Special collaboration of Brenda Plant, cofounder of Ethiquette.ca, an independent platform of information and analysis on responsible investment.
Are you frustrated by investment advisers who don’t know much about responsible investment options and who don’t seem to care about helping you on this? And when you try to do your own research, nothing (relevant) comes up in a Google search?
Have you ever imagined what it might feel like to be proud of your investment portfolio? To be able to talk about it like you might talk about a new eco-responsible product you just discovered?
If you’re like many other people, you probably don't know much about how investment works. You may even feel frankly unmotivated to find out how it works. But as a member of Équiterre, you obviously care about our planet and proactive solutions to creating a better world.
There is no doubt that failure to acknowledge and act on reducing greenhouse gas emissions (GHG) has put the planet on a path toward severe, pervasive and irreversible impacts that will be felt in the decades to come. Urgent action is required and investors of all sizes have both a responsibility to act and a critical role to play. Having a fossil fuel free investment portfolio seems like a fairly easy solution, if anyone was genuinely offering them!
There is both a moral and an economic argument for a fossil fuel free investment portfolio. The goal of this article is to offer some clarity on what you can expect when you chose a responsible investment fund, or more specifically, when you chose a fossil-fuel free investment fund (for your registered retirement savings plan (RRSP) or for non-registered investments). There are no miracle solutions, but transparency and understanding are an important part of getting to any real, sustainable solution.
Fossil-fuel divestment, an effective strategy for change?
The financial returns you rely upon to provide for a comfortable retirement should not come at the expense of future generations, which is what happens when a large part of retirement investment returns are predicated on extractive activities that diminish the natural capital future generations will need to survive. Is fossil-fuel divestment, then, an effective strategy for change?
The fossil fuel divestment movement has been one of the most high-profile campaigns in the history of responsible investment (see a previous blog post on the divestment movement - in French).
On February 4th 2017, Ireland became the first country in the world to stop investing in fossil fuelne down, 195 more to go!
In 2015, Norway’s sovereign pension fund divested from some fossil fuel companies, but not all.
There is no doubt that the number of people and big investors that have removed their funds from fossil-fuel companies have succeeded in pushing the conversation forward. Large and small investors alike are appreciating that oil and gas companies currently hold 8 times the carbon in reserves than we can burn and still maintain a liveable habitat for humans and other higher life forms. Investor demand for fossil fuel free products has bore fruit!
Individuals feel better about not financially supporting companies in heavy carbon industries. However the reality is that the global economy faces both a demand and a supply problem. Fossil fuel companies work to meet market demand. Until we change that paradigm by reducing demand and delinking our economy from carbon, removing our personal investment portfolios from heavy GHG emitters isn’t going to have a huge social/environmental impact. Without systemic change, another investor will fill your spot because the demand for fossil fuels remains.
Proceeds from fossil fuel divestment could instead be used to fuel the transition towards developing renewable energies, energy efficiencies and local sustainable agriculture, among others. Often, however, investors are either switching investments to “low carbon” sectors such as banks and IT or investing in fossil fuel services companies. They may have lower direct carbon footprints, but are still an integral part of the fossil fuel energy system. Is it because investors lack renewable options? It is a possibility.
And while you might clearly know the names of oil sands companies and not want them in your portfolio, would you accept Aliments Couche Tard to feature in it? Did you know that Couche Tard is more than just a convenience store? In the fiscal year of 2016, Couche-Tard’s road transportation fuel sales represented about 53% of its total revenues in Canada, compared to approximately 68% of its revenues in the U.S. and 76% in Europe (including Ireland). (Source: Annual Information Form). In short, they are not a petroleum company, but they definitely contribute to the growth of fossil fuel industries.
In Canada, oil and gas companies account for roughly 20% of the value of the S&P/TSX composite index. To remove the sector from your portfolio would mean removing one-fifth of the eligible universe of companies. When you also start eliminating the convenience stores and the banks that finance various high carbon projects, the pickings start to get pretty thin. Which is why some responsible investment funds chose to pursue shareholder engagement strategies, working directly with companies in their portfolios to improve their sustainability performance. I truly believe that shareholder engagement strategies can be a powerful tool to improve a company’s environmental, social and governance (ESG) performance. It might not feel as efficient as fossil fuel free investments, but we don’t want perfection to be the enemy of the better!
IS A (MOSTLY) FOSSIL FUEL FREE RRSP POSSIBLE?
Only a few years ago, the answer to this question was a simple “no“. Some financial advisers might even still believe that there are no fossil fuel free investment options for the average investor today. While a 100% petroleum-free fund may still not yet be possible given all the petroleum derivatives out there, the market is evolving! The recent Responsible Investment Trends Report states that individual investors assets in responsible investment have almost doubled over the past two years to reach $118 billion, reflecting a growth rate of 91%. While the 2017 Trends Report dives very little into the individual investor behaviour, it does allocate a page to the issue of fossil-fuel divestment and specifically states that “…to address increasing demand, a growing spectrum of FFF investment products and services are emerging in Canada.“ The benefits of decarbonization include a reduced risk of value impairment because of climate change-related regulation, reduced risk of stranded assets and increased exposure to the companies that are likely to be the beneficiaries of the transition to a low carbon economy.“
list of 17 fossil fuel free funds available in Canada
I have taken the time to pull together a list of 12 mutual funds, 4 exchange traded funds (ETFs are lower cost, passive funds that not all advisers are allowed to sell you, but that you can access through other means) and one small, local investment option that are all RRSP eligible AND fossil fuel free. No one else has pulled together a list like this for Canadian funds and made it publicly available. Download this annotated list here, review it yourself, and take it with you to your next meeting with your financial adviser!
Other tools, lists and databases
Other tools exist to help investors identify publicly traded fossil fuel companies and they could be very useful to the do-it-yourself investors among you.
The As You Sow Foundation in the US has created a great, free tool (Fossil Free Funds) that screens the US mutual funds and ETFs. As Canadians, we can’t invest in US mutual funds, but we can invest in ETFs and they can be part of a registered account (that means your RRSP). The tool lets you choose the level of screen you want to apply: Filthy15; All coal industry; All oil/gas industry and Fossil-fuel utilities.
The database behind the FFF tool is also available directly from the providers themselves. The Carbon Underground 200 is an annually updated listing of the top 100 public coal companies globally and the top 100 public oil and gas companies globally, ranked by the potential carbon emissions content of their reported reserves. The list is produced and maintained by Fossil Free Indexes, LLC. For a spreadsheet of the top 200 fossil fuel companies by size of reserves, click here.
The ET Carbon Rankings is another public tool offering Carbon Ranking of the world’s largest listed companies. The Rankings highlight carbon efficient companies, and those who report on both direct and supply chain emissions.
Local Investing as Another Fossil Fuel Free Option
Local investing is a way of buying a better future for our community and ourselves. It should be framed as a spending decision—similar to buying “livable future” insurance. There are not many options for non-accredited investors, and even less that are also easily RRSP eligible. In the list of fossil fuel free RRSP options, I have identified only one. On the Ethiquette.ca blog, we regularly inform the public of new community bonds or other local impact investment offerings, so you may want to follow our Facebook page to keep abreast of those. You could also think about discussing with a financial advisor as to what percentage of your portfolio could prudently be devoted to such a spending decision right now.
Investing for your future is about so much more than simply financial risk, return and liquidity. We must persevere!