A Green Portfolio: Is It Right for You?
“It’s not easy being green.” - Kermit the Frog
When the students pressured the Ivy League university to focus on more environmentally friendly investments for its nearly $42 billion endowment fund, Harvard University recently discovered how accurate Kermit the Frog’s words are. Harvard students called for the university to sell its approximately $838 million in fossil fuel holdings.
Last year, in a move to do its part in confronting climate change, Harvard committed to achieving net-zero greenhouse emissions with its investments by 2050. But that wasn’t soon enough for many of the university’s students—and Harvard addressed these concerns head-on.
In a letter to the Harvard community, the university revealed that it has already reduced its investment exposure to fossil fuel companies.[1] The Harvard Management Company (HMC) has no direct investments in oil and gas companies, and it has no plans to invest in any in the future. HMC also noted that Harvard’s endowment’s legacy investments in fossil fuels make up less than 2%—and that number continues to fall.
Harvard’s efforts to “go green” aren’t a new development in collegiate circles. Student and alumni activists across the country have been pressuring their alma maters to do their part in confronting climate change. Over the past few years, Cornell University, George Washington University, Georgetown University, and Yale University have all committed to reducing their fossil fuel investments, divesting current investments in energy companies, and pledging no further investment in the industry.
This is a big deal, folks! Colleges and universities in the U.S. account for more than $600 billion of investments, so the move to “go green” can significantly impact the oil and gas industry.
Colleges and universities aren’t the only ones taking steps to combat climate change. U.S. pension funds are also starting to consider moving away from fossil fuels investments. Bloomberg Intelligence reports that the ten biggest pension funds in the U.S. have approximately $40 billion invested in oil and gas companies, or 9% of the funds’ combined equity holdings. But this number is starting to decline rapidly as states like California and New York have divested some of their fossil fuel investments this year.
New York, specifically, has committed to net-zero emissions in the fund’s investments by 2040, and it is considering divesting its holdings in risky fossil fuel companies by 2025. The New York pension fund has already divested investments in 22 coal companies, and it recently halted investments in oil sands companies. Other U.S. pension funds are aiming for net-zero emissions by 2050.
Now, at this point, you may be wondering if you should limit your fossil fuel exposure, given that university endowments and pension funds are stepping away from the energy industry. But before you divest any of your holdings, let’s consider what it takes to “go green” in your personal portfolio.
Simply put, a green portfolio has limited exposure to fossil fuel companies and focuses primarily on investments that are accelerating a low-carbon economy. In other words, if you move away from oil and gas investments, you’re more likely to focus on renewable and alternative energy investments. In addition, your portfolio could be comprised of companies striving to limit their carbon footprint.
As an example of the latter, Crocs, Inc. (CROX) recently introduced “the shoe of the future,” its iconic clog produced with a bio-based material. The new shoe is being marketed as “comfort without carbon,” as Crocs aims to reduce its carbon footprint by 50% per pair of Crocs shoes. The company aims to be net zero emissions by 2030.
And Crocs isn’t the only company committed to protecting the environment. Deere & Company (DE) plans to recycle 85% of materials and reduce carbon emissions on 90% of its new products. The Coca-Cola Company (KO) committed to reducing its carbon footprint by 25% by 2025. Ford (F) achieved its goal of slashing carbon emissions by 30% by 2018, well before its 2025 deadline. United Airlines (UAL) dedicated $16 billion to replace its airplanes with more fuel-efficient models. And the list goes on!
But as with any hot, new investment trend, what’s right for one investor may not be suitable for you.
The reality is that constructing a “green” portfolio isn’t as easy as it sounds. There’s more to it than just limiting your exposure, divesting your oil and gas holdings, or focusing on companies that have gone green. Remember, making significant changes like this to your current investment strategy can considerably impact your financial returns—and your ability to reach your goals.
Ultimately, how you construct your portfolio depends on your unique situation. At Nicollet Investment Management, we always advocate for the individual and build customized portfolios that are right for you and your financial goals. Give us a call today to discuss if a green portfolio is right for you and help you build a financial strategy that meets your needs and goals.
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Reference Articles
https://news.yale.edu/2021/06/24/yale-sets-new-carbon-reduction-targets-takes-divestment-steps