You vote for climate-conscious politicians, embrace meatless Mondays, adjust the thermostat and bike instead of drive.
But have you ever thought about using your investment portfolio and pensions to turn down the heat on global warming, too?
Until recently, a lot of us didn’t. Yet many mutual funds and exchange traded funds (ETS) actually include the worst climate change offenders: fossil fuels and coal mining. But with research estimating that climate change will cost the Canadian economy anywhere between $21 billion and $43 billion per year by 2050 due to skyrocketing insurance claims, infrastructure rebuilding, lost productivity and healthcare costs, many investors are growing more concerned—and looking for ways to green their portfolio.
Sucheta Rajagopal is a Toronto-based portfolio manager with 20 years of experience specializing in socially responsible investing. She admits that much of that time was spent “toiling in the wilderness” alone.
“But I would say in the past five years, there’s been a significant increase in interest,” says Rajagopal. “Climate change has just become more of an issue that’s on everybody’s minds.”
Here are four steps you can take as an investment beginner to ensure your portfolio doesn’t fund climate change—even if your company pension plan doesn’t seem to give you much choice.
Decide what’s important to you
Here’s the reality about ethical investing options: there’s no clear definition of what a green company or industry is or isn’t. Sure, there are the easy targets—like oil, gas and coal mining. But after fossil fuels, you’ll start hitting the grey areas, says Tim Nash, a financial planner and founder of investment-coaching firm Good Investing, in Toronto. He points out that banks invest in fossil fuel, so do you stop investing in financial institutions? And what about car companies? They contribute to global warming, too.
“But it’s tricky because every car company is now moving toward electric vehicles,” he explains.
Meanwhile, Rajagopal points out that methane is also detrimental to the environment so keeping stuff out of landfills—where it can form—is key. (In other words, forget investing in fast fashion retailers.) So is producing less meat—cows are methane machines.
One way to deal with the convergence of good and bad is to decide in advance what your investment threshold is. Maybe you’ll only invest in mining companies that earn no more than 10 percent of revenues from coal. Or a personal care company must have plastic-reducing programs in place so fewer shampoo and lotion bottles end up in a landfill—everyone’s line in the sand will be different.
Do your research
When Nash is trying to determine how planet-friendly a mutual fund or ETF is, he turns to investment research firm Morningstar. You can, too. Gathering its data from environmental, social and governance (ESG) research organization Sustainalytics, Morningstar gives more than 34,000 funds a sustainability rating. Meanwhile, Yahoo Finance is the place to go to find out how individual companies fare in terms of their carbon footprint. To find a sustainability rating—based on a scale of 1-100—search for a specific company name and then click the “sustainability” link on the right-hand side of the page. You also have the opportunity to see a list of controversial products the company is involved in—if any—from coal to pesticides.
Reward the innovators
“The only way we’re going to solve the climate crisis is with innovation,” says Rajagopal, who mentions Winnipeg-based company, NFI Group, which makes electric buses and motor coaches, and is an example of one pioneering company tackling fossil fuel consumption. So rather than simply thinking about all the companies you don’t want in your portfolio, look for opportunities. Maybe that means scouring the news to find articles about companies that do good or are making moves to improve their track record—like an oil company investing in green energy.
Or if you prefer not to invest in individual organizations, maybe that’s buying CoPower or RBC green bonds that fund clean energy, or how about low carbon or fossil-fuel free ETFs, which are lower cost funds that are traded like a stock—so are more flexible than a regular mutual fund. There are plenty on the market. Just be aware that many of these investment choices don’t necessarily screen out fossil fuel companies completely. They invest in the least damaging ones that are now investing in greener forms of energy too and working toward phasing out fossil fuels someday .
Make it known
Armed with the above tools, let your financial advisor know you want to invest in environmentally friendly options—and tell your bank too. “Because the more you’re asking for them the more the investment industry is going to say, ‘Oh, there’s interest so we need to be providing product,’” says Rajagopal.
Then check out how your company’s retirement planning investments score environmentally too. Don’t like what you see? Talk to your human resources or union rep, says Nash. They’re the people who actually have the power to change things by offering a new green RSP-matching plan fund alongside the other options.
And don’t forget to get other employees onside. Considering research shows more Canadians are interested in responsible investments, chances are you’re not the only one looking for change in their plan or pension.
“I think you need to ask—and keep asking—HR,” says Rajagopal. “In a lot of these cases (choosing specific funds for a company plan) is demand-driven.”