What We Do and Why
The “WHY” comes first, and is perhaps best illustrated by this MIT Sloan School of Management climate simulator:
There is no greater threat to the future of humanity than global heating. This MIT simulator shows us where we are headed if we continue with business as usual – for a 4 degree Celsius future, which frankly, is utterly untenable. Yes, the world is making a slow motion transition to a lower carbon economy right now, but at a pace that is woefully insufficient to forestall climate chaos. As Bill McKibben of 350.org says: (paraphrasing) “Moving slowly is the same as failing.” Those of us fortunate enough to have long term savings can make a big difference in the struggle to preserve a livable climate by lowering the carbon footprint of our investments and considering the advantages – performance and climate related – of going Fossil Fuel -Free with our portfolios. This graphic from shiftaction.ca, a Canadian group that advocates for Pension Plan Fossil Fuel Divestment may surprise people:
Green River builds and manages low-carbon diversified investment portfolios for clients. We do this primarily by using mutual funds and exchange traded funds offered by leading Sustainable Fund families. Funds are “baskets” of stocks or bonds, and are useful to investors for a number of reasons, including diversification, professional management and efficiency of trading.
Sustainable, ESG investors have two equally important objectives:
- Delivering competitive investment performance
- Impacting corporate behavior while lowering our carbon footprint and building a better world for our children
Sustainable, ESG investing is a rapidly evolving tool, or “lens,” through which professional investors and fund managers enhance their stock and bond selection process. It involves the full integration of environmental, social and governance (ESG) factors into investment analysis and portfolio construction.
Researchers studying sustainable, ESG investing strategies are finding important correlations between a company’s stock performance and how that corporation impacts the environment (E), supports its employees (S) and governs itself (G).
Carbon Footprint reduction
Green River uses data provided by AsYouSow and Morningstar to measure the carbon footprint reduction offered by sustainable funds, compared to funds that ignore sustainability concerns.
Sustainable fund families offer investors an additional benefit: The ability to align themselves with other like-minded investors and advocate directly for improved corporate behavior, through the auspices of the fund families. Advocacy is orchestrated by filing shareholder resolutions and initiating other forms of direct dialogue with corporate executives and boards of directors. A leading, climate forward non-profit, offering shareholder advocacy services is AsYouSow (mentioned above).
Sustainable, ESG Investing is a fast growing part of the investing universe
The NEW bi-annual US SIF 2018 Trends Report reveals that as of the beginning of 2018, $1 in every $4 under professional management in the U.S. was aligned with sustainable, responsible and impact investing strategies. This represents a dramatic increase since 2016, and there is no question that this percentage is higher in 2020. The total US-domiciled assets under management using Sustainable investing strategies grew from $8.72 trillion at the start of 2016 to $12 trillion at the start of 2018, an increase of 38%.
Why Green River favors funds for investor portfolios:
Funds are groups, or baskets of many stocks or bonds. When an investor owns shares of a fund, she owns a fragment of each stock or bond held in that fund. Thus trading shares of one fund has the effect of adding or subtracting exposure to all the stocks or bonds held in the fund, with one transaction. Investing through funds is a very effective way to achieve diversification and control portfolio risk, as well as benefit from professional management’s expertise in deciding when to buy or sell stocks or bonds within the fund.
Emphasis On Quality
A balanced, risk-adjusted portfolio requires diversification over stocks and bonds, and within these primary categories, exposure to a wide variety of industry sectors, countries and investing styles. Sustainable fund managers augment traditional investment analysis with an “ESG” Screening methodology to sift out the very best investment opportunities within each of these “asset classes.”
At Green River, we take diversification several steps further. We compare similar Sustainable funds to each other in terms of performance, volatility and carbon footprint. We are truly “fund family agnostic” and continually review funds from a variety of fund families. We strive to include the best sustainable funds with the lowest carbon footprints in our clients’ portfolios. Honoring the Certified Financial Planning profession’s commitment to the Fiduciary Standard, our recommendations are always based on what is best for our clients.
The Inconvenient Truth Many Investors Don’t Know
Some of the largest funds in the world are funds whose holdings mirror the S&P 500 Index. Many Financial Advisors routinely recommend these funds as core holdings for their clients. But according to FossilfreeFunds.org, 7.75% of every dollar invested in an S&P tracking fund goes to the fossil fuel industry (coal, oil and gas companies, and related industries). This is down significantly from two years ago when the percentage was closer to 10%, and is mainly due to the significant under-performance of fossil fuel stocks over the last couple of years. In addition, the S&P 500 Index contains three of the largest international tobacco companies.
A very important object lesson for investors is the Vanguard fund company. They manage some of the largest funds in the world, many of which are passive funds tracking stock indexes such as the S&P 500. Through these funds, Vanguard has enormous investments in the fossil fuel industry. The consumer advocacy group AsYouSow.org states that as of January, 2018, Vanguard was funneling almost 300 billion dollars of investor money into fossil fuel companies! Vanguard has begun to change – in the past couple of years they have launched three new diversified funds with reduced fossil fuel exposure.
Bob Dylan wasn’t wrong when he sang “The times they are a changin'” – it IS CURRENTLY FASHIONABLE for leaders of financial firms to give lip service to the need for investors to focus on lowering their carbon footprints (and fossil fuel holdings). Witness the shareholder letter published in early 2020 from BlackRock’s Larry Fink:
Nonetheless, Vanguard’s legacy S&P 500 Index funds, as well as those managed by other behemoths of the investment world such as Fidelity, American Funds and BlackRock still funnel tremendous amounts of investor capital to the fossil fuel industry.
One problem is that many “do-it-yourself” investors and mainstream financial advisors do not look beneath the surface of the funds they own/recommend, nor do they take the time to find cleaner, “greener” funds that avoid companies doing significant damage to our environment. This is truly unfortunate, because there are numerous high performance funds available that avoid fossil fuel industry stocks completely, and show very competitive performance.
Institutional money managers are well aware of the value of Sustainable E-S-G analysis and Impact investing. The just released 2018 Report on US Sustainable, Responsible and Impact Investing Trends shows that by the end of 2018, the market size of sustainable, responsible, impact investing in the United States was $12 trillion dollars, a 38% increase since 2016, representing 1$ out of every 4 dollars professionally invested in United States.
Nevertheless, even in 2020, many retail investment firms dealing with the general public seemingly have not gotten the memo, and continue to disparage sustainable investing – possibly because they are reluctant to leave the profitable financial embrace of the huge, legacy fund families to whom they have been sending their clients for many decades.
2020: Two Areas of Focus for the Sustainable Investing Community
FOSSIL FUEL-FREE/LOW-CARBON PORTFOLIOS
More than 90% of the world’s leading climate scientists agree that to uphold the minimum standard of the Paris Accords (limiting the increase in average world climate temperatures (from the pre-1850 baseline) to 2 degrees Celsius, much of the world’s existing fossil fuel reserves must remain in the ground, un-burned.
As a Certified Financial Planner™, Patrick feels that it is his and Green River’s Fiduciary duty to help investors minimize the greenhouse gas (GHG) consequences of their investment choices, without compromising their investment goals.
Even if supporting/investing in fossil fuel stocks could result in short term big profits (which certainly hasn’t been the case in 2017), what good would be served if ten or twenty or fifty years from now, the amount of carbon, methane and nitrous oxide in the air renders the earth nearly uninhabitable?
In the past few years, numerous “low-carbon” and “fossil fuel free” investment options have been launched (according to Morningstar, 39 new funds in 2017 alone!) and many of these new funds are demonstrating excellent performance already.
In 2020, it is now entirely possible to build a high performance, diversified global stock and bond portfolio, using low-carbon and fossil fuel-free Exchange Traded Funds (ETFs) and Mutual Funds.
Visit FossilFreeFunds to see how much fossil fuel exposure a mutual fund has, and also to compare a fund’s carbon footprint to industry averages.
Visit Morningstar to review their Sustainability scoring system, and see what scores they give to different funds. Morningstar now also offers a carbon-risk score and quantifies fossil fuel industry exposure for many funds,
DIVESTMENT CAMPAIGN: Investors of all types, world-wide, are moving aggressively to reduce and eventually eliminate holdings of fossil fuel industry companies. Here is a link to 350.Org’s Divestment tracking site: HOW MUCH INSTITUTIONAL MONEY HAS BEEN DIVESTED FROM FOSSIL FUELS?
DIVESTMENT applies to the corporate banking industry as well: Patrick and Green River strongly advocate for people to consider moving their banking relationships to local credit unions or banks that make an authentic effort to help under-served communities with banking services, and don’t make corporate loans to questionable industries such as the fossil fuel industry, private prison industry, etc. Here is a current report on the corporate banks that make the most loans to extreme fossil fuel projects such as fracking and tar sands transportation and mining: BANKING ON CLIMATE CHANGE
GENDER EQUITY IN THE CORPORATE BOARD ROOM LEADS TO BETTER PERFORMANCE
One of the leading advocates for “Gender Lens” investing is the Impax/Pax Fund Family. Go HERE for a video Introduction!
Gender equality is not a zero-sum game. Achieving gender equality is a good thing for everyone. Moreover, it’s good for business.
A recent study by the BCG Henderson Institute suggests that increasing the diversity of leadership teams leads to more and better innovation and improved financial performance.
A number of leading sustainable fund families are using the percentage of women in top executive positions and on corporate boards as an important E-S-G criterion when selecting stocks and bonds for the funds they manage.
“We believe the research clearly shows that when women are in management and on corporate boards, companies simply perform better,” said Joe Keefe, CEO of Pax World Funds. “That’s why a more diverse workplace is not just the right thing to strive for, it’s a smart business decision.”
*PROJECT DRAWDOWN has identified empowering women as one of the most potent solutions to preserving a livable climate! Go Here to see the Research:
NEW FOR 2020: Investors now have an effective way to research the gender equality score of their mutual funds or exchange traded funds: WHAT IS THE GENDER EQUITY RATING OF MY FUND?
NEW FIVE YEAR STUDY: GENDER LEADERSHIP RESEARCH FROM PAX WORLD FUNDS:
If your Financial Advisor has NOT introduced you to high performance funds that incorporate ESG Sustainability screening and have lower carbon footprints and better gender equality scores than their peers, feel free to contact us for a no-cost consultation and initial recommendations for a “Sustainability Makeover!”