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A Beginner’s Guide to Fossil Fuel Divestment

A Beginner’s Guide to Fossil Fuel Divestment

Sustainable Finance

Last Updated on May 6, 2021

I posted about divestment on Instagram a few weeks ago.

If you’re aren’t following me on Instagram, what are you waiting for?

I share positive news stories about the environment (cause eco-anxiety is real – I wrote a massive, highly-highly requested blog post on ways to keep eco-anxiety at bay), lots of tips, and most importantly source questions for blog posts!

Yep, I will research your questions and give you lengthy, (sometimes too lengthy) well-researched answers. How cool is that! CHECK OUT MY IG

I got SO many great questions about divestments, when I did it, how I did it, what I recommend, ethical banking, what are divestments, etc. etc.

Ethical banking is such a lengthly topic that I’ve decided to make that a post all to itself so be on the lookout for that next month.

If you like this post and want more information on creating change with your money or personal finance, let me know in the comment section down below and I will work on creating a whole eco-friendly money series.

IMPORTANT!

Upfront, I am NOT a financial professional.

I am an average person. I will show you what I did, but I will NOT be giving you financial advice.

A few people asked me to recommend stocks, indexes, and where to invest.

And, while I am so flattered, I think it’s best to leave that to the professionals.

This post is merely to show you HOW to do it, not necessarily exactly what to do. Does that make sense?

But, because I want to make this post as valuable as possible, I am consulting with Dr. Candace Partridge-Sykes who just got her PhD from the University College of London.

Her studies focused on the use of green bonds to finance sustainable infrastructure. How cool is that!?

what is divestment?

Divestments are the opposite of investments, it’s removing your money or stopping it from supporting industries you don’t believe in. ⁠

Have you thought about what your bank does with your money?

Anything from CDs to savings accounts, they invest your money.

They give people and businesses loans with that money.

When I first heard that my money was being used to give people loans, I thought, “Cool! My money is being used to help someone buy a home or help someone open a small business in my town.”

Which isn’t wrong, it’s just not the whole picture…

Let’s take a look at the Keystone Pipeline.

Who was funding the pipeline? Wells Fargo was one and this is a quote from their website, “Wells Fargo is not the lead bank on the project.

“Wells Fargo is one of 17 banks that have made a loan to the developers of the pipeline.

“The company is lending $120 million — 4.8 percent of the total financing — to the project’s $2.5-billion credit facility.

“The additional $1.28 billion required for the project is being funded by the pipeline’s owners.”

Other banks include Bank of America, Citibank, Goldman Sachs, JPMorgan Chase, and more.

As this information (what banks were doing with our money) was made public, campaigns were being run to inform the general public, and people started pulling their money from banks.

Most notably was the campaign and open letter from Equator Principles Association.

This resulted in a few early victories for environmentalists, and caused a hiccup in funding as several banks retreated from propping up certain dirty industries. (source)

And, if this is what banks are doing with your savings account, what do you think is going on with your 401k and your retirement plan?

And, I hear you, I hear you.

This is my constant plight. “But, if only a few people are doing this can it REALLY . make a difference?”

will this really make a difference?

Are you new here? Cause, if not you already know what I’m going to say – OF COURSE IT WILL MAKE A DIFFERENCE.

The divestment movement is strong and growing let’s look at the facts.

  1. Last year alone over 1,000 public and private institutions divested approx a total of $9.39

    trillion. (source)

  2. Shell has already listed divestments as a major cause for concern in their annual report to shareholders. (source)

  3. San Francisco, Berkeley, Oakland, New York City, and many other cities have already divested. Ireland is the first country to divest and I hope to see many more. (source)

I could keep going, but I think this has proven the movement is strong and growing.

why should I divest?

I think we’ve covered a lot of that above, but honestly it’s one of the easiest ways to have a positive impact on the environment.

In fact, I think the two best things you can do for the environment are divest and compost.

If you’re looking for composting guides, I’ve got two for you!

Buying a reusable straw is great, but that’s a few dollars. If you truly want to be voting with your wallet, then you need to do it where it really, really counts.

Arguably our 401ks hold the most money that you’ll have in one place, and it’s important that your money works for you and the environment.

By age 70, the average 401k holds $182,100 and the average IRA holds $274,000. (source)

Now multiply that times a lot of people and think about all the good or bad that could do.

Divesting could bring down entire industries and create new ones. Convinced?

how did you divest?

I divested my portfolio with my first job in California about four years ago, and it took me about an hour.

I’m in the process of closing this account out and rolling it over into a new self-employed IRA so I’m having to brush up on the processes myself.

If you google, how to divest your portfolio from fossil funds you will get a lot of websites with links to pledges asking your to divest your portfolio, but don’t actually tell you how.

And, if you actually find a website with something helpful like a list of Sustainable, Responsible and Impact Mutual Funds you still might not find it super helpful…

Or at least I didn’t because I’m not an investing pro.

The easiest to use tool that I’ve found is Fossil Free Funds.

You can type the name, manager, or ticker into their search bar and they’ll show you how much of that portfolio is invested in fossil fuels.

This is why my portfolio isn’t 100% divested but it’s pretty gosh darn close.

Fossil Free Funds makes it really easy to understand where your money is going and how you can shift it around to create better investments.

Now, for all of the hard hitting questions, I’m going to turn the floor over to the Dr.

how will divesting impact my money in the future?

If you divest wisely and keep your assets balanced, it should have no impact on your returns.

However, like any investment strategy, it could lead to greater or lesser returns. There is some evidence that divesting can actually lead to higher returns.

can I have a stable portfolio and still divest?

Sure, as long as your idea of a stable portfolio doesn’t include fossil fuel exposure!

You can replace fossil energy equities with renewable based stocks.

They key is to try to diversify your holdings as much as possible.

After all, if the larger institutional investors can do it, so can you.

Also, don’t forget about bonds: If you want to take bigger position in sustainable infrastructure, then consider my personal favorites, green municipal bonds.

what do you think of aspiration, swell investing, investwithacoin and other platforms like this?

I love seeing more ESG focused retail investment options entering the marketplace, because opening this market up to retail investors is key to achieving enough scale to make our voices heard at all levels.

Unfortunately, we need to be conscious consumers about these products and take a view on how sustainable their business models are longterm.

Unfortunately, Swell just announced that they are no longer taking deposits.

who should I talk to find out more about what my bank is doing with my money?

Honestly, the big banks are super cryptic about what they are doing with your deposits, since that would reveal a lot about their own investment strategies.

Unfortunately, there’s no easy way to access this information, so I encourage you to get on the phone and ask them.

The very fact that you are asking will send a message that you care and want to see better transparency on their part.

what if I’m stuck with a bank I don’t agree with, is there any hope?

Absolutely, there are options for more sustainable banks, such as Aspiration mentioned above, in addition to more ESG focused banks like Amalgamated Bank and Bank of the West, and many credit unions.

advice for seeking out a financial advisor?

I just returned to the US from 15 years in London, so I’d love the answer to this myself!

Personally, I’m going to be leveraging personal contacts and the power of google.

Also, don’t rule out working with your traditional financial advisor if you feel that you can give them sufficient direction to meet your divestment objectives, because there’s a lot to be said for educating everyone.

My husband recently divested his retirement holdings, and in the process, his financial advisor learned as much as he did, so now they are positioned to offer those services to other clients. Win-win!

do you have any specific recommendations on stocks, funds, indexes etc.?

Since I am not a CFA, I feel like this question is best left to a proper financial advisor!

how can I go a step further to not just “not support” but use my money to help grow sustainable businesses?

Great question, this is the reinvestment stage that happens after divestment.

I would recommend getting familiar with two major things: pure play companies like First Solar and any other renewable energy focused companies.

Also look into B Corps, who certify themselves as having a more sustainable approach to business overall.

Next, consider the infrastructure that makes up our lives, and consider ways to invest in more infrastructure that reflects your personal values, such as better storm resilience, more EV charging points, better energy efficiency in schools.

Find the companies that help build those projects, and also buy bonds in those projects directly.

I hope you found this blog post useful and helpful! If you have any other questions please let me know in the comments section down below.

I will try to answer those questions in the next of our series.

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  1. Interesting article, thank you. Quite the irony that an add for TD bank showed up at the bottom 😀 (I don’t think you can control who advertises on your page, can you?)

  2. I have been super curious about this topic as I am in the midst of getting more intimate with my finances and have thought about opening up another credit card. Are there any credit cards from companies that you would recommend or personally use, especially for international travel and rewards, if any? I would definitely be interested in a series, also curious to learn more overall since we vote with our dollar! Thanks for the great read! <3

  3. This is just the info I was looking for! Do you have any suggestions for sustainable credit cards? Also you said banks are cryptic about what they do with deposits – you might want to check a new website mightydeposits.com, they tell you what your bank invests in

  4. I would love an entire series, including more info on "hands-off" retirement investing. I don’t want to hire a company to many my investments and usually like to go the route of rob-advisors (Betterment’s SRI option or Motif).