For the last few years, students at universities all over the world have been getting involved in the fossil fuel divestment movement, asking their universities to sell holdings in oil, gas, and coal companies. But these students are also graduating, getting jobs, and possibly thinking about how to invest their own money.
Despite the growth of sustainable investing options, up until very recently, they might have had a hard time finding mainstream investment products in line with their values. Most market diversified funds–even those that advertise sustainability–still invest some amount in the fossil fuel sector. (For example, Vanguard’s FTSE Social Index Fund currently invests 2.3% of its portfolio in the oil and gas sector.)
That is starting to change with a handful of low-cost fossil-fuel free financial products geared towards everyday investors. Recently, for example, S&P Dow Jones launched a fossil fuel free index fund, the S&P Global 1200 Fossil Fuel Free Index.
And now a small firm, Etho Capital, has just launched what it says is the world’s first “diversified, socially responsible, and fossil-free” ETF on the New York Stock Exchange. An ETF is an exchange-traded fund, a fund with shares that track an index like the Dow Jones or, in this case, the Etho Climate Leadership Index (ECLI). They said they were targeting an initial share price of $25.
“We’re doing this at a price point that’s accessible to anywhere, whether you’re a student or a university endowment manager,” says Conor Platt, co-founder and CEO of Etho Capital.
The ECLI, which has 400 U.S. publicly listed companies across sectors, is interesting in the companies it does and does not include. First, the firm analyzed greenhouse gas emissions data from 5,000 public companies–not just from their operations, but from their products as well. It looks for companies with low emissions relative to their market capitalization and their industry. It then eliminates companies involved with the oil, coal, or gas industries (including fossil fuel services companies, like those that build pipelines), and also with the tobacco, weapons, and gambling industries. Last, it surveyed experts to screen out companies with poor environmental or social performance that the quantitative data left out.
Monsanto, for example, got the axe based on this subjective criteria. And the team decided to include copper mining companies with good climate-related records–which mine a material the world needs–but exclude gold mining companies, which for the most part do not.
The result is an ETF that is proactive for rewarding climate leaders in their industry and also draws a hard line to avoid the fossil fuel industry and a few other sectors. In autos, for example, companies that made the cut include Tesla and Harley Davidson, but the data showed that Volkswagen did not–despite its many sustainability awards (A good decision, as the company’s emissions scandal now confirms.) Other well-known companies included are Google, Intel, Norstrum, Disney, Chipotle, and First Solar.
“We think this climate efficiency data helps cut through a lot of the greenwashing,” says Etho co-founder Ian Monroe.
This may be the beginning, but there are going to be more fossil fuel free options coming. The Guardian rounds up two other fossil free options for your mom and pop investor–one is another ETF and another an actively managed mutual fund. And Etho Capital plans additional offerings. As a younger generation of investors who want their money aligned with their values starts to enter the market, large firms are going to continue to become interested in catering to them.