How to Combat Climate Change With Your Stock Portfolio Right Now

If, like so many others, you followed the news emerging from the recent United Nations Climate Summit 2021 in Glasgow with a mixture of dismay, disappointment, and frustration, you're not alone. As Greta Thunberg said during an interview in Glasgow "change is not going to come from inside there"—meaning, we should not expect bold measures from the politicians or delegates who had gathered for the global event.

Thunberg is among many watchers who are keenly aware that despite some positive announcements that emerged from the conference—such as net-zero pledges from major emitters—world leaders, once again, failed to produce the types of drastic and concrete changes that will meaningfully turn the tide of global warming.

This means we must demand action. And there are many ways to do that, including through how we choose to invest money in the stock market. That means withdrawing financial support from companies that do not appear to realize the urgency of the situation. One of the largest offenders on this front? The fossil fuel industry.

Circular sustainable chart
Circular sustainable chart

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Why putting money into fossil fuel means trouble

If the world is going to limit the heating of the planet to 2.7 degrees Fahrenheit, (1.5 degrees Celsius), it only has 11 years left to accomplish that goal before it's too late. Yet many governments, including here in the United States, are still moving forward with actively subsidizing the fossil fuel industry and other environmentally harmful projects.

President Biden's much-touted infrastructure bill, for instance, which was recently adopted with bipartisan support, does practically zero to combat climate change—despite promises and misleading headlines to the contrary. In fact, Rep. Jared Huffman recently told Yahoo News that the bill will actually worsen climate change.

"Most of that infrastructure bill could have been written in the 1980s," Huffman told the news outlet, adding that the only reason the bill gained Republican support at all is that it included continued subsidies for fossil fuels, adding that the infrastructure bill is "fossil fuel business as usual."

The solution is there—if the government funds it

The meaningful climate change actions so desperately needed at this juncture are contained in an entirely separate bill, the Build Back Better bill, which, for instance, allocates tens of billions of dollars to subsidize a sweeping consumer shift to electric vehicles. Yet (in what is likely a shock to very few people), Yahoo reported that there's not a single Republican who intends to support Build Back Better.

At the same time, fossil fuel industry stocks are booming. And many fossil fuel companies are ramping up their output and investment for the coming years. Climate change? What climate change? It is indeed fossil fuel business as usual.

How to put your money where your mouth (and the future of the planet) is

If you're looking for ways to express frustration with the climate-change-denying fossil fuel industry, which has actively stymied climate action for years, consider perhaps taking a long hard look at your stock portfolio. Rethinking investments choices is one of the ways to vote with your dollars and make your voice heard with your money.

Here are some of the ways to use your investments to respond to the intransigence among the fossil fuel industry and political officials.

Incorporate your values into your stock portfolio

First, know this: Your investment decisions do make a difference. Financial industry experts make no bones about this point.

"All you need to do is look at the impact today's retail investors and the various trading platforms can have on a multi-billion-dollar market cap company, and the double-digit percentage swings [these types of investors can cause]," says Andy DeFrancesco, CEO of SOL Global Investments. "The voice and marketing power of investors has never been more powerful."

Taking this line of thinking one step further, withdrawing money from fossil fuel industry stocks can indeed begin to send something of a message to these companies, making clear that many of us are no longer interested in continuing down a path that's environmentally devastating to the planet and will not stand by and support companies that do so.

"Look at the power of [electric vehicle maker] Rivian's initial public offering and other electric vehicle and green-related companies like Tesla versus even Ford and General Motors," continues DeFrancesco, referring to Rivian becoming the world's biggest IPO of 2021, valued at more than $100 billion. "That's an indication of how money flowing into a company provides a positive future. Investors can make the same impact by liquidating, or simply not investing. A lack of buying would send a very clear message."

DeFrancesco is not the only one who believes in the power of shifting investments to reflect your values and concerns.

Theresa Gusman spent more than 20 years at Deutsche Bank in various roles, including global head of investments; global head of equities, and global head of proxy voting, before she grew so disillusioned with greenwashing that she left to join First Affirmative Financial Network, a firm focused on environmental, social, and governance investing. She, too, suggests there's power in taking action with your dollars.

"Every investment has an impact on the world," says Gusman. "We encourage investors to think about the world they want to leave to their children and their children's children, and we work with them to incorporate their unique values, beliefs, ethical standards, and environmental, social, and corporate governance preferences into investment portfolios."

That effort includes helping investors use their money to reflect their beliefs on climate change specifically. When it comes to sending a message to the fossil fuel industry, Gusman recommends a three-pronged approach:

  • Reduce or eliminate exposure to fossil fuel (oil, natural gas, coal) exploration, production, and distribution companies.

  • Tilt your portfolio toward renewable energy companies and companies with strong climate commitments.

  • Engage in targeted, high-impact advocacy, and proxy efforts to maximize the impact of share ownership.

Here's a closer look at those steps.

Reduce or eliminate fossil fuel stocks

As an investor, you can go through your investments, including even your employer-sponsored 401(k), and find out if you are invested in fossil fuels. (Hint: You probably are.)

"Then you can replace your mutual funds with funds that don't invest in fossil fuels," says Lana Khabarova, founder of SustainFi, a sustainable and impact investing website.

The choices on this front recommended by Khabarova include iShares ESG Advanced MSCI USA ETF (USXF). This particular fund actively screens out fossil fuel stocks and other controversial industries, such as weapons, for profit prisons, predatory lending, tobacco, GMOS, palm oil and much more.

If you'd like to find similar options, there's a helpful platform, Fossil Free Funds, which features a search tool that allows users to find mutual funds and ETFs that do not include fossil fuel investments.

Tilt your portfolio toward renewables

Remember, divesting from fossil fuel stocks is merely the first step. If you want to actively support clean energy, or help fight climate change, you must put your money into stocks or mutual funds that take on these issues, rather than simply just avoiding fossil fuels. An option Khabarova recommends here is iShares Global Clean Energy ETF (ICLN).

"ICLN invests in the stocks of companies that produce energy from solar, wind, and other renewable sources," Khabarova explains. "So, it's diversified by type of clean energy."

For those who don't want to manage their own portfolio at all, robo-advisors, such as Betterment, are offering low-carbon portfolios, including the Betterment Climate Impact portfolio, says Khabarova.

Engage in high-impact advocacy

In addition to putting your money into stocks that represent your values and withdrawing your money from those that do not, you can also take further action on climate change through your investments.

Voting is one such example. When you purchase a stock, it essentially makes you part owner of that business. And as such you have the ability to influence the company's operations and decisions. One of the ways you can do this is by voting during a company's annual shareholder meetings.

"Your shares should give you a voice," explains Gusman.

Because so few investors actually participate in shareholder meetings, proxy voting has become widespread, and is another way to take action. This involves either voting online, by phone, or by mail, or for those invested in a fund, the fund company can also vote on your behalf.

"Proxy voting and advocacy have successfully driven Exxon, Royal Dutch Shell, BP, and other major oil companies to disclose more and better greenhouse gas emissions data, value their reserves more realistically, and alter their boards to include climate-friendly directors," continues Gusman. "Sadly, most independent advisors do not vote their own proxies, which means they give up your ability to influence the companies in your portfolio."

Actively selecting engagement funds is another step you can take. Engagement is the opposite of divestment, says Khabarova.

"So instead of shunning fossil fuel stocks, you can try to join activists who are trying to make a difference," Khabarova expains. "For example, an activist hedge fund Engine No. 1 managed to get three directors appointed to the board of Exxon Mobil earlier this year. This fund has launched an activist ETF, Transform 500 ETF (VOTE), that you can invest in. Their goal is to invest in large companies, including oil and gas stocks, and drive change from within."

Be confident in the knowlege that green investments can be profitable

If aligning your investments with your values is important to you, it can be a good idea to initiate a conversation with your advisor, says Gusman, of First Affirmative Financial Network. But be prepared for advisors who may try to head you off at the pass.

"You can simply ask, 'Do you offer a strategy that will allow me to align my investments with my values?'" explains Gusman. "In many instances the answer will be 'No,' and the advisor may use the excuse that you cannot achieve your financial and impact goals simultaneously. This is simply not true."

Gusman's own data shows that a broad sustainability index fund modestly outperforms the S&P 500 over the long-term. "There are also many academic studies that support the notion that you can achieve your financial and your impact goals simultaneously," adds Gusman.

Again, this is not a lone opinion or sentiment.

DeFrancesco, of Sol Global Investments, says he does not know of another sector, outside of crypto, that has as much global opportunity and appeal as green tech.

"Investing with a conscience, with so much opportunity and the ability to make a healthy profit, is an amazing situation," says DeFrancesco.

"No matter what side of the political aisle you sit on, it's impossible to doubt that the climate is changing and our daily routines and activities as humans are affecting that change," DeFrancesco continues. "Knowing that, anyone with a conscience or heart should be considering sustainable investing. And any serious professional investor should be making green and clean a part of their portfolio."

Know your investment choices can have an impact

As you make these decisions and changes to your stock portfolio, they may seem like a small step, but rest assured they are an important one. If everyone who feels strongly about the issue of fossil fuels were to follow suit, there would eventually come a tipping point.

"Divesting yourself of fossil fuel stocks absolutely sends a message, and the more of us who do it, the bigger a message it sends," says Hester Tanja, financial journalist and author of a new book Wallet Activism. "By pulling out of a company's stock, we lower demand for that stock, which hurts the share price, which means that all the company leadership take a bottom line hit, and that those who do continue to hold those shares will lose value, which could spur them to demand action as well. Simply divesting can drive change multiple different ways."

Driving share prices downward is one change your investment choices can bring about. Redirecting your money to actively address critical global issues and impacting the mindset of other investors are additional beneficial outcomes.

"With an educated, climate-based investing strategy that's built upon a conscience-foundation we have the potentially to refocus the cultural mindsets of next-gen investors and their daily habits," says DeFrancesco.

Bottom line: You can send a message to the fossil fuel industry with your stock choices. And there is no time like the present, because there is no Planet B.