Shortly before the pandemic, I wrote about the importance of divesting from fossil fuels and instead investing in socially responsible (sometimes known as “ESG”), sustainable funds. We’d previously invested through Betterment’s sustainable portfolio, but actually in doing research for last year’s investment blog post, we realized that we could do a better job keeping our investments fossil-free by switching to Earthfolio as a robo-advisor and requesting their fossil-free investment option. (Incidentally, we recently read on Betterment’s website that they are increasing their focus on climate-friendly funds, although we’re overall happy with our decision to change to Earthfolio.)
With all the pandemic upheaval, we didn’t get around to switching our investments to Earthfolio until fall 2020. If you care about curbing climate change, I’m guessing you’re on board with trying not to invest in fossil fuels. But you probably also want some reassurance that funds you’re investing in for retirement or other financial goals are going to do well and get you a good return on your investment. So (drumroll please)…how are our Earthfolio investments doing so far?
Significantly better than comparable standard investments! Personalcapital.com has some nice tools to help you visualize how your portfolio is doing compared to other indices. We took a snapshot the other day at 227 days into our investment, and our portfolio had gained 19.69% compared to a blended benchmark representing a similar mix (but not sustainable/fossil free) of investments that gained only 15.67%. If we look at year-to-date stats, our portfolio has gained 11.29% compared to 10.63% for the comparable conventional blended portfolio. Obviously, this is just short-term data for what we plan on holding as long-term investments. But the numbers are looking good for how sustainable investments stack up over time compared with their traditional/non-sustainable counterparts. I shared some of this data in February 2020, and I’m happy to report that more recent data reflects that ESG equity and bond funds weathered the pandemic significantly better than their non-ESG peers. Sustainable equity funds beat conventional equity funds by a median of 4.3% total return in 2020! And sustainable equity and taxable bond funds both significantly outperformed their non-ESG peers in both 2019 and 2020.
Another update is that we found some grade A (as rated by fossilfreefunds.org) funds for my employer’s retirement accounts! When I started with my current employer in 2019, we looked up the options for retirement funds on fossilfreefunds.org and the available options did not score very well, so we only invested the minimum to qualify for their match, and put the rest of our retirement investments in independent retirement accounts. I called and emailed HR several times in 2019 and 2020 asking for socially responsible funds to be added to retirement options. I’d gotten kind of a standard response that they were escalating my concerns, but hadn’t heard about specific changes, and we hadn’t checked the available funds’ grades on fossilfreefunds.org since I started working there in 2019. That is, until last week in preparing for this update blog, when (credit to Andrew here and in many of our climate-friendly investing decisions), we found a fund (ticker code TBCIX) that scored an A on fossilfreefunds.org! Honestly, since we didn’t save a list of all the fund options and codes initially when we found them to score poorly, I don’t know whether this fund is a new option, possibly in response to feedback from myself and others, or if their already available funds have been changing in response to the general societal movement towards sustainable investing and now score better than they used to. Either way, we were pleased to find out, and we increased our investments there and put them all in the grade A fund.
A final update is that we decided to put some of our investments into a climate activist fund called Engine No. 1 (ticket code VOTE). This fund may sound familiar to you for being in the news for staging sort of a coup at Exxon in May. Basically, with control over only 0.02% of Exxon’s shares, they influenced larger investors and got a majority of shareholders to vote to unseat three existing board members and replace them with climate activists. They plan to use the same strategy to influence other major corporations to shift away from fossil fuels. This may seem somewhat contradictory to divesting from fossil fuels, but the two strategies can complement each other, by avoiding passive investment in fossil fuels but participating in small strategic investments in fossil fuel companies, where the activist investors influence larger investors and punish corporations for making bad decisions with regard to climate.
I hope that the encouraging performance data for sustainable funds and the increasing number of options for sustainable investing will have you doing a little research with regards to your own situation and taking action soon! Consider using Earthfolio or Betterment as a robo-advisor to get your investments into ESG funds, and when choosing funds from your employer’s retirement investment options, look them up on fossilfreefunds.org to see how they stack up climate-wise. Consider putting a little money into Engine No. 1 too. It doesn’t take much financial expertise to make sure your portfolio reflects your values–just a recognition that our investments affect the things we care about, and a motivation to make changes where we can to ensure a future where fossil fuels won’t dominate our economy, and where our kids and grandkids can breathe a little easier.