GUEST POST: Why Invest Sustainably (and How to Get Started)

Breene Murphy, VP of Strategy and Marketing, discusses sustainable investing and how to get started

Introduction to Breene Murphy & The Carbon Collective

My name is Breene Murphy, and I am a Cofounder of Carbon Collective. We help clients’ investments solve climate change by investing in climate solutions.

At the Carbon Collective, we believe that humans have the technology to solve climate change and that what is missing is the collective human will to do so. There are quite a few ways that human will can be expressed. Political will can help rewrite policy. Religious or cultural will can help reset norms. At the Carbon Collective, we’re interested in the role that money and the markets can play as an expression of human will. We think that it is arguably the most powerful of all those expressions of will, and individuals have control of it right now.

Quick Disclaimer: The information in today’s blog constitutes the opinion of Breene Murphy and the Carbon Collective, and is not necessarily representative of the opinions held by The Green Tea.

Setting the Stage

Climate Gap

At The Carbon Collective, we believe that we have the technology to solve climate change and that solving climate change can only happen by investing our way out of it. Scientists and economists at the International Energy Agency outline our need to ramp up our investment in climate solutions to $5 trillion dollars a year. 

We believe we need to address this investment in many ways, but there is a simple way that most people have at their fingertips, which is using retirement accounts to invest in ESG or sustainable investments.

How to Invest Sustainably 

At the Carbon Collective, one of the challenges we see is that the financial services industry has taken a risk assessment framework and tried to apply it to impact. We believe that’s not what ESG was created to do. ESG evaluations often will pick companies like Google or Microsoft as paragons of sustainability. While demand for ESG investing strategies may reduce the funds available for fossil fuel companies, we believe that there is an important role for demand reduction. Amazon is not solving climate change with its business model. They’re making their money from retail, subscriptions, and web services and using fossil fuels to power their data centers and fleets of trucks and planes.

We believe there are so many hidden ways to measure ESG impact. If you look at the emissions data, energy isn’t even the largest emitter. Utilities are. And there are also high emissions in the materials and industrials sectors too.

Investment Performance

You may have heard a refrain about the need for fossil fuels in a portfolio. And while it’s true they do help with diversification, the performance, especially recently doesn’t seem to line up. 

Famed investor Jeremy Grantham outlined how fossil fuels don’t add to performance. In the last 30 years, they’ve actually been a drag on performance. And what’s worse is that they perform poorly in recessions, when your portfolio needs them most. 

How to Spot Greenwashing

We believe that a core problem with the financial services industry is that they are repackaging ESG investing, with it’s highly opaque and non-standardized approach, to create ESG funds that challenge you to invest with your values. But those Climate Impact/ESG/Sustainable investment funds often look just like your average large and mega cap fund. For example, look at the graph from Statista below. We can see that the S&P 500 ESG index moves almost in tandem with the S&P 500 index, indicating that the fund contains a majority of the same names. 

If your goal is to completely exclude fossil fuels from a portfolio, for instance, a fast way to do your research is to use As You Sow’s Fossil Free Funds. You can enter your ticker and it will show you a grade for your fund as well as the amounts of fossil fuels.  However, if you’re looking to check out a portfolio that has multiple funds in it, Carbon Collective Investing has a review of the ESG portfolios available. 

How to Get Started

If you’ve read enough and you want to get started investing, we believe there are a couple key points worth evaluating. The first step is to understand the timeline for investing. If you’re investing to retire in 30 years, then you may make different choices about which asset allocation than if you’re looking to save for a house in 3 to 5 years. 

For a more detailed account, check out the Carbon Collective’s post on Investing Basics: How to Be a Smart Investor. 

Types of Investment Accounts

Retirement Accounts

If you’re looking to invest for retirement, there are a number of accounts, but the two most common are the Individual Retirement Account (IRA) and the ROTH IRA. In both, you can invest your money in the account, not have any capital gains while the investments remain in the account, but you can’t withdraw from your account without penalty until you are 59.5. 

You’re able to contribute a maximum of $6,000 into your ROTH IRA or traditional IRA account in 2022, unless you are over 50 and you can put in an additional $1,000 for a total of $7,000.

The big difference between the ROTH IRA and IRAs are in their tax advantages and the income qualifications. 

For the traditional IRA, you can contribute pre tax earnings into the account. This may be beneficial if you are in a higher tax bracket now, and can pay the taxes at a potentially lower rate. 

For the ROTH IRA, this is about contributing post-tax earnings. However, when you take your money out after 59.5, you don’t have to pay taxes on the earnings. Sweet deal, and that’s why they also add income limits to this, as the individual income limit for contributing is $144,000, and $216,000 for couples. 

If necessary, for a penalty you can take money out of either account, and 

Standard Investment Accounts

If you want the additional flexibility of being able to access your investments this leaves two common investment accounts, brokerage accounts and trust accounts. You will have to pay capital gains on any investment gains realized–like selling a stock–but you have greater access to the money. 

Why Didn’t We Mention 401(k) Accounts? 

That’s a great question, and the short answer is that 401(k)s are offered through an employer and not offered as an individual. Also, there aren’t many good options for sustainable investing in 401(k)s. What can be done is that we can roll over accounts from past employers into the corresponding retirement account. And if you want a Green 401(k) at your company, have your benefits person check this out. 

Let’s Invest Sustainably

Investing can feel overwhelming and complex. But it’s important to remember that a one or two hours of time can help you set up a system for your finances and for aligning your investments with solving climate change. So take a deep breath and start investing sustainably!

About Author 

Breene Murphy is the vice president of strategy and marketing at Carbon Collective Investing, the first online investment advisor 100% focused on solving climate change. Follow him on LinkedIn.

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DISCLAIMER:

The information in the Blog constitutes the author’s own opinion and it should not be regarded as a description of services or opinions provided by either The Green Tea’s authors or Pickering Energy Partners LP.

The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. The views reflected in the commentary are subject to change at any time without notice.

Nothing on this Blog constitutes investment advice or any recommendation that any security, portfolio of securities, investment product, transaction or investment strategy is suitable for any specific person.  You should not use this Blog to make financial decisions and we highly recommended you seek professional advice from someone who is authorized to provide investment advice.