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Getting carbon out of your portfolio is tricky

JONATHAN FAHEYAP Energy Writer Published: January 24, 2014 4:21 PM

NEW YORK (AP) -- If you are like millions of Americans and own a broad stock index fund, you own parts of Exxon Mobil, Peabody Energy and other companies that earn money selling oil, coal and other fossil fuels.


For others, however, profiting from companies that produce or burn fuels that pollute and contribute to climate change -- and lobby against laws and regulations that would reduce emissions -- is something they want no part of. Still others fear the share prices of fossil fuel companies are sure to plummet when society decides we can no longer burn the troves of hydrocarbons they own.



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The most prominent index of companies that meet certain social criteria, the MSCI KLD 400 Social Index, includes some fossil fuel companies -- and excludes nuclear companies, the biggest source of low-carbon electric power. A handful of mutual funds and exchange traded funds are based on this index.

A similar index, called the FTSE4Good US Select index, on which the Vanguard FTSE Social Index Fund is based, contains 20 oil and gas companies.

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The Portfolio 21 Global Equity Fund excludes fossil fuel companies, but it is a global fund, so it doesn't closely match the U.S. market. Also, expenses are higher than average, and far higher than most index funds.

The Green Century Balanced fund, which is managed by Trillium Asset Management, also excludes fossil fuel companies. But it is a blended fund that includes stocks and bonds and therefore doesn't closely match U.S. stock performance. Its expenses are relatively high, too.

Investors can, of course, design their own fossil fuel-free portfolio by cobbling together a handful of sector funds while leaving out energy. There are nowadays low-cost exchange traded funds for every sector, such as financial services, retail, health care, consumer goods, technology and industrials.

But, still, that would require individuals to pay much more attention to their retirement accounts than most would like, and expose portfolios to ups and downs most would very much like to avoid.

Things will get easier in the near future, though. Green Century says its Green Century Equity fund, which is based on the KLD 400 Social Index, will strip out fossil fuel companies by April 1.

And Trillium's Patsky knows of at least two other firms that may be developing funds or indexes based on the broad U.S. stock market but excluding fossil fuel companies.

"There will be more options now because there's more awareness of the issue," he says.


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