As many of us across the country deal with snow and rain during the winter months, one way to perhaps warm up the season is to align your portfolio with your values. I mean, does that big tobacco company in your portfolio really make you feel okay? Well, have no fear. Below are five ways to make your dull 80s style cufflink-type portfolio more sustainable and in line with the 2020s.
Choose Sustainable Funds and ETFs
Switch to socially responsible investment (SRI) or environmental, social and governance (ESG) criteria mutual funds and exchange-traded funds (ETFs). There are now hundreds of mutual funds and ETFs that do the sustainability screening for you. If you want a “low carbon” ETF, there is an offering. If you would like more gender diversity in your portfolio, you can find it. The list goes on and on.
Don’t think you have to stay in your Vanguard or American Funds because that is what your dad or the guy who dresses fancy at the coffee shop told you. There are a plethora of options and they exist in every asset class. You want a fund that has dividend-paying stocks that are sustainability screened. Value play? Covered. Don’t be told there aren’t enough sustainable and SRI options. There are many.
Demand More SRI Options in Retirement Plans
Demand from your HR person to have more SRI options in your 401(k) or 403(b). Do you stare at your 401(k) plan paperwork and end up just picking a fund because it sounds cool? Well, that’s not cool. Part of your human resources director’s job is to find a 401(k) plan that fits its employees. Send them an email asking if there are any sustainable fund or ETF options and if not, could we please add some. You may be surprised how easy this really is for them to fix. If they say we can’t do that, grab other eco-minded employees and ask again. Then grab a few more and ask again. It works.
Get Rid of Exxon Stock
Get rid of your great grandmom’s Exxon Mobil stock. Okay, so you were lucky enough to inherit Grandma Nana’s old Exxon stock she has had since the 60s. And good job Nana on picking the stock when oil was the hip thing to invest in. It’s time to realize that Nana would be totally fine with you divesting that stock and reallocating into a world where her great-great grandchildren can still breathe.
Yes, there may be tax consequences. But it’s always better to have to pay tax on capital gains, then to not have gains at all. Has anyone seen the revenues of companies like Exxon and Chevron Corporation over the last five years? It’s not pretty. If you sell any holdings that don't fit in with your values towards SRI and ESG, you can use those funds to buy more sustainable or environmentally-friendly options. (For more, see: Socially Responsible Investing: What You Need to Know.)
Boards and Foundations
The board you sit on has a fiduciary duty. If you sit on a board or a finance committee or are part of a family foundation, you may want to listen. As an elected member, you may have a duty to pay attention to how an endowment is invested. Have you checked off the “ESG/sustainable screen” on your investments? If not, this should be reviewed. One would have to believe that if this is not being done, then there may be a slight breach of fiduciary duty. In other words, if you haven’t checked to see what percentage of the endowment is invested in dirty coal or big oil companies, you may want to call your advisor and ask them and then make a note of this. Any big grantor may want to know this information and if you can’t come up with it, they may take their money elsewhere.
Choose a Fee-Only, Sustainably-Focused Advisor
If you aren’t going to do it yourself or if you rely on your Dad’s old stockbroker, switch to an independent fee-only, sustainably-focused investment advisor who charges an annual management fee of less than 1%. In all honesty, most people have busy lives and careers and the thought of staring at their Charles Schwab or Fidelity Investments account without much know how or care doesn’t sound fun. This is why many investors see the value in paying an advisor to do it for them and do it in line with their risk profile and timeline.
All asset classes can be covered with sustainable funds and it’s also nice to know that your money is being managed by a firm or advisor who is personally focused on sustainability. Stay away from those firms out there who are doing this as “part” of what they do as that shows they are not fully committed to SRI. It's like saying we are an organic coffee company, but only part of our coffee we are serving you is actually organic. (For more, see: How ESG, SRI and Impact Funds Differ.)