How I divested from fossil fuels

As of July of 2013, I can confidently say that none of my money is invested in companies who's core business plan is to extract fossil fuels to burn them. I was motivated to take this small, personal action when I realized that, even though it was scary, personal divestment was probably the most significant step I could take to push back on climate change, and it didn't even impact my lifestyle or take that much time.

If anything, talking about personal divestment is more difficult than actually doing it. We don't normally talk about our finances with strangers. 'A little bit of money' to one person is 'a huge amount of money' to another. And I'm not in any kind of position to actually give financial advice. I can just share my story and a few things I learned along the way.

The money I have, which seems like a lot to me, sits in a fund at Merryl Lynch, and until July, it consisted of specific stocks my grandparents had given me, and index funds. And aside from feeling really grateful that it's there, I don't really think about it. So, the first thing I did was go through the list of individual stocks (only about 6 names). Those were clear enough that I didn't have to cross-check them against the list of the top 200 fossil fuel companies. The stocks in my list aren't the most ethical companies in the world, at least their entire corporate value isn't derived from extracting as much global warming producing carbon as possible.

The index funds were more difficult to figure out what to do. An index fund, like a mutual fund, is a collection of individual stocks repackaged as a single name. Unlike a mutual fund, index funds are not assembled by a person, but instead include a proportional amount of every stock in a given area. So if you own the S&P 500 index fund, you literally own every single company that is on the S&P 500. As you might imagine, this includes companies dedicated to finding and digging up prehistoric carbon.

Now that I found something that I wanted to change, I called the account manager to discuss options. It went something like this:

Fund manager: 'Of course we support clients who want to look into ethical investing -- we could put some of the money into that kind of a fund.'
Me: 'No, I'm trying to divest from something I don't agree with. I don't want to profit from global warming.'
Fund manager: 'Yeah, you know, I saw a PBS special the other night talking about this new pollutant -- what was it, it began with a 'c''
Me: 'Carbon dioxide'?
Fund manager: 'Yeah, that's it. Interesting stuff, I don't really know anything about it.'
Me: 'I'll send you some links -- it's important stuff. But let's talk about how to get those companies out of my portfolio'
Fund manager: 'And what companies are those again? Enything in the energy sector?'
Me: 'No, I have a list here -- it's the 200 most-valued companies who's primary business is fossil fuel extraction. I have no problem owning stock in wind or solar companies.'
Fund manager: 'But almost all companies out there use fossil fuels -- what about auto companies, electric utilities?'
Me: 'Well, I don't have a problem with those businesses -- if renewables grow, the utility will change. But for someone like Chevron, their value is derived in part from the oil they 'own' in the ground but haven't extracted. If our civilization has any hope, they can never extract that oil, and because of that, I think that the value of the company right now is actually hugely inflated, and it's too risky for me.'

I learned that a general index fund is going to contain some small fraction of fossil fuels. This is probably true of many mutual funds. My next step was how do we preserve the balance of the portfolio without owning even tiny bits of fossil fuels? The answer, for me, was sector-specific index funds -- like index funds, but co2 free!

A few days later, we sold the general index funds, and purchase sector-specific ones to replace them. For a given 10 units of S&P 500 index fund, I now own something like 3 shares of the US Healthcare sector index fund, 3 shares of consumer services index fund, and 4 shares of techology. The result, is a custom-made index fund crafted from the dozen or so sectors, excluding the energy sector.

Because of the way my fund is setup, I don't pay much in annual fees, but I do pay a fee to make changes to the account. Because that fee was paid from the fund, instead of my checkbook, it didn't feel that bad. But it did come out to about 5% of the total funds transferred. With a larger fund, this would have come out to more money than I was willing to pay, but at my level it seemed like a worthwhile cost. Perhaps others have more expertise on how to get around paying such a steep fee to make a change to their account.

Ten months in, the fund is going great. I'm glad I got over my fear of the complicated financial industry and waded in to take a more active hand in what my money is doing. And as with any divestment effort, there's big value in the conversations with fund managers who are so powerful in the money-world and so seldom exposed to clear signs that the future of fossil fuels are changing.

I don't claim that I've done this perfectly -- in fact, I welcome discussion about how this could have been done better, or what your own experience (or hesitation) on divestment has been.

If you'd like to talk more, join the webinar for Williams alumni with some experts to talk personal divestment. 

RSVP here!

Date: April 15th, 8pm EDT

Be the first to comment

Please check your e-mail for a link to activate your account.