Investors, Your Profitable Climate Change Solution is Waiting for You
Stock Footprint
Stocks have a carbon footprint. They represent a vested interest in how a corporation is run. These shares come with a claim for a part of that corporation’s profits. It also comes with a stake in that corporation’s carbon footprint.
How do we find the carbon footprint of an investment?
Industry professionals can use tools such as The Investment Carbon Screener on the Bloomberg App Portal. Smaller investors can use a Fossil Free Funds for some mutual funds. Otherwise it is just brute force by using the emissions from the company’s G4 report or from the Carbon Disclosure Project, divided by the number of outstanding shares times the number of shares owned.
What can we do?
If a side effect of stock ownership is carbon pollution, why not counterbalance it with an investment whose side effect is carbon reduction? Investors can measurably counterbalance the footprint of their portfolios buy using the Carbon Xprint method. This positive feedback approach invests $40 in certified green project financing for each ton of carbon footprint. This can be accomplished by buying individual bonds or buying shares in a green bond mutual fund. These green investments build the renewable energy, energy storage, and energy efficiency infrastructure we need to keep global temperatures from rising above 2 degrees Celsius. The IEA estimates that we will need at least $USD 3.5 trillion of this type of investment per year until 2050 to accomplish this goal. Since it is an investment, the investor is returned interest and the principle at the end of the term. This is a targeted and measurable diversification of an investor’s portfolio. A simple diagram illustrates the process.
The amounts are relatively small.
Consider this example:
- An individual has $100k invested in fund VFIAX
- They make $100k per year with a 2% annual raise
- They contribute 18% to their 403b
- Vanguard S&P 500 index fund has a footprint of 7 tons for $100,000 invested
- The 15-year annual return on fund VFIAX is over 10%
- The average green bond term is less than 5 years
- The S&P Green Bond Index has returned 3.07% over the past 5 years
The table below shows what it would take to counterbalance the investment footprint over time. Starting at year 6, the principal and interest from 5 years earlier would be reinvested. The actual investment amount at year 6 to counterbalance a quickly growing 403b is minimal, .10% of the portfolio.
No matter what combination of policies and technologies we use to solve the problem of climate change, we will still need trillions of dollars in capital investment to pay for it. We can be an active part of the solution by diversifying a small portion of our portfolio to counterbalance our investment footprint.
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Certification bodies include the Climate Bonds Initiative, Green Bond Principles, Investor Confidence Project, and Passive House.
