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President Donald Trump loves climate-wrecking coal and hates the climate-saving Paris Agreement.
Meanwhile, forward-looking impact investors hate the problems of burning coal and its financial downside – and love portfolios of companies and funds pursuing climate solutions, which can have stronger returns.
This love-hate split has motivated investors – and eco-focused ESG investment funds — seeking to save the planet from Trump’s policies. (Note: ESG stands for “environmental, social and governance.”)
In fact, $12 trillion — or $1 in every $4 of assets professionally managed in the U.S. — is invested in portfolios seeking to be sustainable, responsible and impactful. This is up 38 percent since 2016 and up 18 times since 1995, and it includes more than 180 mutual funds and dozens of exchange-traded funds, according to the US SIF Foundation, the socially responsible investing industry trade association.
While Trump seems to hate science, investors are loving physics genius Isaac Newton’s third law of motion: “For every action, there is an equal and opposite reaction.”
Trump’s August 2018 “affordable clean energy” rule seeks to transfer pollution-control laws to the states, likely to result in more polluted air and rivers. But savvy fossil-fuel-free-focused investors are trumping this by avoiding the 18 percent drop in coal stocks (Van Eck KOL ETF) since then, compared to the S&P 500‘s flat performance over the eight months from July 28, 2018, to March 27, 2019.
Trump announced in July 2017 the intent to withdraw from the Paris Agreement, which was signed by 195 countries in November 2015. That same month, the Etho Climate Leadership Index US launched its ETF, investing in a diversified mix of 400 equities with lower emissions and carbon footprints — and no fossil-fuel producers.
Since that Etho launch on Nov. 19, 2015, it has cumulatively returned 44 percent, while the S&P500 SPY ETF has returned 34 percent. Etho founder Ian Monroe said: “The most efficient and sustainable companies are simply making investors more money” by reducing energy, water, waste and emissions. Companies that don’t can be much riskier.
For example, Etho avoided Volkswagen when analyzing the carbon emissions of its supply chain, according to Monroe. Meanwhile, Trump loves fossil fuels, including diesel gasoline.
While Trump’s advice to “rake the forests, like in Finland” occurred after (not before) the PG&E wildfire-related bankruptcy, Etho’s proactive governance analysis avoided investing in the utility and subsequent downside, Monroe explained.
Investors are using free online tools such as FossilFreeFunds.org, produced by non-profit As You Sow, which helps citizens and shareholders discover what is hiding in the mutual funds in their portfolios and 401(k) plans. Additionally, citizen-investors are fighting fossil-fuel-loving policies for “clean coal,” Arctic oil drilling and natural-gas fracking from Pennsylvania to Oklahoma.
So why are everyday investors and 401(k) plan participants looking at fossil-fuel-free as an investment opportunity?
“It is the same reason teenagers are walking out of school to protest for climate action, even though politicians are stuck,” said Timothy Yee, chief retirement specialist and co-founder at Green Retirement in Alameda, California. “People who have no ties to the fossil industry but a vested interest in living on this planet understand why fossil-fuel-free portfolios and 401(k) plans are essential.”
Despite the growth in sustainable investing, 401(k) plans of most large companies also remain stuck — which has been exacerbated by more Trump policymaking.
The U.S. Department of Labor revised its guidance to 401(k) fiduciaries in April 2018 by emphasizing economic and financial criteria first before any environmental, social or governance criteria. This reversed progressive policies on ESG in retirement plans from President Barack Obama’s then Secretary of Labor Tom Perez in 2016.
Yet 401(k) plan fiduciaries such as Burke Pemberton at smaller high-growth companies like San Francisco-based Stok LLC, a sustainable real estate consulting and engineering firm, made available 401(k) fund choices that are fossil-free and gun maker-free back in 2015.
“If I live green and work green, then why is my 401(k) not green?” asked Kristen Magnuson, a sustainable design consultant at Stok, who encouraged the change four years ago.
“Investing in fossil-free portfolios is putting my money where my mouth is and represents my optimism about our ability to achieve a clean-energy future,” Magnuson added.
Today 95 percent of Stok employees invest in fossil-free portfolios in their 401(k) plan, according to company officials.
As various government policies continue to advocate pollution-laden energy that risks our existence on this planet, investors are fighting back with their portfolios — and winning with stronger, more resilient portfolio results.
— By R. Paul Herman, CEO and founder of HIP Investor and author of “The HIP Investor: Make Bigger Profits by Building a Better World”