Climate Change and Investing
by Erica Ryberg
There's a moment in a recent episode of Grey's Anatomy where the irrepressibly positive Link has an argument with his dark and twisty girlfriend. What he needs, he tells her, is to focus on the positive, not wallow in misery. Then he turns to play his guitar. "Whatcha playing?" she asks him. "Just a little something I made up," he replies. “It's called ‘The If-the-Virus-Doesn't-End-Us-Then-Climate-Change-Probably-Will Blues.’”
This humorous moment underscores the reality that no matter how positive we choose to think, it's impossible to downplay the looming danger of climate change. In our part of the world it's hard to ignore the increase in severe wildfires, droughts, and snowless winters.
Much like we trim trees around our homes to be firewise and buy Energy Star appliances to be part of the solution, there are moves we can make with our money to both defend against climate change and work for a positive impact.
Last January Gary Beverly, Chair of the Yavapai Group of the Sierra Club, gave a talk outlining personal steps people can take to address climate change. He mentioned the usual kinds of action, such as reducing home energy use or driving a hybrid car. Then he underscored the importance of investing with climate change in mind. “The idea is your personal money should not support fossil fuel-investment, and you should not be invested in fossil fuel,” he said.
Getting out of fossil-fuel stocks picked up steam following a student movement in 2011, and since then, according to gofossilfree.org, individuals, churches, schools, companies and governments have collectively divested $14.5 trillion. A 2017 paper by the Ross School of Business notes that this collective action has also shifted climate action to the center of discourse.
While anything that gets climate action into the main of the conversation (and onto Grey's Anatomy) is important, there's an even more pressing reason to skip fossil-fuel investment: declining returns. “It's a bad investment, because fossil-fuel prices are going down,” said Beverly. “Fossil-fuel stock prices are based on proven reserves, and … we've got to leave those assets in the ground.”
“Exposure to climate-change risks is real, which more mainstream firms and investors are finally getting.”
Jan Bryan, a certified financial planner and Prescott mainstay who specializes in sustainable investing, agrees. In a recent email she pointed out that fossil-fuel-free portfolios have outperformed their mainstream counterparts in recent years. “The risk for investing in carbon and exposure to climate-change risks is real, which more mainstream firms and investors are finally getting,” she wrote.
One of the mainstream firms Bryan refers to is ours. After a longtime client attended Beverly's talk, she asked us to get the fossil fuels out of her portfolio. Later another client, Dorothy Pearlman, came to us asking for the same thing, after her church pressed its members to divest.
“I'm a true believer of how devastatingly close were are to extincting ourselves as a species,” Pearlman said. “We don't seem to be looking at that in terms of how we are going to survive on this planet. It's like the parents that do everything for their kids, but also smoke.”
To that end, Pearlman said, “This was one of the times when I had money to invest,
and I could do it in a thoughtful way.”
While many people rely on their financial advisor to make fossil-fuel-free investment decisions, you can also do it yourself. The premier resource to use is fossilfuelfreefunds.org, a site that grades investment funds against a plethora of measures.
One metric the site doesn't list, however, can have an outsized impact on your portfolio, and that's the fund's fee. Annual fees for top fossil-fuel-free funds range from a low of .09% to well over 1.25%. On a $100,000 investment over ten years, assuming 7% annual return, that’s a difference of close to $15,000 in earnings. So when shopping for a fund, it pays to check price tags.
You can also begin to proactively invest in companies that are helping build a fossil-fuel-free future. An excellent place to start is by looking at the Clean 200 companies vetted by the nonprofit As You Sow.
If buying individual companies isn't your thing, Fossil Free Funds lists the percentage of each fund that's invested in these companies. Pick an A-rated fund with lots of these companies, run over to Morning Star to confirm it's not too expensive, and you'll be out of fossil fuels and off to the races.
If the idea of having an investment portfolio seems like a remote fantasy, know that you can open up an account with an online brokerage like eTrade, Ellevest or Acorns (or even an investment advisor like ours) and add just $50 per month via automatic transfer. The main ingredients for successful investing are willingness and time — planning to add money regularly and leaving it there to grow over at least five years.
Erica Ryberg is a freelance writer and financial planner in Prescott. Reach her at erica@montoyawealth. com.