In this blog/podcast/video I will discuss how Climate Change can be addressed through Socially Responsible Investing (SRI).  This includes but isn’t limited to fossil fuel divesting and shareholder advocacy. See our video here.

What is SRI?

SRI is a way to use our financial system to change society.  Incorporating your values into your investment decisions. SRI is an investment strategy which seeks to maximize both financial return and social good.

The three major components of SRI are:

    • Screening– using positive and negative filters to select investments (avoid or include investments)
    • Shareholder Advocacy – shareholding involvement (as an individual, through SRI mutual fund, or foundation)
    • Community Investing – providing money for people and organizations who otherwise would not have access to help close the wealth disparity.

Screening

Screening involves excluding, restricting or including companies based on a company’s:

  • Industries – exclude all from an industry (like oil) or best of the worst (natural gas) or include an industry (such as alternative energy)
  • Country – avoid if regime has poor human rights record, terrorist state, avoid Sudan
  • Corporate SR – promoting women, impacts on community, environmental impacts, fair trade products
  • Policies & Practices – Unions, Healthcare, recognize domestic partners

Shareholders Activism

There are several ways for a shareholder to influence a company that they own.

  • Voting  of Proxies – All shareholders may vote on annual meeting agenda items
  • Letters – Letters may be sent any time (all public companies have Investor Relations Depts.)
  • Filing Resolutions – Shareholders may petition companies they own shares in (at least $2k), for annual meeting agendas.  Resolutions often pass with less than 30% in favor
  • In-person meetings/dialogues – Letters and resolutions may lead to discussion of issues with company executives
  • Divest – sell your shares

If you do not vote, your votes will be cast BY MANAGEMENT

Non-SRI Mutual Funds generally vote with management on ESG issues or do not vote.  SRI funds generally vote and even file resolutions

Major initiatives:

  • Political Contributions (disclosure)
  • Climate Change (disclosure of emissions and practices)
  • Equal employment
  • Animal Welfare
  • Sustainability
  • Global labor standards
  • Human rights
  • Board diversity
  • Executive pay and social link

Community Investment

Provide capital for low-income communities that would otherwise lack.
Helping people help themselves – microcredit
Support organizations – return an interest

  • EcoEnterprise Fund
  • Global Environmental Fund
  • EnviroFit

Why divest – how does it help

Align investments with values
Reduce financial risk – carbon bubble
Damaging to a company that relies on outside financing to fund operations
Reduces the amount of money that can be raised through stock offering
Increase the cost of borrowing
Can hurt employee retention
Can limit influence of energy companies

Approaches

individual stocks or bonds (over $1M) – vote your proxies
SRI Mutual Funds – that match your values
ETFs
Community Investment Notes

Portfolio Construction

Sector Exchange Traded Funds (ETFs)
SRI Funds FFF
Individual Stocks
Portfolio Construction

Sector Exchange Traded Funds (ETFs)

Consumer Staples, Financials, Healthcare, Industrials, Materials, Technology, Telecommunications, Utilities, Real Estate, Clean Energy (for Energy)

SRI Funds

Fossil Fuel Free SRI Funds – US Large Cap,  Mid Cap, Small Cap, Foreign Developed and Emerging, Bonds
Individual Stocks
Diversified

CMP salt down 20% since company reported second consecutive year poor salt need in for snow melting

Example broad market FFF Mutual Funds

  • Portfolio 21 – global stock
  • Green Century – US stock
  • Parnassus Endeavor Fund – US stock
  • Pax World Growth – US stock
  • Shelton Green Alpha Fund – US stock

11 Example Alternative energy funds

  • Prices down
  • Examples of Alternative Energy Funds
  • CleanTech Index – PZD
  • New Alternatives Fund
  • iShares S&P Global Clean Energy Index
  • First Trust Global Wind
  • Claymore Global Solar Technology
  • Calvert Global Alternative Energy
  • Windslow Green Growth
  • Allianz Global EcoTrends
  • SAM Sustainable Climate
  • PowerShares Global Clean Energy

Fossil Fuel Free Fund (purple) vs S&P 500 (blue)

5 year performance – Green Century Equity

Fossil Fuel Free Fund vs S&P500

During the past 5 years, you can see that the fossil fuel free fund slightly outperforms the S&P500 index.  There are periods within that time period when the S&P does better but overall they move together.  Energy makes up about 11% of the S&P500 and only about 3% of the fossil fuel free fund (all alternative energy).  The majority of the difference in performance will be driven by how fossil fuel stocks have done compared to the overall market.  In general, if they out perform the overall market, the S&P will outperform – if they underperform, the fossil fuel free funds will outperform.

13 Clean Energy Performance

5 year performance – S&P 500 (blue), Exxon Mobile (light blue) US Oil (purple), Global Clean Energy Index (pink)

Renewable Energy stock performance

As shown in the graph above, over a 5 year period all of the energy investments returned less than the S&P500.  However, the global clean energy fund outperformed Exxon Mobile and US Oil.

Divestment campaigns

  • Divestment Campaigns
  • Swedish University
  • College of the Marshall Islands
  • Northwestern University
  • Pomona College
  • Church of England
  • Humboldt State University
  • Seattle City Employee Retirement System
  • American University
  • Divest Chicago
  • Diocese of Oxford
  • Union of Theological Seminary
  • Church of Sweden
  • Harvard
  • Divest the Vatican
  • World Council of Churches
  • California State Universities
  • Dartmouth Divestment
  • Swarthmore University
  • University of Maine
  • San Francisco Pension Fund
  • Pacific School of Religion
  • CalPers
  • Carleton College
  • Syracuse University

13 Considerations

  • Time Horizon
  • Risk Tolerance
  • Diversification
  • Commissions & Fees

Resources – final thoughts

  • 350.org – Gofossilfree.org
  • ussif.org
  • Greenamerica.org
  • First Affirmative
  • AIOfinancial.com – impact financial planner podcast/blog
  • Socially Responsible Investing made easy –http://aiofinancial.com/sriebook

Save

Free Investing eBook

Investment_ebook_cover_portrait_300

Learn about different types of investments and investing strategies.

AIO Financial, 520-325-0769

Powered by ConvertKit