Earth Day – 1970

How hot is it?

So far July has been the hottest month of the year. Although June was brutal for the Northwest and August has not disappointed.

We are under a dome of heat.

Scorching heat waves in parts of the country known more for drizzly weather. Smoke generated by fires, traveling thousands of miles. 

Air Quality Indexes off the charts, unhealthy for everyone.

Fans of all shapes and sizes are sold out. Air conditioning repair people are in demand. Rolling blackouts may prevent you from using the AC. 

Many point the finger at climate change as the culprit.

But what is happening should not come as a surprise.

Earth Day was the largest and most successful environmental protest in the history of …the earth. The first Earth Day was 50 years ago. [1]

What made Earth Day unique is that on April 22, 1970, 20 million people across the United States came together to protest environmental destruction.

Destruction of the oceans, as one of the first major oil spills occurred in Santa Barbara.

The devastating effect of pesticides in the air and in the ground.

Chemicals in fresh water supplies. 

And don’t forget this Oscar winner:

In 2000 Julia Roberts won an Oscar for her performance as Erin Brokovich, an attorney who successfully fought water pollution and corporate greed.

Politicians decided that supporting Earth Day and the environment was an electable position and jumped in.

In December of 1970 Richard Nixon (four years before he resigned) enacted the Environmental Protection Agency and Congress approved.

Now, 50 years later it seems that talking about climate change is something new.

Fifty years seems like a long time in our human lifetime minds, but it is a blip in the history of Earth. The Earth is 4.5 billion years old.

“Earth’s climate has changed throughout history. Just in the last 650,000 years there have been seven cycles of glacial advance and retreat, with the abrupt end of the last ice age about 11,700 years ago marking the beginning of the modern climate era — and of human civilization.”

 Climate Change: Vital Signs of the Planet (nasa.gov)

Environmental standards have become regulatory. Ever had to take your car in for a smog test?

My car failed last year. I blame it on COVID. I wasn’t driving enough. 

Climate change has become a regulatory and political hot potato. 

Are companies complying with the EPA? Fighting the EPA? What exactly are companies doing today to meet carbon neutral goals?

And that is the challenge in thinking about climate change as an investable asset.

Let’s put this into perspective as investors. If you are thinking about ways to invest in climate change there are two primary vehicles:

1. Buy the individual stocks or bonds of companies “involved” in climate change.
2. Buy an ESG fund.

ESG stands for environmental, social, and corporate governance.

The following description is from an SEC Bulletin to educate consumers on what ESG funds are.

• The environmental component might focus on a company’s impact on the environment—for example, its energy use or pollution output. It also might focus on the risks and opportunities associated with the impacts of climate change on the company, its business and its industry.
• The social component might focus on the company’s relationship with people and society—for example, issues that impact diversity and inclusion, human rights, specific faith-based issues, the health and safety of employees, customers, and consumers locally and/or globally, or whether the company invests in its community, as well as how such issues are addressed by other companies in a supply chain.
• The governance component might focus on issues such as how the company is run—for example, transparency and reporting, ethics, compliance, shareholder rights, and the composition and role of the board of directors. [2]

One example of a company dedicated to sustainability and renewable energy is Google. 

Google has been involved in sustainable and renewable energy for over 20 years.[3]

In 2007 Google was the largest corporation in history to become carbon neutral. Google plans to be carbon free by 2030.

What is interesting, is that Alphabet, Google’s parent company, is the most widely held stock across the largest ESG funds. [4]

In a study done by MSCI on the individual stocks in ESG funds, information technology stocks accounted for 20% or more of the holdings.

Would you expect to find technology stocks in an ESG fund?

If I am buying an ESG fund, I am going to check the holdings before I do. If there is a concentration of stocks like Alphabet, Amazon, Microsoft etc. I may have the same stocks in other mutual fund or exchange traded funds.

Always be sure to check. While you have good intentions you may become less diversified by owning the same stocks across multiple funds.

I wrote an article in February 2020 on SRI and ESG investing titled “Should I Align My Investments with My Values?”

Investing in ESG funds is appealing for people who want to make a difference with the money they invest.

Even though many companies are working towards carbon neutral, climate change, social issues, and corporate governance the purpose of a publicly traded company is to make a profit. That is what shareholders expect.

This presents a bit of a conflict of interest. To materially change environmental, social, and corporate governance issues within a corporation there is a cost.

The cost is taken out of profits and will be reflected in the price of the stock.

The point to this article is to think long term when investing. 

Climate change and environmental issues take years to resolve.

If we look at the next 50 years, how many companies that we invest in today will still be around?

There is no “asset class” for climate change. 

That is why I think it is better to invest for the highest risk adjusted return.

So how can you make a difference? This is my suggestion:

• Make investment decisions that are well diversified across asset classes. Manage your investments in line with your risk tolerance.

• Research charities and foundations that are specifically aligned with the changes you want to see happen. 

• Use some of your investment returns to donate to a charity that truly reflects your values.

There is no Earth Day fund that I know of. There is the Earth Day organization

https://www.earthday.org/

and there is a big yellow button on the homepage for DONATIONS.

Now where did I put my carbon neutral fan?

[1] Earth Day – Wikipedia

[2] SEC.gov | Environmental, Social and Governance (ESG) Funds – Investor Bulletin

[3] Our Commitments | Google Sustainability

[4] Alphabet was the most widely held stock for the largest ESG funds (cnbc.com)

This website is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security, nor does it constitute an offer to provide investment advisory or other services by The Modest Economist LLC.