Your climate questions: How do I know if my investments are climate safe?

Melanie asks: How do I know if my investments are climate safe?

Many of us have made the decision to move our money away from things that are driving global warming pollution, and into what we’re told are more climate safe funds. But with words like sustainable, green, low carbon, and environmentally friendly being thrown around frequently and sometimes interchangeably, how do we know the truth behind the climate impacts of our investments?

We asked Tim Nash, founder of the sustainable and impact investment coaching service Good Investing to help us cut through the buzzwords and get to the bottom of climate safe investing. His expert answer includes the essential tips you can use to “do more good and less evil” with your money, and guides us through the easy-to-use (and free!) tools to help you get there. 

Tim: 

Before we even get into this it’s really important to lay some groundwork and set expectations. There’s no such thing as a perfectly sustainable portfolio. It just doesn’t exist. There are a range of different options, each with their own advantages and drawbacks, but none will have the perfect solution to make everyone happy. So it’s important to understand that from the start.

Next, we need to understand the difference between mutual funds and Exchange Traded Funds (ETFs). Mutual funds are generally something that you buy through an advisor. You walk into the bank and they’re going to sell you some mutual funds. With ETFs, you buy them directly on the stock exchange.

Now, these two are essentially the same but the way in which you acquire them is a bit different. This is important for our purposes because depending on which ones you have (and it might be a mix), it will change the way we look them up and analyze their climate impacts.

Finally, and related to my first point, when we talk about funds the goal here really is to do less evil and more good. So for instance you have what I call your “broad core holdings”. These funds use strategies like divesting from fossil fuels, ESG analysis, and shareholder engagement. These fall into the Do Less Evil category.

Then you have the Do More Good category. These are your more thematic investments. You’re putting your money into things like renewable energy, clean technologies, or Sustainable Development Goals. These aren’t meant to be a huge slice of the pie despite what many people think, but you do want them in the mix.

And that’s really what I want to get across here: You’re looking for a good mix of Do Less Evil and Do More Good in your investments. Nothing is going to be squeaky clean, but you’re making steps in the right direction. 

Now that we have that out of the way, I’ll give you the step-by-step guide to help you find out more information about the particular funds you’re investing in, and whether they are aligned with your climate goals. 

(See a clip of our interview with Tim where he goes through the step-by-process using the WealthSimple North America Socially Responsible Index ETF as an example in the video below.) 

1. Find the name and symbol – The first thing you need to do is find out the full name of the fund you want to look up. It’s also really helpful to know the symbol for the fund. For ETFs these are called “ticker symbols”, which is usually three or four letters. For mutual funds, it’s called a “fund code”, which is usually three letters followed by three or four numbers. These are often somewhere on your statement if you have the searching skills of Indiana Jones, but the easiest way to find them is to just ask your advisor. 
2. Search your fund on the MSCI website* – Once you have the full name and symbol or code for your fund, you want to look it up using MSCI’s free ESG Fund Tracker and Climate Search Tool. Once you bring up the fund, you’ll see a lot of different information categories. For our purposes, we want to open up the “How is the fund currently exposed to climate transition risks and opportunities” section.
3. Focus on Weighted Average Carbon Intensity and Green Vs. Fossil Fuel Based Revenue – These are the two areas that you want to evaluate for your fund. They don’t exactly equate to your fund’s carbon footprint, but they’re pretty darn close. This will give you a good sense of where you fall on the do less evil/more good scale, with the amount of green revenue being a good one to look at for the latter.
   
   It’s really important to note here though that all we are able to measure here is carbon exposure. This doesn’t take into account things like the social elements of climate change. There are more robust analyses that can factor in some of these elements, but I think carbon footprint is a really great place to start.
4. Compare to non-sustainable benchmarks – It may seem like a no-brainer that you want the carbon intensity and fossil fuel based revenue to be low, but like any data points it’s important to have something to compare it to. For your average “I don’t care about sustainability” fund, that looks like roughly 138 tonnes for the Weighted Carbon Average and 4% fossil fuel based revenue. So if your fund is supposed to be low carbon you’d definitely want to see it lower than that by quite a bit.
5. If you don’t like what you see – shop around! – So many people feel like if they’re working with an advisor, they’re stuck with whatever they suggest. This isn’t the case at all. There are such a wide breadth of options when it comes to funds now. It’s really important to me that people start taking ownership over their money in this way. Just like the decisions we make about how we spend our money, how we earn our money, what charities we donate to – you need to start bringing that intentionality to your investments. 
   
   This is where I can really help. If you’re finding yourself stuck or needing to shop around, I offer everyone a free consultation. I’m not selling a product of any kind, but rather I’m a coach who can help you figure out what works best for you. I’ll meet you where you’re at, help you understand your options, and get you moving in the right direction.

We are so grateful to Tim for his time and expert advice! Click here to sign up for a free 30-minute consultation with Tim and get his expert insight on how to align your investments with your values.

And remember, we will be selecting a new question each week so feel free to submit your questions here and we will add them to our list.
—

*MSCI is a global provider of equity, fixed income, real estate indexes, multi-asset portfolio analysis tools, ESG and climate products. It was founded by Morgan Stanley.