Do you own stocks? There’s a decent chance the answer is yes. A study by the Federal Reserve found that in 2016, 51.9 percent of families owned stocks, either directly or as part of a fund. That is shockingly low, however right now I am not interested in the percentage of Americans that own stock, but rather in the percentage that know the true environmental implications of investing their money. I’m guessing that percentage is next to nothing, which is what I am hoping to change through research and blogging (how hard can it be?).
Let’s start with an example so you can see my point. The University of Massachusetts Political Economy Research Institute has an index of the top 100 air polluters. Number one on that list is the Huntsman Corporation (ticker: HUN), which in 2017 released over one million pounds of toxic air. This company has a long history of poor environmental behavior. Check out this excerpt from a Texas news article:
“In 1997 the Huntsman Corporation bought a Fifties-built petrochemical plant in Odessa, TX. When Huntsman Corp. took over, they said the plant was in dire need of upgrades. This involved the burning of excess materials. Within three days of this, the new Huntsman plant had burned off over 61,000 pounds of ethylene, according to published reports. They also burned more than 32,000 pounds of propylene and hundreds of pounds of benzine and butadiene, which are suspected carcinogens. That, along with several other incidents, logged residents to complain as they began experiencing similar symptoms which they collectively coined ‘Odessa syndrome.’ The residents spoke of trouble breathing, soreness of the eyes and throat, bloody noses, and nausea. It was soon reported that there was a higher rate than normal of kidney cancer. The Texas Natural Resource Conservation Commission received more than 3,000 complaints about the different symptoms”
I certainly would not feel right if I knew my money was invested with the Huntsman Corporation. Hopefully most people feel the same after reading the article, but if they follow the standard investing advice and buy broad market index funds, they instantly own all the polluters, weapon makers, and cigarette giants! It may not mean much individually, but millions of people and institutions are currently investing this way, propping up companies like Huntsman. I equate it to other types of environmental behavior. If one person throws a plastic bottle onto the ground it doesn’t look like much, but if millions are doing it then we got problems! Since we can’t count on the government to regulate polluters there needs to be a mass divestment movement away from them.
This is where Socially Responsible Investment (SRI) can help. SRI is the practice of investing in companies and funds that have positive social impacts, and perhaps more importantly avoiding companies that have negative social impacts. When choosing investments, the socially responsible investor can screen out companies that don’t fit their code of ethics or choose a fund that aligns with their beliefs. It seems like at a time when so many are trying to reduce their carbon footprint, so few are talking about getting their money out of the hands of environmentally irresponsible companies.
Many investors and funds are catching on to the SRI movement. A 2018 Forbes article says, “the total US-domiciled assets under management using SRI strategies grew from $8.7 trillion at the start of 2016 to $12 trillion two years later, an increase of 38%. That’s also 26%, or 1 in 4 dollars, of the $46.6 trillion in total assets under management.” These funds use environmental, social and governance (ESG) criteria used to screen potential investments. If you don’t want to individually exclude stocks from your portfolio you can find a fund that aligns with your personal ethics.
Take for example the Blackrock iShares ESG MSCI U.S.A. ETF (ticker: ESGU), an exchange traded fund with 310 stocks screened with environmental, social, and governance criteria. According to the prospectus, the stocks, “are rated on risk factors related to environmental (carbon emissions, water use, toxic waste), social (labor management, health and safety, sourcing), and governance issues (corruption, fraud, anti-competitive practices). Additionally, the fund completely excludes tobacco companies, producers of certain weapons (landmines and bioweapons), and companies experiencing severe business controversies.” A socially responsible investor can buy shares of this fund, diversifying themselves to over 300 stocks, and feel good about not supporting the fossil fuel, tobacco, and weapons industry.
A word of warning, all funds are not created equal. Indeed, many are latching onto the theme of SRI to attract new investors. For example, the SPDR S&P Kensho Clean Power ETF (ticker: CNRG) is categorized as a “socially responsible” ETF (exchange traded fund) on etf.com. “CNRG focuses on US-listed companies whose products and services are driving innovation behind clean power.” This initially sounds great to a socially responsible investor, however after looking at their holdings I discovered CNRG has 1.53% exposure to our old friend the Huntsman Corporation! Each fund has its own method to screen stocks that may not be rigorous enough for some investors, even if they are deemed socially responsible.
I certainly encourage you to invest and think about SRI while doing so. I am continuing to explore this area of finance and plan to dig deep into the prospectuses of some of these so called ESG funds to see what I find. There is a lot of jargon in the SRI universe like “green bonds”, “impact investing”, and “climate finance.” I am planning to write posts to clarify these terms and make the information easily digestible. Let me know if you find this article useful or how you already practice SRI!
How many Americans own stock https://www.federalreserve.gov/publications/files/scf17.pdf
Top 100 air polluters https://www.peri.umass.edu/toxic-100-air-polluters-index-current
Huntsman news Texas https://www.buzzfeednews.com/article/andrewkaczynski/huntsman-corporations-poor-environmental-record-i
Forbes article https://www.forbes.com/sites/annefield/2018/11/26/sri-investing-in-the-us-now-12-trillion-in-aum/#20d891d0a3bc
ESGU prospectus https://www.ishares.com/us/library/stream-document?stream=reg&product=IUS-ESGU&shareClass=NA&documentId=1326602%7E1326600%7E926112%7E1315627%7E1380893&iframeUrlOverride=%2Fus%2Fliterature%2Fprospectus%2Fp-ishares-msci-usa-esg-optimized-etf-8-31.pdf
SPDR S&P Kensho Clean Power ETF https://www.etf.com/CNRG
Disclaimer: The views expressed are my opinion and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about the financial industry.