Top 13 retirement investments, according to a climate scientist

A practical guide for self-directed investors looking to divest from fossil fuels, accelerate the energy transition, seek climate justice, and possibly make more money.

BAWAX: Brown Advisory Sustainable Growth Fund (advisor shares)

The Brown Advisory Sustainable Growth Fund tops this list because of its lack of fossil fuel investments, long-term risk-adjusted returns, low carbon footprint (emissions per unit of investment),  low carbon intensity (emissions per unit of revenue), investments in the Clean 200 list of large sustainable economy companies, accessibility, diversification, and the reputations of its management firm and fund managers. As of the time of writing, Brown Advisory is a private, independent and employee-owned firm that isn’t for sale to larger corporate entities.

Why I invested: I combed through fossilfreefunds.org, looking for a growth fund that was fossil fuel free and ethically managed. This one fit the bill, and it has an outstanding track record by just about every financial metric.

How: Through a brokerage account attached to an employer-sponsored retirement plan.

Investor website

Fossil Free Funds profile

PROS and CONS

+ Fossil-free with returns that have been as good as most other growth funds’ at lower-than-average risk

+ Co-managed by a woman with a degree in environmental engineering

+ Strikes the best balance of any fund on this list between future-oriented growth potential and carbon being burned to generate revenue today.

High-ish management fees, especially for advisor shares.  However, the price is good for the quality that you get and the minimum investments aren’t too high.

No dividends.

On paper, Brown Advisory is not as committed to sustainable investing as the other three mutual fund firms on this list – Parnassus, Pax, and Green Alpha.  This fund does not have an explicit ban on fossil fuel investments.  However, I don’t think that matters in this case.

NEXTX: Shelton Green Alpha Fund

Why I invested: Fossil-fuel-free, forward-looking fund that doesn’t replicate all the other funds.  Green Alpha Advisors are offering something more compelling than sanitized index funds.  This fund is more expansive and bolder than specialized environmental funds like the Pax fund.  There is a real vision behind it.

How: Through a brokerage account attached to an IRA

Investor website

Fossil Free Funds Profile

+

The fund’s advisors, Green Alpha, appear to understand climate change and the systemic threats (as well as opportunities) that it poses. Not simply excluding companies based on ESG criteria, Green Alpha is forward looking.

+

From Moderna to Tesla to Taiwan Semiconductor, the mix of companies meets the moment perfectly. As evidence of its forward-looking nature, this funds' first holdings in Tesla and other renewable energy companies date back to 2013, while its Moderna and semiconductor holdings also pre-date the pandemic.

+

A good complement to large-cap funds like BAWAX with a focus on mid-cap growth companies, renewables and related technologies, and more international exposure.

-

Relatively unknown and inaccessible; it’s not an option in my employer-sponsored retirement plan. Expense ratio is the highest of any fund on this list and required minimums are a little high.

-

Relatively high volatility, which could be nerve-racking if you check up on your investments frequently.

+/-

High-ish carbon footprint and intensity due in part to investments in China-based solar manufacturers. The lifecycle emissions, however, will be negative.

PRBLX: Parnassus Core Equity Fund Investor Shares

Why I invested: It seems like a relatively safe place to invest. Parnassus has been in the sustainable investing game for a long time and they have billions in assets under management.

How: Through a brokerage account attached to an employer-sponsored retirement plan.

investor website

Fossil Free Funds profile

PROS and CONS

+ Both Parnassus and this particular fund have a long, successful track record in sustainable investing. They officially divested from fossil fuels in 2019.

+ The fund is billed as one that tends to hold onto its value during market downturns. Investing in some mature companies that are relatively sustainable, this fund pays better dividends than most funds that are fossil fuel free.

+ A diversified, fossil fuel free fund that has twice the level of investment in the Clean 200 than typical funds that track its benchmark, the S&P 500 Index.

– Kind of a directionless fund that doesn’t stir excitement about saving the world. This fund burns as much or more carbon than the S&P 500 Index for no good reason. This extra combustion doesn’t translate into outsized growth, nor is it fueling companies making solar panels or other enabling low-carbon technology. (Part of the calculus comes down to this fund’s position in Linde PLC, an industrial gas company that is a proponent of “green hydrogen.” While green hydrogen might be a real thing and beneficial to some of the final steps of decarbonization, I’m more comfortable investing big in proven technologies like wind, solar, batteries, and geothermal. Much of Linde’s claimed carbon offset comes from adding hydrogen to diesel fuel.  The hydrogen isn’t green; it is produced by burning fossil fuels, and it is being used to keep fossil fuel vehicles running.)

– A sizable portfolio overlap with BAWAX, without the returns to show for it (but it does have dividends).  PRBLX is actually more concentrated in large-cap stocks than the growth fund. You have to be patient and a believer in value investing to be comfortable with this fund.

– Parnassus has been bought out by a manager of managers, AMG, adding a murky layer of corporate bureaucracy to what was an small, independent investment firm.

PGRNX: Pax Global Environmental Markets (Investor shares)

Why I invested: Fossil free fund that adds international flavor to an otherwise US-dominated portfolio, has the largest percentage of investments in the Clean 200 of any fund on this list, and aces the sustainability report card from fossil free funds on climate-relevant issues like deforestation.  PGRNX is more narrowly focused on the environment than the Green Alpha fund.  Nonetheless, it manages to have the highest carbon intensity (emissions per unit of revenue) of any fund on this list.  I’d be much happier with this fund if it dropped its positions in Linde and a couple of other gas companies.  It is just weird that renewable energy leaders like Vestas and Orsted are in the middle or bottom of this fund, while hydrogen is at the top.

How: Brokerage account attached to an employer-sponsored retirement plan

(Honorable mention: The Calvert Global Energy Solutions Fund tempts climate investors with a list of holdings that includes nearly every renewable energy company that they could want to invest in. Unfortunately, it turns off investors like me with its 4.75% front-end load on share purchases. On top of this fee, the fund has a high expense ratio. This high expense ratio doesn’t buy high-quality active management; it’s just a passively managed index fund.)

Investor website

Fossil Free Funds profile

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Pax has been in the sustainable investing business for a while, not just for the past two years when the financial industry finally started to acknowledge climate change

+

Diversifies the overall portfolio through international exposure and mid-cap holdings.

+

HIgh concentration in Clean 200 without including the foolish bet that legacy fossil fuel companies like Shell will transform themselves.

-

Relatively high management fees. Pays dividends but not as much as PRBLX or VFTAX.

-

Pax’s pitch mentions a “more sustainable” economy but doesn’t articulate a vision of what that looks like

-

Makes a risky bet on hydrogen, which is being used to perpetuate the fossil fuel economy. Hydrogen's financial and climate benefits are highly uncertain.

TBCIX: T Rowe Price Blue Chip Growth Fund

Why I invested: It’s a core option in retirement plans like mine.  It’s a huge, $100. billion + fund, by far the largest on this list.  It has little in the way of fossil fuel stocks, because fossil fuels are dead.

How: Core option in employer-sponsored retirement plan.

Investor website

Fossil Free Funds profile

PROS and CONS

+ Historically good returns with among the lowest carbon footprints per dollar invested of any fund on this list
+ Fossil fuel free with ok sustainability ratings, even though not marketed as such
+ Often available as a core option in retirement plans, and it could be the core fund

No sustainability or ESG mandate, which would seem to be easy to implement without seriously changing the composition of this fund
Top-heavy in huge tech firms like Amazon, Google, Microsoft and Facebook.  This fund has lagged behind sustainable growth funds like BAWAX this year.
Low level of investment in Clean 200. No Tesla but has Rivian.

VFTAX: Vanguard FTSE Social Index Fund Admiral Shares

Why I invested: Within my employer-sponsored retirement plan, this was one of the easiest and cheapest way to divest. The fund is one of the most accessible mutual funds that is (mostly) fossil fuel free. It is now more of a growth fund than a large blend fund, so it may enjoy favorable returns relative to the market on the whole. Considering scores on fossilfreefunds.org, VFTAX is measurably cleaner than similar sounding “social choice” or “low carbon” funds from other firms.

How: Through a brokerage account attached to an employer-sponsored retirement plan.

investor website

Fossil Free Funds profile

PROS and CONS

+ Simple, low cost, widely available index fund that’s (mostly) fossil fuel free with returns that have been as good as any S&P 500 Index fund, while paying a decent dividend.

+ Solid ESG screens implemented by a third party, FTSE Russell

+ A way to divest within Vanguard: Move from VINIX or VITSX to VFTAX

They forgot to exclude some fossil-powered utility companies as well as fossil fuel funders like JP Morgan Chase.

Poor score in the climate-relevant issue of deforestation; invests in big meat companies like Tyson Foods and Hormel.

– No more investment in the Clean 200 than the typical S&P 500 Index funds do.

Managed by Vanguard, one of the world’s largest institutional investors in fossil fuels.

ETHO Climate Leadership US ETF

Why I invested: With “Climate Leadership” in its title, I had to investigate this one. It’s a no-nonsense, data-based approach to sustainable investing. It might be a core fund alternative to VFTAX or even PRBLX.

investor website

Fossil Free Funds profile

PROS and CONS

+ This diversified fund has good sustainability ratings across the board, a relatively low carbon footprint per dollar invested, and is fossil fuel free.

+ You get the most efficient company in every category.  Lowe’s, not Home Depot.  T Mobile, not Verizon.  Tesla, not GM.  Beyond Meat, not Tyson Foods.  Equal weighting spreads the money around rather than concentrating it in a few large-cap companies.

+ Index fund developed with a repeatable methodology; guided by a diverse team

It tends to return slightly better than the S&P 500 index but it doesn’t have the capital appreciation potential of a growth fund.

ETHO doesn’t do much to move investments to the right places. It only selects companies that are slightly better than average, and its data deciding what’s better than average appear to be old. It doesn’t really shift capital towards the green economy.

–  ETHO invests little in the Clean 200 companies, but that may be an unfair metric considering its weighting towards smaller to mid-sized companies.

ON DECK

VEGN:  Another sanitized index fund, the US Vegan Climate ETF outshines ETHO in its deforestation and carbon footprint ratings on fossilfreefunds.org (it excludes major retailers like Amazon, Home Depot, and Costco as well as food industry giants like Sysco, and even popular restaurant chains like Chipotle).

For an index fund, VEGN has a respectable 25% of assets invested in Clean 200 companies, though it is top-heavy with large-cap companies (VEGN invests a lot in NVIDIA, Tesla and Google, whereas ETHO spreads the money around to its ~270 companies more evenly). VEGN is overweight on tech and on financial service companies (like Paypal, Mastercard, and Visa), while it’s underweight in health care stocks. Tesla is among its top 3 holdings.

When VEGN first caught my attention, I thought it was a gimmick, but after some research and reflection, I’ve warmed up to it.  If it had a longer history, I might have bought it instead of ETHO.   VEGN is the best of the climate ETFs; it might be used as an S&P 500 Index fund replacement in a portfolio. The people behind VEGN must  realize that the future is not only electrified and powered by renewable energy, it is also vegan.

QCLN: First Trust NASDAQ Clean Edge Green Energy Index Fund

Why I invested: It’s an easy way to invest in renewable energy and related technology. More fossil fuel free than other “clean energy” ETFs.

Investor website

Fossil Freee Funds profile

PROS and CONS

+ Invests in a wide range of companies moving the needle in renewable energy, electrified transportation, batteries and battery storage, semiconductors, etc.
+ A simple way to invest in many of the same technology companies that mutual funds like NEXTX are invested in
+ Zero direct investment in fossil fuel companies; almost straight A’s on fossil free funds’ report card, in every issue but gender equality.

Somewhat volatile share price movement
More diverse than most thematic ETFs (like solar-only or semiconductor-only), but not as diverse or selective as funds like NEXTX.
  QCLN has investments in unprofitable hydrogen companies that burn methane gas, which is counterproductive to decarbonization and investment returns.

 

RUNNERS UP

Launched in 2021, newcomers CLMA and SHFT purport to track the transition to a low-carbon economy and the decentralization of energy generation and storage, respectively.  They use potentially avoided carbon emissions as their primary metric.  At first glance, CLMA and SHFT have many familiar holdings that are also found in QCLN, NEXTX, and/or PGRNX. CLMA is broader in scope and has a bigger, more international basket of stocks than SHFT. Unfortunately, CLMA scores poorly in its fossil fuel and deforestation ratings on fossilfreefunds.org (due to holdings in a few fossil utilities and some forest products companies). On the other hand, CLMA has a large roster of 35 companies in the Clean 200 (on par with all-market funds like VFTAX) and 30% of assets invested in them, which is good for a (modified) equal-weighted index fund. The biggest downside to both of these funds, in my view, is their investments in hydrogen.  To invest in a fund like SHFT, you have to believe a) That hydrogen is the solution to climate change and b) That hydrogen companies will be highly profitable. To me, SHFT fails on both of these counts. The fund has a sketchy financial profile on Morningstar. Notably, the three major hydrogen companies in SHFT (Plug Power, Fuel Cell Energy, and ITM Power) all have negative price-to-earnings ratios, meaning they are loosing money. SHFT also invests in Generac, a maker of fossil-fueled generators, which is counterproductive to decarbonization. Adding Generac to the hydrogen companies, SHFT has over 8% of its assets invested in this questionable stuff. While CLMA  and SHFT do hold some good companies in wind, solar, electrical components, semiconductors, and EVs, they also carry a lot of risky baggage.

TSLA: Tesla stock

Why I invested: The Tesla story demonstrates how we can shape the future with intention, investing money in the right places at the right time. Without Tesla, all we would have are small, slow, and expensive compliance EVs, with little hope for reducing emissions from the transportation sector.  At the same time, Tesla is disrupting the utilities sector and will probably upset a few other industries such as insurance.

Tesla's inspiring mission is to accelerate the world's transition to sustainable energy.

Exceptional growth potential with the brainpower, talent, and determination to make it happen.

Have you driven a Tesla, lately? It is truly cutting-edge technology.

The company and its CEO are constantly in the news, which can be distracting. It's hard to separate the CEO and his views from the company itself.

The fossil fuel industry, traditional automakers, and some governments would like to see Tesla die or at least slow down.

Tesla must end racism and sexism within the company, treat its employees fairly, improve customer service, commit to supply chain transparency, and avoid over-promising on things like full self driving.

Autopilot Climate Investing: The Carbon Collective

The Carbon Collective startup is the first (to my knowledge) to offer a low-fee, fossil-fuel-free core fund + climate solutions investing plan that is targeted at mainstream retirement investors. They’ve created an automated investing platform, where one can setup a complete portfolio that combines broad-market index funds, a climate solutions index fund (the “Climate Index”), and green bonds. I like what Carbon Collective is doing to spread the word about how much fossil fuel is in people’s retirement accounts, and I’m impressed that they’re offering an easy-to-use solution to this problem for everyday investors. In its current iteration, CC could make sense for investors who have a preexisting IRA that could be rolled over, and for investors wanting to start a new IRA. It does not fit into active employer-sponsored plans like mine (but it might someday).

PROS and CONS

+ Simple to use, fossil-fuel-free automated investing plan. Offers core portfolios that track the overall stock market and provide exposure to climate solutions, as well as “All Green” portfolios that are just focused on solutions.

+ The people behind CC have taken the time and care to be well-informed by reputable climate policy think tanks like Project Drawdown, by data providers like FossilFreeFunds.org, and by traditional, time-tested investing practices. For better or for worse, this leads to a more cautious investment approach than is taken by actively managed funds like the Green Alpha fund.

+ So far, CC staff have been accessible and responsive to criticism about what investments are in their Climate Index. For example, they have informed me that a new version of the Climate Index will not include investments in certain fossil-fuel-disguised-as-hydrogen companies.

– Although CC is more transparent than robo investing platforms like Betterment, they have room to further increase transparency.  Firstly, their portfolios are a complex bundle of stocks, bonds, and ETFs.  Without some manual steps, it is hard to unpack the bundle to tell how much weight a selected portfolio gives to each individual company. What I did unpack led to some contradictions. For example, while it’s clear that the Climate Index does not invest in legacy automakers like Ford and GM, it appears that these stocks are included in the Consumer Discretionary ETF that is part of the Core bundle. Secondly, they could disclose the carbon footprint and carbon intensity of each selected portfolio.

– Their management fee is low for the industry, especially the sustainable investing industry.   However, savvy investors could invest in a similar bundle of ETFs and stocks through widely available, low- or zero-fee brokerage accounts.

– CC is not quite a pure play. Although they don’t invest in fossil fuels directly, they do still use financial products from firms like BlackRock that are among the fossil fuel industry’s biggest supporters. I would love to see CC go the extra mile and cut ties to fossil fuel financiers like BlackRock, Fidelity, etc.

Disclaimer

Disclaimers: When it comes to personal finance and investing, I (the author of this page) am just a regular guy and a self-directed investor. I am not a financial advisor or wealth manager nor do I employ one. I do not understand all of the nuances of investing. Nothing in this article should be considered as investment advice or recommendations to buy or sell specific products. Past performance is not a guide to future results. Do your own research or consult with a financial advisor before making major investment decisions. I have written this article on my personal time and posted it to this website, which is maintained at my own expense. I have not received any compensation for writing this article from any of the brokerages, funds, ETFs, companies, websites, or stocks discussed here. As of the time of finalizing this post in September 2021, I have holdings in each of the mutual funds and stocks featured here, but in none of the ETFs.  I do not have an account with Carbon Collective. I am a climate professional who is concerned about climate change and ending the fossil fuel era while accelerating the transition to clean energy. The opinions expressed in this article are mine alone, offered in my capacity as an informed private citizen; they are not associated with any of my past or present employers or research funders. This article reflects publicly available data obtained in August and September 2021; it may or may not reflect market conditions when you read it.