Climate One: Fossil Fuels in the Ground and in Your Portfolio
When institutional investors divest from fossil fuel companies, does it make a difference, or is the impact merely symbolic? Some advocate keeping your stock and your influence, using investor dollars to encourage change from within. We’re not all managing billions in assets, but how can we use our nest eggs to help finance a green economy?
Can your nest egg finance the transition to a cleaner economy?
Universities, churches, pension funds and other organizations with $14 trillion in assets have hopped on the divest-invest bandwagon. CalPERS, the California Public Employees’ Retirement System, is one of the finance giants using the stock market as a tool for climate action.
“We need, we request, we require these companies to bring their emissions down typically by about 80% to 90%,” says Anne Simpson, CalPERS’ Director of Board Governance and Strategy. “So that the biggest emitters in the global economy have got to what’s called net zero by 2050.”
But it will take more than that to move the needle in a global economy. “We have nowhere to hide,” Simpson cautions. “If these emissions keep rising and causing global warming to increase, that’s going to have a knock-on effect on the world economy on communities right around the globe.
“And that means simply by having a green, clean portfolio isn’t going to help us with this risk unless we actually get the real economy into a green, clean economy.”
But when institutional investors divest from fossil fuel companies, does it make a difference, or is the impact merely symbolic? Some say it’s better to keep your stock and your influence, using investor dollars to encourage change from within. Pratima Rangarajan left her job in the renewable energy industry to head up the Oil and Gas Climate Initiative, an investment fund backed by some of the world's largest oil companies including BP, Chevron, and ExxonMobil. And to, as she puts it, “follow the carbon.”
“That’s what we do in our business; we follow the carbon,” Rangarajan says. “Where there’s carbon it’s our job to figure out to go invest in solutions to mitigate it and then figure out how to scale it up.”
“The name of the game here is change,” Simpson agrees. “We can’t sit and be the victim of the course of events. Even if we could actually construct a portfolio that looked neat and tidy and green, we’ve actually have got to be in the business of transition.”
What about those of us who aren’t managing billions in assets? What information is out there for the lone investor who wants to practice green investing?
“Full transparency I think is really important,” advises Lori Keith of Parnassus Investments. She suggests researching deeply into mutual funds by reading up on their websites, noting their positions on climate change and following sustainability reports.
“There are a lot of firms that will say check the box that says we’re doing environmental social governance investing. But when you look behind the scenes and see what companies they’re investing in, most of those wouldn’t even meet the standards as it relates to environmental social governance standing.
“So I think it’s really important to understand what you own.”
This program is generously underwritten by Bank of the West. Read more about their sustainable policies here.
This program was recorded via video on April 16, 2020.
Host: Greg Dalton
Brian Deese, Managing Director, Global Head of Sustainable Investing, BlackRock
Lori Keith, Portfolio Manager, Parnassus Investments
Pratima Rangarajan, CEO, Oil and Gas Climate Initiative
Anne Simpson, Director of Board Governance & Strategy, CalPERS