A Guide to Personal Divestment and Reinvestment

by Duane Nichols on November 23, 2015

Extracting Fossil Fuels from Your Portfolio

This summary is edited and condensed from the original guide prepared by 350.org, Green Century Capital Management, and Trillium Asset Management.

Climate change is one of the most serious threats of our time. Scientists agree that carbon emissions and pollution from burning fossil fuels like coal and oil are the main cause of global warming. Many scientists, climate experts, and national governments agree that 350 parts per million (ppm) is the safe upper limit for the concentration of CO2 in our atmosphere. It has been reported that the planet recently crossed the critical threshold of 400 ppm.

This guide aims to help individuals better understand fossil fuel divestment, provide clear steps to move your money out of coal, oil, and gas companies, and give tips on how to proactively invest in sustainable companies and investment vehicles.

Divestment is the process of removing certain investments from a portfolio based on financial, ethical, or political values.

There are four primary reasons to divest:

1) To align your investments with your value. Many believe that climate change poses the greatest single threat to our families, our communities, and the world. If you want to keep your assets out of the industry that is accelerating climate change, then divesting may be the right choice.

2) To shape public policy and limit influence by energy companies. Fossil fuel companies have spent millions of dollars to influence legislation in state capitals and Congress. Divesting sends a signal that these efforts are not supported by investors and can erode their political influence.

3) To potentially reduce your financial risk. Divestment may reduce your risk of holding stranded —and devalued — carbon assets. Oil, gas, and coal mining companies hold reserves of fossil fuels that they plan to use. Currently, these reserves are counted as positive assets on a company’s balance sheet under the assumption that all reserves will be able to be extracted, sold, and burnt.

4) To reallocate investment to companies leading the transition to a more sustainable economy. By divesting from companies ignoring the costs and risks associated with fossil fuels, you free up funds that can be reinvested in companies that are identifying new market opportunities related to clean energy and the move toward a more sustainable economy.

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Step One: Learn what you own. Whether you intend to or not, you may hold investments in fossil fuel companies. 350. org has published a list of the 200 companies with the largest fossil fuel reserves that they are asking investors to divest from. Some investors use this list as their starting point but go beyond to exclude any coal, oil, and gas companies. Many mutual funds and portfolios invest in energy, materials, or utility companies on the list, though the overall percentage you hold may be lower than you think. For example, the S&P 1500 currently holds just 10.4% in the energy sector.

Step Two: Decide what you want to exclude and sell your fossil fuel investments. After you decide what you want to divest, sell those investments.

Step Three: Identify and Invest in Fossil Fuel Free Investments. Investment managers should not charge extra for a fossil fuel free approach. In addition to acting as the sub- advisor for the Green Century Balanced Fund, Trillium has two fossil fuel free strategies for separately managed accounts, all of which that have long track records.

Trillium’s Fossil Fuel Free Core Strategy invests across the range of market capitalizations and economic sectors in companies that meet Trillium’s sustainability criteria.

Trillium’s Sustainable Opportunities Strategy is a high-conviction, higher-tracking error sustainability-themed strategy that invests in companies positioned to thrive as we transition to a more sustainable economy.

Divestment may have limited impact on investment risk and return. In general, the level of impact depends on how many companies are excluded and how these exclusions are managed across the portfolio — including identifying appropriate replacements.

Why is Reinvestment Important?

The other side of divestment is reinvestment — actively investing in companies involved in the transition to a more sustainable economy. Understanding how companies are identifying and managing these climate risks can help determine which ones are appropriate for your portfolio.

There are Seven Pillars to Reinvestment:

Pillar # 1. Energy Efficiency

Energy efficiency includes technology, products, and services such as power systems that operate more efficiently, energy reduction in data centers, energy efficient buildings and retrofits, and automotive technologies that improve fuel economy.

Pillar # 2. Power Generation

Power generation includes solar, wind, geothermal, biofuels, and other technologies used to create electricity. While wind and solar have successfully reduced costs, they face a moving bar of low natural gas prices.

Pillar # 3. Storage and Distribution

Storage (via batteries, fuel cells, and flywheels) and distribution (via the electrical grid) play a critical role that will enable broad scale application of wind and solar power. Two of the biggest challenges facing wind and solar are location (wind farms generally are located far away from the urban areas they serve) and intermittent power generation (solar is only available during the day). New developments allow for that energy to be stored more efficiently.

Pillar # 4. Transportation

Transportation is the second largest contributor to greenhouse gas emissions in the U.S., after electricity. Railroads represent one of the most energy efficient modes of transportation. Automobile manufacturers, supported by auto-supply companies, are developing more efficient hybrid and electric vehicles. While it is nearly impossible to find transportation companies with zero exposure to fossil fuel, this is an important sector in the transformation to a low-carbon economy.

Pillar # 5. Sustainable Agriculture

Agriculture is one of the biggest contributors to climate change while also the most vulnerable industries to extreme weather. Sustainable agriculture, including organic farming, involves the practice of efficient use of non-renewable resources and the integration of natural biological cycles.

Pillar # 6. Water

Water technology and treatment is a growing business area. Using water in the most efficient manner possible while properly treating wastewater are the two key components to water management. Smart meters, water treatment systems, and technology that support efficient water management can help companies reduce both costs and risks.

Pillar # 7. Sustainable Design

Strategies to address climate change through sustainable design, manufacturing processes, and packaging can be found across industries. Biomimicry (design and production modeled on biological entities and processes) is emerging as a sustainable design philosophy in clean technology development.

Investors should also keep in mind that petroleum products are used in everyday life, including plastic bags and packaging. Companies that actively seek to reduce their packaging and find alternatives to plastic can achieve cost-savings and reduce their carbon footprint.

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Importance of a Diversified Approach to Reinvestment

Investors shouldn’t simply substitute solar and wind stocks (or other alternative energy stocks) for fossil fuel stocks. Instead, look for a wide variety of companies that are adapting to consumer demand for new, resilient, and environmentally sustainable products and services that may provide a competitive advantage in the emerging sustainable economy.  Some examples might be as follows:

Johnson Controls – A leader in energy efficiency retrofits
Valmont Industries – World’s largest irrigation equipment company
First Solar – Manufactures and sells photovoltaic solar modules

We hope this handout has both provided you with the basic information to stop investing in the industry most responsible for climate change and to take steps toward those companies that are creating a cleaner and more sustainable economy and future.

Visit www.trilliuminvest.com to download the complete guide. Also, consult other sources of information and other investment organizations for additional ideas and information.

{ 2 comments… read them below or add one }

Leber Co.Exist November 24, 2015 at 9:52 pm

Want To Divest From Fossil Fuels? Now There’s An ETF For That

From Jessica Leber, Co.Exist, November 23, 2015

Park your money in a fund that doesn’t do any damage to the environment with your investment.

For the last few years, students at universities all over the world have been getting involved in the fossil fuel divestment movement, asking their universities to sell holdings in oil, gas, and coal companies. But these students are also graduating, getting jobs, and possibly thinking about how to invest their own money.

Despite the growth of sustainable investing options, up until very recently, they might have had a hard time finding mainstream investment products in line with their values. Most market diversified funds—even those that advertise sustainability—still invest some amount in the fossil fuel sector. (For example, Vanguard’s FTSE Social Index Fund currently invests 2.3% of its portfolio in the oil and gas sector.)

That is starting to change with a handful of low-cost fossil-fuel free financial products geared towards everyday investors. Recently, for example, S&P Dow Jones launched a fossil fuel free index fund, the S&P Global 1200 Fossil Fuel Free Index.

And now a small firm, Etho Capital, has just launched what it says is the world’s first “diversified, socially responsible, and fossil-free” ETF on the New York Stock Exchange. An ETF is an exchange-traded fund, a fund with shares that track an index like the Dow Jones or, in this case, the Etho Climate Leadership Index (ECLI). They said they were targeting an initial share price of $25.

“We’re doing this at a price point that’s accessible to anywhere, whether you’re a student or a university endowment manager,” says Conor Platt, co-founder and CEO of Etho Capital.

The ECLI, which has 400 U.S. publicly listed companies across sectors, is interesting in the companies it does and does not include. First, the firm analyzed greenhouse gas emissions data from 5,000 public companies—not just from their operations, but from their products as well. It looks for companies with low emissions relative to their market capitalization and their industry. It then eliminates companies involved with the oil, coal, or gas industries (including fossil fuel services companies, like those that build pipelines), and also with the tobacco, weapons, and gambling industries. Last, it surveyed experts to screen out companies with poor environmental or social performance that the quantitative data left out.

Monsanto, for example, got the axe based on this subjective criteria. And the team decided to include copper mining companies with good climate-related records—which mine a material the world needs—but exclude gold mining companies, which for the most part do not.

The result is an ETF that is proactive for rewarding climate leaders in their industry and also draws a hard line to avoid the fossil fuel industry and a few other sectors. In autos, for example, companies that made the cut include Tesla and Harley Davidson, but the data showed that Volkswagen did not—despite its many sustainability awards (A good decision, as the company’s emissions scandal now confirms.) Other well-known companies included are Google, Intel, Norstrum, Disney, Chipotle, and First Solar.

“We think this climate efficiency data helps cut through a lot of the greenwashing,” says Etho co-founder Ian Monroe.

This may be the beginning, but there are going to be more fossil fuel free options coming. The Guardian rounds up two other fossil free options for your mom and pop investor—one is another ETF and another an actively managed mutual fund. And Etho Capital plans additional offerings. As a younger generation of investors who want their money aligned with their values starts to enter the market, large firms are going to continue to become interested in catering to them.

>>> Jessica Leber is a staff editor and writer for Fast Company’s Co.Exist. Previously, she was a business reporter for MIT’s Technology Review and an environmental reporter at ClimateWire.

Source: http://www.fastcoexist.com/3053513/want-to-divest-from-fossil-fuels-now-theres-an-etf-for-that


May Boeve - 350.org December 3, 2015 at 11:30 am

Dear Friends Who Care About our Future — 12/3/15

Yesterday, in a briefing room at the heart of the Paris climate talks, I announced that more than 500 institutions representing over $3.4 trillion in assets have now made divestment commitments. 

That’s up from $2.6 trillion and 400 commitments just ten short weeks ago… and includes new pledges from Europe’s largest insurance company, Allianz; from the London School of Economics; from cities like Melbourne, Oslo, Münster, Berlin and 20 French local authorities, to name but a few. 

I would call that serious momentum, and it’s the kind of news investors and institutions around the world need to hear. Can you help us share this incredible announcement?

This announcement is another sign in the early days of the Paris Climate Summit that investors are reading the writing on the wall and dramatically shifting capital away from fossil fuels and towards clean, renewable energy.

Thanks to campaigners like you around the world, respected institutions now acknowledge that if it’s wrong to wreck the climate, it’s wrong to profit from that wreckage. 

Today we’re closer than ever before to dismantling the power of the fossil fuel industry and its grip over our politicians.  The institutions that have made a commitment to #DivestforParis hope that their actions can push governments to follow suit by shifting public finance from fossil fuels to climate solutions.

Our team in Paris is working hard to make that hope into reality at the COP21, but it’s our movement’s task now to keep that message spreading to ever more institutions — our governments, churches, banks, pension funds, cities, cultural institutions and universities around the world.

You can follow all the latest from the folks here in Paris for the climate talks on our live blog.

Onwards towards greater victories,

May Boeve, http://www.350.org


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