Fossil Fuels, Divestment & Reinvestment
When retail and institutional investors make the decision to divest from fossil fuels—coal, oil and natural gas companies—this decision should not be the end of the portfolio review process, but rather the beginning of a series of reinvestment decisions.
Investors who divest from fossil fuels will likely consider opportunities for investment in renewable energy and energy efficiency. Investors may also choose to reinvest in a range of sectors in the public equities market as well as a range of asset classes. This section will provide a broad framework for thinking through reinvestment options.
Where do I want to reinvest? What are my reinvestment parameters?
This chart and the following breakdown provides a brief overview of asset classes where reinvestment is possible for retail, accredited and institutional investors to address climate changes risks and encourage progress toward a low-carbon economy. More details and resources can be found in the US SIF Foundation’s guides for retail and institutional investors, Investing to Curb Climate Change.
.jpg)
*options more limited for retail investors
At Social(k), we provide access to thousands of traditional investments, but we specialize in aggregating ESG, Environmental, Social and Governance, screened options from many of the following asset classes.
Asset Classes
Public Equities
Direct Stock Ownership and Separate Accounts
Investors who divest from publicly traded fossil fuel companies should consider how to re-weight the public equities portion of their portfolios. Investors may wish to purchase additional shares in companies that generate power from renewable energy; offer energy efficiency solutions for buildings, industrial uses or power generation; or produce goods and services, such as wind turbines, for renewable energy generation. In addition, investors may wish to set parameters for companies in other sectors—such as consumer goods, financial services, health care, industrial goods, services and technology—to give preference to companies that are setting goals and making progress in reducing their carbon footprints.
Accredited and institutional investors can also turn to separate account managers with expertise in sustainable, responsible, and impact investing. A good place to start is the separate account strategies offered by US SIF members. Some of these managers already offer fossil-free strategies, and others can customize their strategies to exclude fossil fuel companies. Visit our Separate Account Strategy chart for more information.
Mutual and Exchange Traded Funds
For investors in mutual funds or exchange traded funds, an important next step is to assess mutual and exchange traded funds through the lens of climate change; several clean energy mutual funds exist as do mutual funds with broader sector holdings that do not include fossil fuels. A good place to start is the list of mutual funds offered by members of US SIF. By clicking on the screening and advocacy tab, visitors can see a broad range of sustainability criteria, including funds that consider climate change criteria in portfolio selection or invest in clean energy or energy efficiency. Some of these funds do not invest in fossil fuel companies.
Investors that own shares in publicly traded companies should continually pay close attention to shareholder resolutions offered at each company’s annual meetings and be sure to vote their shares. Many climate and other sustainability resolutions are being proposed to companies in present time within a range of industries. More information on shareholder engagement can be found in Investing to Curb Climate Change: A Guide for the Individual Investor.
Related research on portfolio construction and financial performance:
• Carbon Risks and Opportunities in the S&P 500
• Portfolio Carbon: Measuring, Disclosing and Managing the Carbon Intensity of Investments and Investment Portfolios
Green America Fossil Free Resource Pages:
http://www.greenamerica.org/fossilfree/
Resources for Investors and Advisors
http://greencentury.com/why-choose-green-century/fossil-fuel-free-investing/
Fixed Income
Bonds
Investors can screen corporate bonds the same way they screen public equities—avoiding bonds in carbon-intensive companies in favor of companies that offer energy efficiency solutions or renewable power generation and companies in other sectors that are setting goals and making progress in reducing their carbon footprints. Other fixed income options at Social(K) include Green Bonds (offered via a World Bank program), and municipal bonds for transit-oriented development and other projects that reduce carbon intensity.
Mutual and Exchange Traded Funds
In addition to purchasing bonds directly, investors can add fixed income to their portfolios through mutual and exchange traded funds. To find a list of fixed income and balanced mutual funds that consider climate change and clean technology in portfolio selection, visit the list of mutual funds offered by members of US SIF. By filtering for “fixed income” or “balanced” and clicking on the screening and advocacy tab, one can see which funds in this asset class consider climate change criteria in portfolio selection or invest in clean energy or energy efficiency.
Loan Funds and Microfinance
Community development financial institution (CDFI) loan funds that promote transit oriented development, energy efficiency retrofits for buildings, sustainable agriculture and other environmentally oriented projects can be part of efforts to address climate change. Most advisors consider these investments restricted to accredited investors, but state filings may or may not contain this restriction, and some loan funds accept investments from non-accredited investors who invest directly.
To find a CDFI loan fund, please visit Opportunity Finance Network. You may also visit Aeris, an independent CDFI rating source.
Cash
Checking and savings accounts and certificates of deposit from community development banks and credit unions are easy ways to invest and make social and environmental impact. These banks and credit unions have a commitment to financing small businesses, non-profits, commercial real estate and affordable housing, which may include loans for energy efficiency retrofits, as well as other green initiatives in low- and middle- income communities.
To find a community development bank or credit union, please visit:
• National Federation of Community Development Credit Unions
• National Community Investment Fund
• Community Development Bankers Association
You may also find more information on community investing via the US SIF Foundation report, Options & Innovations in Community Investing.
Alternative Investments
Accredited investors can invest in alternative investment funds, such as private equity funds or funds of funds, venture capital funds, property and real estate investment funds and hedge funds. A number of these funds are now directed towards environmentally sustainable companies, renewable energy, energy efficiency, sustainable agriculture and forestry and waste management.
Private Equity and Venture Capital Funds
Increasingly, private equity options include financing for clean energy, energy efficiency, environmental services, waste management, water, and sustainable and biodegradable materials. Accredited and institutional investors will want to consult with their financial advisors or consultants about the most appropriate private equity vehicles.
Real Estate
Ranging widely from direct investments in farms and forests to more indirect investments in property-related instruments, real estate comprises a large portion of the alternative investment universe. Climate-focused real estate investments include: green building; sustainable timber-, farm- and ranchland and nature conservation; brownfield redevelopment; urban infill development and responsible community reinvestment; and smart growth and transit-oriented development.