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, and 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 any other large-cap 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 next three firms on this list – Parnassus, Pax, and Green Alpha.  None of their funds –  including this one – 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 that’s last on this list.  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.

+

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 fund could probably do better in reducing its carbon intensity.

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.

+ The fund is billed as one that tends to hold onto its value during market downturns. The fund holds a higher proportion of “value” stocks 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, and industrial gas company that is a proponent of “green hydrogen.” While green hydrogen might be a real thing (I’m skeptical), I’m more comfortable going big on proven technologies like wind, solar, batteries, and geothermal. Much of Linde’s claimed carbon offset comes from low-sulfur diesel, which means the hydrogen is being used to perpetuate the fossil fuel economy.)

– A ~ 30% 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.

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

Investor website

Fossil Free Funds profile

+

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 big bet on hydrogen, which is being used to perpetuate the fossil fuel economy.

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

+ Solid 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

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 recently lagged behind the S&P 500 Index funds, which is weird.
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 should enjoy good returns relative to the market on the whole. It’s a no-brainer to invest in VFTAX rather than an S&P 500 Index Fund or a total stock market index fund (but it doesn’t solve all the problems associated with index fund investing). Considering scores on fossilfreefunds.org, VFTAX is objectively better 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 could 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.

Rates and selects companies as they are today; doesn’t purport to be forward-looking and doesn’t consider climate risk. It’s a needle mover if it helps you divest from fossil fuels, but it doesn’t look beyond that.

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

RUNNER-UP

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 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’m  starting to warm up to it.  If it had a longer history, I might  have bought it instead of ETHO.  However, both are more defensive, negatively screened divestment vehicles than they are forward-looking needle movers.

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 similar sounding 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, fuel cells, 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. Invests in  hydrogen companies (boo).
The carbon footprint is a little high because it’s invested in manufacturing, a sector that may be one of the last to decarbonize.

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 I never heard of). 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. They also invest in companies like Generac, a maker of fossil-fueled generators. I’ve put a few bucks into these ETFs, but I will be divesting them.

TSLA: Tesla stock

Why I invested: In a previous post, I commented on why we need Tesla and Elon Musk from a climate change standpoint. Beyond that, Tesla shows us 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.

How: Through a regular brokerage account and an IRA with a brokerage account.

There's no company with a more important mission that Tesla's mission 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?

The company and its CEO are constantly in the news, which can be distracting.

The fossil fuel industry, traditional automakers, and some governments would like to see Tesla die. The US government will bail out the failing Big 3 before helping Tesla.

Tesla still has work to do to clean up its supply chain and operational emissions (282,000 metric tonnes of CO2 emissions in 2017).

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 writing, I have holdings in 12 of the 13 funds or stocks discussed here (all but VEGN). 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.