ECOS has received this article from Karsten Kaczmar, an Environmental Impact-Aware Fiduciary Financial Advisor, who attended EOY 2022. We provide it for your information but ECOS makes no endorsement of the author or his services.

My Certified Financial Planner friend swung his arms animatedly, saying “Look, my job is to help my clients make a profit, that’s it! If they want to donate it to causes they believe in, good for them, but my job isn’t to make sure their investments are ecologically responsible.”

I knew I had an uphill battle with this one.

“Okay, we are here to help our clients make the best return they can, but if their investments destroy the planet they’re retiring into, what’s the point?! It’s possible to align their portfolios with their values and still maximize returns, so why not do that instead? That way we’re feeding two birds with one scone.” (I like birds too much metaphorically kill them)

I get into discussions like this from time to time with my financial advisor peers. The issue is that the industry is built so that you won’t notice the harm your investments are really doing, leaving you donating for causes you believe in, but investing in the very companies that contradict those causes.

It’s time to pull back the curtain and reveal what’s really going on with your investments, and how to make sure your retirement and investment funds aren’t erasing the good you’re doing everywhere else. Let’s talk about going green with your money!

The Problem You Aren’t Supposed to Notice-

Here’s the problem in a nutshell: Most investors are invested in “mutual funds” or “exchange trades (or index) funds.” These funds allow investors to own a variety of stocks all at once, like owning a little slice of dozens or sometimes even hundreds of companies, for only the “per share” price of the fund. This is usually a good thing, because it means all your investment eggs aren’t in one basket.

The downside is that if you own a bit of all 500 companies on the S & P 500 index, you don’t just own the ones that are advancing a greener world. In most S & P 500 funds, around 10% of your money is directly invested in big oil, fracking, coal, and fossil fuel manufacturing. Some of the companies you’re probably invested in are: Exxon Mobil, Chevron Corp, ConocoPhillips, Marathon Petroleum, and about 49 more fossil fuel companies as of the time of this writing (see https://www.morningstar.com/etfs/arcx/spy/portfolio for a full breakdown of these holdings). If you’re in the “energy sector” or “value sector?” That percentage is significantly higher.

Having seen over 2,000 portfolios over my years in the industry, I’ve found many clients are investing in companies they would want nothing to do with if they realized that’s where their money was. Most of us are trained that if we invest in the markets, as long as the number goes where we want over time, we’re doing alright. We aren’t trained to request our advisors minimize investment impacts we don’t align with when they invest our money, and advisors aren’t trained to prioritize this either. This is business as usual, and it’s part of why our efforts to build a greener world seem to move so slowly.

Picture this: You are donating 25,000.00 a year of your investment income to ECOS and other organizations committed to fighting climate change. Meanwhile, you have a million dollar investment portfolio. As you use your 25,000.00 of investment income to fight for change, around 250,000.00 of your investment portfolio makes you a personal owner of the very companies doing what you’re fighting against. You’re quite literally using the money your investments made owning fossil fuel companies to fight fossil fuel companies. One of my clients put it this way: “you vote with your dollars, and we had no idea what we were voting for.”

How to Go Green with your Investments

Your financial goals are important, and your financial security matters. You can’t throw away your financial future to avoid your money going into parts of the market you don’t want it in. It’s important to go green in a way that is financially sound, responsible, and can potentially make you comparable or better returns to whatever you’re currently doing. Here are my top 5 tips to do just that:

1. Talk to your Financial Advisor, if you work with one
   If you have a financial advisor, talk with them about your values and your desire to invest in an environmentally responsible way. They will have the ability to adjust your portfolio to minimize negative environmental impact while still aligning with your investment goals. Specify that you want your entire portfolio aligned, otherwise many advisors will just re-allocate 10% of your holdings into a green fund and call it “good.” Make sure your advisor has done the research on ESG and Impact Aware funds, because there are a few hundred to choose from. If they lack expertise in this area, I recommend…
2. Look for a Financial Advisor who specializes in ESG or Impact-Aware Investments
   Some advisors are passionate about and actually specialize in Environmentally and Socially Conscious Investing, and have put in the time to invest their client’s money in a way that minimizes environmental harm and maximizes positive impact. Find them. Most advisors won’t charge you for an initial consultation/analysis of your current holdings and will be happy to provide you with their recommendations for how to align your financial and ethical goals.
3. Avoid “Greenwashing”
   Even when I was working with one of the largest, most successful investment firms in the world, I discovered that their “environmentally aware” investments were nearly as exposed to fossil fuels and deforestation as their standard investments. Just because an investment says “Green” or “ESG” doesn’t mean it is. This is known as “greenwashing” in my industry, and I see it everywhere. If you want to avoid greenwashing, I recommend…
4. Use publicly available websites or paid reports to research your investments
   There are some great publicly available websites that provide independent environmental and social justice research on stocks, bonds, ETFs and mutual funds. Some even provide a letter-grade rating as to how negative or positive an impact a particular investment has in various areas, such as global warming, deforestation, gender equality or weapons manufacturing. You can also pay for more extensive research, or pay an advisor like myself to provide you with that same research if you want to save some time and headaches.
5. Divest and Reinvest–Carefully
   Now that you know the impact of your current investments, and you have alternatives to switch to, you’ll want to sell the things that don’t align with your values, and buy the investments that do. A good financial advisor will do all this for you, but if you are going to do it yourself here are some things to keep aware of: First, pay attention to short vs long term gains, meaning think about if what you’re selling is going to bite you from a tax perspective. Next, make sure you aren’t drastically changing the risk of your investments. Some investments aren’t as actively traded, presenting liquidity risks, or they invest in more risky companies. Even if it looks good on paper, you could be getting into a mess by buying it. Also, make sure you aren’t over-investing in one particular sector of the market, or falling victim to greenwashing.

Follow these five tips, and you’ll be on your way to investments you can be proud of. By aligning your investments and your activism, you can be confident that the largest portion of your money is working in tandem with what you care about, not against it.

Redesigning your investments can be daunting, but it’s worth it. By shifting how we invest, we shift the very flow of capitalism itself. We tell the world Economies that we’re putting our money where our mouth is, refusing to fund with one hand what we fight with the other. Millions have already switched to impact-aware investing, and we are already seeing a few big oil companies change to more green policies in response to the green investing movement. You’ve gone green in other areas, now it’s time to go green in the area that might just have the greatest impact of all.

Karsten Kaczmar is an Environmental Impact-Aware Fiduciary Financial Advisor with Vantage Financial Group, based in Auburn California. He helps clients across the US invest in a way that aligns their financial goals with the values they most care about. He is on a mission to transform the face of capitalism, bringing liberation to marginalized communities and healing to the planet itself through green and socially conscious investing. For more information, find him at realhopeadvisors.com.

All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication or future results. Opinions expressed herein are solely those of Karsten Kaczmar. The information contained in this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. All information and ideas should be discussed in detail with your individual adviser prior to implementation. Advisory services are offered by Vantage Financial Group, an Investment Advisor in the State of California. Being registered as an investment adviser does not imply a certain level of skill or training. Purchases are subject to suitability. This requires a review of an investor’s objective, risk tolerance, and time horizons. Investing always involves risk and possible loss of capital.