Investing for the Environment: Part One
Most of us will agree that climate change is happening and that we must take action to protect our home. What you may not know, is that your investments are some of the best tools that you have to fight climate change. Author and Environmentalist, Paul Hawken said, “Wrong is an addictive, repetitive story; Right is where the movement is.” We know what no longer works both for the world, and also for our investments. Companies that are not sustainable in the long-term will ultimately cease to exist. There is an opportunity both as concerned individuals and as investors to right this course. This first post in the series for investing for the environment includes a few ways that you can begin to invest sustainably.
The Financial Opportunity
There are several motivations for sustainable investing, including personal values. However, investing with regard to environmental, social, and governance (ESG) criteria is also just better investing. The CFA Institute says, “Systematically considering ESG issues will likely lead to more complete investment analyses and better-informed investment decisions.” Some investors embrace sustainable investing strategies to manage risk; they review ESG criteria to assess the quality of management and the likely resilience of their portfolio companies in dealing with future challenges and some are seeking financial outperformance over the long term. Research continues to show a strong link between ESG and financial performance because companies that incorporate ESG factors into their decision-making have the potential to deliver competitive returns over the long term. We can see that there is an opportunity for investors, but the bigger question is, “What are the opportunities for the world?”
Step One: Stop Funding Climate Change
You may not realize that while you are fighting climate change, you are likely also funding it. The first step to investing sustainably is to choose a better financial institution. Since the Paris Climate Agreement, the world’s 60 biggest banks have financed $3.8 trillion into fossil fuel projects and companies. JPMorgan Chase, Wells Fargo, Citigroup and Bank of America being the biggest offenders. Until big banks take responsibility and care for the role that they play in our society, we can move our money to organizations like community banks and credit unions. See Banking on Climate Chaos’s How Does Your Bank Score and Mighty Deposits to find a new financial institution.
The next step to investing sustainably is to divest from fossil fuels. You might not know that institutional investors continue to divest from fossil fuels because they are aware that there is a significant risk to investing in them. According to Fossil Free, a project of 350.org, institutions and individuals totaling $14 trillion in assets have made commitments to divest. The risk is so great that President Biden has even directed the federal government to develop a strategy to curb the risk of climate change on public and private financial assets in the US.
While there are many investments that are labeled, “sustainable, SRI, or ESG,” greenwashing continues to be a problem. However, this doesn’t mean that there aren’t sincere and sustainable products. As investors you have to take a little bit of time to make sure you’re choosing the right investments. For example, if you find a fund that says it doesn’t invest in fossil fuels you should ask the manager what this means or look at the fund’s prospectus. Fossil fuel divestment can include, “all fossil fuel companies, the top 200 fossil fuel companies as measured by carbon reserves, coal and oil sands projects but not natural gas companies. FossilFreeFunds is a great tool to see if your money is being invested in fossil fuel companies, or companies with high carbon footprints.
Investing sustainably doesn’t end at fossil fuels. In the coming posts, you will see how you can support sustainable companies and projects, as well as invest in solutions. As Jane Goodall said, “You cannot get through a single day without having an impact on the world around you. What you do makes a difference, and you have to decide what kind of a difference you want to make.”
GIVE’s is a community that makes sustainable investing accessible to all through online courses, consulting, and a soon to be published book. You can find more information online at www.give.how.
 https://www.cfainstitute.org/-/media/documents/support/future-finance/promoting-responsible-sustainable-investing.ashx?la=en&hash=C0270A6D8A2755089603DBD5A2E013A4294D5F0E  https://www.ran.org/bankingonclimatechaos2021/#facts-panel  https://www.ussif.org/climatereinvestment  https://www.ussif.org/climatereinvestment