoin me in the effort.
While it might seem like a daunting task, divesting from fossil fuels has become much easier with the advent of such screening tools. I relied on several of them to audit my rollover IRA at an online brokerage and created a portfolio several years ago based on top-rated renewable energy-based funds. And I’m happy to report it’s up more than 40% since inception. Of course, “past performance is no guarantee of future results,” but I’m encouraged that my DIY collection of more sustainably oriented funds is beating all major indexes – and handily proving that “socially responsible investing” and taking future generations and healthy ecosystems into consideration need not result in diminished returns.
How about you? Do you have an employer-sponsored 401(k), self-directed IRA or other retirement plan? What’s the climate impact of your investments? Does your company plan offer any fossil-free funds? Increasingly, climate-minded investors have the means to become more active — and put our money where our morals are.
Here are some of the divestment resources I’ve used to divest my retirement portfolio in an attempt to clean up my investment act. I encourage you to share any others you may find!
The 350 Bay Area Fossil Fuel Divestment Program
Online screening tools: