How to Get Rid of Companies That Kill the Environment
Unless humans transform the economy in a way that has no “documented historical precedent,” the Earth will experience “worsening food insecurity and wildfires, and a massive loss of coral reefs as early as 2040,” according to a report released Monday. UN Intergovernmental Panel of Experts on Climate Change. And when governments are hostile to any climate change initiatives, people wonder what they can do to help the planet.
To be clear, climate change on our planet is not something that can be done at the individual level – governments around the world, as well as energy, agriculture and manufacturing companies, have the biggest change to make. But some investors may find it moral imperative not to invest in companies that actively contribute to climate change. If you want to channel your investments into companies that are even trying to do the right thing, you can try sustainable investing.
If you want a better understanding of sustainable investing, I’ve broken down what it is and its effectiveness here and here . To summarize, we can say that socially responsible investing (SRI) is a movement made up of people who only want to invest in companies that meet a set of standards for “reducing carbon footprint, improving the efficiency of energy and natural resources, being good at to their employees. by protecting the privacy of our customers, creating safe and useful products, respecting the communities in which they work, and being ethical, ” said Morningstar . Sustainability and clean energy are important components of the movement.
In theory, abandoning investments is a way to hold companies accountable and uphold their values. If he is at the center of a movement, he can start a conversation about important issues (see Any Campus Asset Selling Campus). But individuals who refuse to participate in a particular company will not affect its bottom line and will not affect the share price. More broadly, this is how it works , explained by Matthew Iglesias of Vox back in 2014:
When a non-profit fund sells ExxonMobil shares, ExxonMobil does not participate in the transaction at all. The shares are sold to some third party investor who really wants to own ExxonMobil shares and the company continues to move forward as if nothing happened.
This also applies to individual shareholders. Farther:
Corporate executives don’t care who owns their shares, but they do care about stock prices. When investor sentiment turns against the sector and everyone starts to sell their shares, prices drop and executives get worried.
Selling mimics this process, but does not actually accomplish the same. Until other funds and money managers sell their assets, all that happens is an instant opportunity to buy shares at a bargain price. Now, if the overwhelming majority of investors decide to sell everything, this could really push prices down. But long before you reach that level of social consensus, you will have the political clout you need to get what you want.
So now that we understand this, if you want to invest sustainably – which is a great goal – there are ways to do it.
Fossil-free ETF
There is no single fund full of amazing 100% green companies because they just don’t exist, and if they did, they would probably be out of reach for the average retail / 401 (k) investor. (it’s you). You are really limited to your company’s 401 (k) investments or IRA proposals.
But there are several dozen non-fossil mutual funds and ETFs that have been launched in recent years as investor appetite has grown. You can use Fossil Free Funds , an online tool that uses Morningstar data in conjunction with Carbon Underground 200 , a listing of the world’s largest oil, gas and coal companies, to report on stocks and funds. You enter a fund (for example, the one in your 401 (k)) and it details how much of the fund’s assets matches Carbon Underground 200. In this case, the less overlap, the better. You can find several fossil fuel free ETF offerings here and here .
One thing to keep in mind: “Even ETFs traded specifically to avoid fossil fuel companies such as the SPDR S&P 500 Fossil Gas,” ETF.com reports . “SPYX, for example, owns 5.72% of its portfolio in oilfield services companies and coal utility companies.”
This happens for a number of reasons, but as ETF.com explains, one of them is that big oil and gas companies have taken steps towards green energy:
Oil producers such as Chevron, Royal Dutch Shell and BP have invested billions in corn ethanol biofuels and hydrogen fuel cells. Utilities such as NextEra Energy are shifting from coal and natural gas power plants to solar and wind power to limit costs. Oil giant Exxon Mobil even makes lubricants for wind turbines.
And clean renewable energy companies are not big enough to participate in “many large ESG ETFs, which are large-cap funds specifically designed to provide market exposure.” You are more likely to find them in small cap funds .
Remember that these funds are actively managed and tend to charge higher fees than a standard low-cost index fund. Of course, investing according to your moral principles is well worth the cost of entry for many people.