Divestment Push Has More Small Investors Wanting Fossil-Free Portfolios

Highly publicized divestment campaigns targeting big-money investors have also motivated individuals 'to match up their money with their values.'

A Global Divestment Day protest in Australia. Divestment campaigns have been aimed at mega-money managers, but they have also helped convince a growing wave of smaller players and individuals to rethink their investments too. Credit: 350.0rg

The other day, Leslie Samuelrich got a call from a financial adviser looking for investments that matched his clients' wishes. "I have two sisters who came in that inherited money from their dad,"  the adviser told her. "And they both absolutely do not want any of their money in fracking companies."

Other callers just say "I want to invest fossil fuel free," said Samuelrich, president of Green Century Capital Management, a 20-year-old company with two diversified mutual funds that exclude fossil fuel companies. "Those are the words they're using, so the divestment movement has resonated with people."

The increased business for Samuelrich and others offering fossil-free investments is a secondary benefit of the fast-growing divestment movement that has members hanging giant banners and staging protests, street theater, sit-ins and other actions as part of the first Global Divestment Day on Friday.

Hundreds of divestment campaigns are underway around the world, with most of them targeting big-money investors such as university endowments and pension funds. Some are targeting banks and governments that support harmful fossil fuel projects. Today, they are all trying to make themselves heard, from Alaska to Florida, and in Toronto, Sydney, Australia and many other major cities.

Their message is this: Climate change is an urgent and moral matter. Having investments in oil, natural gas and coal companies is a de facto endorsement of the companies' push for more supplies and their efforts to derail efforts to tackle climate change. The groups want investors to stop adding fossil fuel stocks and bonds to their portfolios, and to sell off existing fossil fuel holdings over a five-year period.

Such highly publicized campaigns may be aimed at mega-money managers, but combined with other climate change initiatives, they have helped convince a growing wave of smaller players and individuals to rethink their investments too.

"In the last two years, as concern about climate change really amped up, people replaced their light bulbs, they recycle, they think about buying a fuel efficient car, and it becomes this natural extension to ask, what am I doing with my money?" said Samuelrich, whose company is among those sponsoring Global Divestment Day. "To me, the divestment campaign has kind of cracked open that question and put it on the table in a way that hasn't happened around climate change."

Oil, natural gas and coal companies are at the heart of the battle to limit climate change because our continued use of those fuels is overloading the atmosphere with carbon emissions and triggering a warming effect on Earth. To avoid the most catastrophic climate impacts, companies and governments must forego the burning of about a third of oil reserves, half of natural gas reserves and more than 80 percent of coal reserves  that are already tagged for future use, according to researchers.

ExxonMobil and other oil companies reject the notion that a portion of their existing assets could be stranded and rendered worthless, but the need to phase out fossil fuels has been acknowledged by the World Bank, United Nations, and the Bank of England, as well as by many world leaders and a growing list of major corporations.

Conversely, there's growing financial support for companies and projects that involve renewable energy and energy efficiency because large amounts of both will be critical to limiting fossil fuel use and shifting to low-carbon energy sources.

"We're all looking at what's going on in the world and we want to do something with our money that's not crazy and not super risky, but something that recognizes what we understand about what's going on with the climate," said Stuart Braman, founder and chief executive of Fossil Free Indexes LLC, a company that created a stock index that mimics the popular Standard & Poor's 500 index, but excludes the top 200 fossil fuel companies ranked by proved reserves.

Investors who already manage their own portfolios can easily steer clear of oil, natural gas and coal holdings. There's also the option of avoiding fossil fuels by shifting to mutual funds that cover specific sectors—funds devoted to the telecommunications or healthcare industries, for example, necessarily exclude fossil fuel companies. Finally, one can pay a money manager to do it all for you.

So far, however, there are relatively few choices for regular, passive investors who want to put their money into fossil free versions of the most popular funds and indexes, Braman said. Few, if any, 401(k) plans include a fossil-free investment option. "There's growing demand, especially on the retail investor side, but there's limited [fossil free] products to satisfy that demand."

The Fossil Free Indexes US, which outperformed the S&P 500 in 2014, is sold through only one company and requires a minimum initial purchase of $250,000. You need $5 million to buy into the fossil fuel free offering created by fund manager BlackRock, index provider FTSE Group and the Natural Resources Defense Council.  "The retail products will come, but they're not here yet," said Braman, who spent more than two decades at  Standard & Poor's, and now works on climate change adaptation at Columbia University.

A list compiled by the Divest-Invest coalition shows that there are some options for small investors, though.

Green Century Capital, which was founded by environmental groups, offers two diversified fossil fuel free mutual funds that are geared toward small investors and require a minimum initial purchase of $2,500. Samuelrich said those funds grew 135 percent over three years to $250 million at the end of 2014. There are others diversified funds as well, including offerings from Pax, Parnassus, and Portfolio 21.

Investors are particularly interested in so-called green bonds, which are issued much like the kinds of bonds that finance government infrastructure projects. The funds raised by the sale of green bonds, however, are earmarked for things like solar power facilities, energy-saving retrofits and commuter rail projects. 

In 2014, investors worldwide snapped up $36.6 billion in climate-related bonds, more than triple the 2013 total of $11 billion, according to Sean Kidney, chief executive officer of the Climate Bond Initiative (CBI), a non-profit venture focused on steering part of the massive global bond market toward climate solutions. He thinks the market could nearly triple again this year to $100 billion.

"There is huge demand from institutional investors and retail investors," said Kidney. "It's a really good thing for them to be able to earn a good return, and it's addressing climate change, so it's a real win-win for them."

Green bond sales are routinely oversubscribed, sometimes attracting twice the number of buyers than needed. Last September, Massachusetts offered up a $350 million green municipal bond and got $1 billion in orders, Kidney said. About $260 million of that "came from mom and pop investors, which is unheard of for these," he added.

Kidney and Samuelrich expect that kind of investor response to accelerate, and ultimately to help hasten the shift to low-carbon technologies.  

The divestment push "has motivated people to match up their money with their values, and in the process, it has provided support to new [green] companies," said Samuelrich. "There's still a lot of work to be done on increasing renewable energy and energy efficiency field, but people are talking about it, people are looking for investments in those areas, and green bonds are being sold out as soon as they come on the market."

Correction: An earlier version of this article misstated the growth of the Green Century Capital Management funds. The funds grew 135 percent to $250 million.

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