Put your money where your mouth is: the carbon footprint you didn’t know you had

If you’re working hard to lower your personal carbon footprint and reduce your dependence on fossil fuels, you definitely don’t want to invest in or lend to coal, oil, and gas companies so that they can expand their fracking, drilling, and mining. But that’s exactly what most of us are doing. Just since the Paris Climate Accord, the world’s largest banks have funded more than $700 billion in fossil fuel projects, with JP Morgan Chase the biggest offender.

We’ve all seen the graphs of how much your money can multiply if you start investing for retirement when you’re young. So, throughout our marriage, Andrew and I have dutifully set aside money each month for retirement, and we’ve felt excited to see the numbers in our accounts grow. When we were expecting our first son, we set up a Georgia Path2College 529 Plan and began investing in it monthly as well. And without thinking about it or knowing better, we were investing in fossil fuel companies through pretty much all of the funds where we had investments. With a little research (mostly thanks to Andrew), we discovered that some investments were easy to switch out of fossil fuels, and others much harder.

When you start looking into investing your money to avoid fossil fuels, the main terms you’ll come across are sustainable investing, ESG (environmental, social, and governance—metrics that are used to measure sustainability for individual companies) and SRI (socially responsible investing). They’re all related with minor differences, so I use the terms interchangeably. “Sustainable investing” may sound new, but it’s actually a $12 trillion industry in the US ($34 trillion globally) and growing quickly, especially among millennials and women, and is shown by many studies to perform equally or better financially compared with standard portfolios. And as public pressure mounts, especially with more people becoming aware of the urgency of addressing the climate crisis, more mainstream banks are recognizing the need to incorporate ESG criteria into creating their funds. 

I set out to write this blog post to share what we’d done with our investing based on our research last year on SRI, but in doing some additional background research over the past couple of weeks, we’ve actually come to the conclusion that we need to move our money again. We’ve been using Betterment as a robo-advisor and online platform for our investments since before SRI was on our radar. It has a nice app that allows us to track all of our savings and investments (even those we hold outside of Betterment), mortgage, etc., and lets us know if we’re on track for our financial and retirement goals. Last year, we were also happy to discover that they offer SRI. They offer a good and honest description of the methodology that goes into developing an SRI portfolio, along with its limitations, here.

Last year, we put all of our independent retirement accounts into Betterment SRI funds and also invested in one general sustainable fund through Vanguard. However, while researching for this blog post, I came across fossilfreefunds.org, a great website by As You Sow. I was disappointed to see that the funds in our Betterment SRI portfolio scored fossil fuel grades of Bs, Cs, and Ds.

In trying to figure out why a portfolio designated as socially responsible wouldn’t score better, Andrew and I thought of a few reasons. There are quite a few criteria that go into whether a company is considered “socially responsible” by environmental, social, and governance standards, and sometimes those criteria are in conflict with each other. It can sometimes be challenging to gather enough available data on a company to make a good call on how sustainable it is. There are also different philosophies on whether it’s socially responsible to invest in, say, a fossil-fuel heavy electric utility (e.g. GA Power): on one hand, electric utilities, most of which still get the majority of their energy via fossil fuel sources, are some of the biggest investors in renewable energy, which we of course want to support; on the other hand, utilities need to be much more aggressive than they currently are in transitioning to renewable energy sources, and there’s a good argument to be made that they need to feel the pressure and sting of mass divestment in order to be spurred to take urgent action. This New York Times article describes the dilemma well of whether to avoid problematic industries entirely or maintain some level of investment in order to have a “seat at the table” in helping that industry make decisions. You could have the same debate about whether, if you’re eating a more plant-based diet for the good of the planet, it’s better to patronize vegan restaurants or to buy the vegan option at meat-heavy chains to show them there’s a market for it. 

I think there’s a case to be made on both sides, but personally, we aren’t very keen to give any money to fossil fuel companies if we can help it. They are prone to greenwashing and paying lip service to environmental causes while spending a fortune lobbying against climate action. They talk about lowering their companies’ emissions without mentioning “scope 3 emissions,” which are the emissions from customers using the products they sell. What are customers going to do with gas and oil other than burn them? How can companies act like they’re not responsible for the gigatons of CO2 emitted when customers use their products for their sole purpose? 

So, in setting out to find a way to invest our money as free from fossil fuels as possible, and knowing that we like using a robo-advisor since it’s convenient, affordable, and helps us develop a balanced portfolio for our financial goals, we found this article.

We were most impressed with Earthfolio. While the other three robo-advisors offer SRI as one option alongside their standard portfolios, all of Earthfolio’s offerings are chosen by SRI/ESG criteria. The funds that make up their portfolios score mostly As and Bs on fossilfreefunds.org, although a few Ds, possibly due to conflicting criteria/different considerations on how to determine which funds are socially responsible; we were excited to discover on their website that they offer fossil-free portfolios on request for customers whose top priority is climate. We are tentatively planning to transfer our independent retirement accounts and general investments to a fossil-free portfolio through Earthfolio after doing a little bit more due diligence on fund performance ratings on Morningstar. We are overall encouraged by the data on financial performance of SRI portfolios compared with conventional ones. You can check out the financial performance of individual funds on fossilfreefunds.org. 

Sadly, one place where we have money invested for our kids’ futures does not have a sustainable fund option: the GA 529 Path2College Plan. It’s a little ironic, since a bright future for their generation depends on our economy rapidly transitioning away from fossil fuels. There are a few options in terms of aggressive vs. conservative investing in the 529, but none of the options are socially responsible. They are all through TIAA-CREF and range from A (a couple of real-estate only funds) to F on fossilfreefunds.org. TIAA-CREF’s website does note that they are taking ESG considerations into account when developing their funds, but I don’t know how encouraged I can be when their overall investments have 8% fossil fuel exposure, which is pretty average for major American fund managers. Even the designated “socially responsible” funds offered by TIAA-CREF (but not offered through the GA 529 plan) get mostly Ds with a couple of Bs and Cs on fossilfreefunds.org. The GA 529 plan’s website’s “single fund” page starts out: “Sometimes, you might want an investment option that is highly focused. Perhaps you want to make your choice based on the investment type of a single underlying fund.” Last year, there was a sentence after that along the lines of “perhaps you want a socially responsible investment option” but looking at the actual fund options, they were not SRI funds. I called their customer service number (877-424-4377) a couple of times and messaged them on their Facebook page (Path2College 529 Plan) to urge them to offer SRI and ask why that wording was there if they were not offering SRI options. I know they got my feedback, because they removed the wording from the website, but they have not added SRI options. If you are a Georgia parent, please call and send Facebook messages to tell them how important it is to you and to all our children’s futures to shift away from fossil fuel-heavy funds.

Another downer is that my employer, like most U.S. employers, does not offer sustainable mutual funds in its retirement plans. I contribute 4% of my salary to their 457 to qualify for matching since I don’t want to leave that money on the table, and I opted out of their 403b since it doesn’t have a match and we can contribute to our independent retirement accounts instead. I’ve called and emailed the HR department several times and have been told that other employees share my concern and that it’s being escalated. Our plans are through Principal Funds, whose website does give a nod to ESG considerations; the Principal funds I can search on fossilfreefunds.org average around a C, which might be a little better than TIAA-CREF, but it still doesn’t seem like sustainability is a high priority for them. When I initially called Principal (I was eventually directed to reach out to my employer’s HR department), the employee I reached didn’t know whether Principal offers SRI (or seem to know what SRI is).

One major takeaway I have from the research I’ve done (and I guess we all know this already) is just how deeply our economy has been built on fossil fuels. To shift away from investing in fossil fuels, it will take a lot of us urging our employers and 529 plans, and possibly the 529 plans and employers urging the fund managers (TIAA-CREF among others) to make changes. Momentum is (albeit more slowly than I’d like) building. The mayors of New York and London recently urged every major world city to divest from fossil fuels. Harvard’s faculty is calling for divestment of the university’s endowment from fossil fuels. Goldman Sachs announced in December that it is stopping funding for arctic drilling and putting restrictions on coal financing, and in the past two weeks JPMorgan Chase and Wells Fargo followed suit-yay for peer pressure! The American Medical Association resolved in 2018 to divest from fossil fuels.

Sustainable investing is a win-win. Surveys indicate that more employees will participate in employer-sponsored retirement plans if socially responsible options are offered. Financial returns are generally equal or better for SRI compared with conventional investing. We’d be in trouble if the fossil fuel companies had a good financial outlook for our retirement years, which is when the world needs to be reaching net zero emissions to leave a stable climate for our children. And now, it’s time to put your money where your mouth is!

Action steps:

Find out where your money is. Look online or call the fund manager for your personal investments, retirement, and kids’ college accounts to get the names of the underlying funds and check them out on fossilfreefunds.org. Make a plan to move your money to more socially responsible funds if possible, and put pressure on the people in charge of your employer-sponsored retirement plan and your kids’ college plan to offer sustainable fund options. This toolkit is helpful. 

Also, consider donating monthly to one or more organizations that promote systemic climate action. Two of our favorites are Citizens’ Climate Lobby/Citizens’ Climate Education and Natural Resources Defense Council.