Sustainable Investing

Last week I wrote about my excitement at the signing of the Inflation Reduction Act and how important it is that we continue to pressure our leaders to act on climate change and social justice. I also mentioned that the world of finance is another key sector where it’s absolutely necessary to pressure those in leadership positions to stop funding dirty investments and to instead lend money to green companies and projects promoting a better future for all.

This week, I’d like to talk about investments and retirement accounts. Pope Francis, in Journeying for the care of our common home, urges us to use our investments for good:

Promote responsible investments in social and environmental sectors, for example by evaluating progressive disinvestment from the fossil-fuel sector.

This means making your retirement and other investments align with your values. The good news is that green investments do well and are better positioned for future growth.

Some things I have learned in my work on divestment:

• Be prepared for the possibility that your broker/advisor will try to talk you out of your decision; it is important that you be clear and resolute and be willing to switch if they won’t or can’t help you.
• There is a whole sector of the investment world concerning sustainable or values-based investing, but it still represents a small portion of the investment universe with limited choices. 
• ESG (Environmental, Social and Governance) screened funds can be useful, but the screening process may still not align with your values so read the fine print and make sure you scroll to the bottom and examine the list of their holdings.
• There are a number of “green” or “clean energy” funds which may make a good choice. 
• Another strategy would be to shun funds altogether and invest directly in stocks and bonds of organizations supporting clean energy and other socially positive companies (e.g., electric cars, solar power, etc). This strategy, however, may come with an extra time commitment, and extra risk, including lack of appropriate diversification.
• Avoid indexed funds or target-date funds since they do not apply any screens.
• If you sell any assets that are in non-tax-deferred accounts, come April, you will owe taxes on any gains in value since they were purchased. Plan accordingly. 

Working together, we can help take care of our common home. 

Paul Litwin