The recently released IPCC report sent shockwaves around the world for exposing just how dire the climate situation is.
The earth’s average temperature is set to rise by 1.5 degrees a decade ahead of schedule, with rapid rises in sea levels threatening to make certain areas uninhabitable. The report warned our lives will be unequivocally upended by climate change, with bushfires, torrential rains, storms, and more getting worse and worse.
It’s easy to feel hopeless and overwhelmed by it all, especially as the worst climate polluters come from a handful of countries and just 10 companies make up 71 per cent of global greenhouse gas emissions.
But all is not lost. What you do with your cash and how you choose to invest does make a difference and is noticed by banks and financial institutions, especially if it becomes a global movement that mobilises millions of people to make different decisions.
Every little bit counts. “The deep cuts to carbon emissions that will be required to limit global warming cannot be achieved by clean energy alone,” BetaShares CEO Alex Vynokur told Yahoo Finance.
From your super fund to investing in exchange-traded funds (ETFs), it turns out there’s quite a lot you can do with your money to avoid further damaging the earth.
Yahoo Finance spoke to several investment experts to find out how your savings or investments can support companies doing right by the planet.
1. FIRST THINGS FIRST: CHANGE WHO YOU BANK WITH
If you thought you needed to invest in order to make a difference, you’re wrong. In fact, it’s actually the other way around, according to Motley Fool chief investment officer Scott Phillips.
“The first thing I'd say is that, unfortunately, your investment dollars just don't have anything like the impact you wish they did, and almost zero impact, compared to our power as consumers,” he said.
Why? Because even if you don’t buy certain shares, someone else will. So start with something you already have: your bank account.
“Consumer pressure on banks will be one of the main considerations these institutions have on their minds when thinking about which loans they fund, and to which companies,” said Phillips.
“So move your transaction, savings, mortgage and credit card accounts to a bank or credit union that's promised not to lend money to companies that are engaged in activities that will make climate change worse.”
And if you want to really make a point, email your bank to say you’re ditching them and tell them why. “As consumers, this is probably the most important single thing we can do, given the reliance on debt for these big projects.”
Just by switching and shopping around, you might even score yourself a better savings rate or lower mortgage rate, Phillips added.
Another thing you can do is opt for ‘green loans’, where a lender will offer you credit – often at a lower rate – on the condition that you spend it on something environmentally friendly and helps reduce your carbon footprint.
“My bank offers 'green loans' at a lower rate than their standard personal loan, for things like solar panels, home batteries, energy efficient lighting, solar hot water, double glazing and a whole lot more,” said Phillips.
“If you're keen to make an investment in improving the climate, this is a relatively low-cost way to do it and, as a bonus, will likely materially improve your ongoing costs.”
Phillips said he was able to install enough solar panels on his own roof to earn money in summer that covers the winter electricity bill.
2. PICK CLIMATE-FRIENDLY STOCKS
For those wanting to make environmentally friendly investments in the stock market, eToro market analyst Josh Gilbert said he favoured Aussie unicorn Atlassian (NASDAQ:TEAM), American retailer Lululemon (NASDAQ:LULU) and solar panel manufacturer First Solar (NASDAQ:FSLR).
Atlassian for example has committed to operating on 100 per cent renewable energy within five years with the long-term goal of net-zero emissions by 2025. Co-founder Mike Cannon-Brookes has also been very vocal in lobbying the government to invest more in the renewables sector.
“Atlassian provides an excellent opportunity for investors looking at tech with a sustainable future and growth potential,” Gilbert told Yahoo Finance. “Despite intense competition within the space, Atlassian continues to grow its consumer base and revenues, with its latest report demonstrating a 30 per cent growth in revenue year-over-year.”
Gilbert praised activewear brand Lululemon for having a ‘vertical integration’ model that ensures sustainable manufacturing, packaging and distribution all throughout it supply chain. Like Atlassian, the company has also made commitments to 100 per cent renewable energy and a reduction in greenhouse gas emissions of 60 per cent.
“As investors continue to look for stocks with more sustainable futures, Lululemon certainly flies the flag for the sustainable sports brands,” Gilbert said. “In addition, its share price has flourished over the past five years, climbing by as much as 400 per cent.”
Meanwhile, First Solar has become increasingly popular for its affordable solar panel products, Gilbert noted, adding that it had the smallest carbon footprint and lowest life cycle water use in the solar industry.
The company has a commitment to operating on 100 per cent renewable energy and also slash greenhouse gas emissions by a fifth by 2028, with a target of net-zero emissions by 2050.
“All of these commitments have made First Solar a hit with investors,” said Gilbert. “Its share price has jumped around 31 per cent in the last year, and it’s set to further benefit from Joe Biden’s plans to continue supporting the solar sector.”
Meanwhile, tech company Calix (ASX:CXL) has created solutions for carbon-intensive industries, with cement and lime manufacturing generating 9 per cent of global greenhouse gas emissions, according to George Whiting, head of distribution for sustainable funds for investment firm Perennial.
“Calix has developed technology to strip carbon from the cement and lime production process and has already signed contracts with three of Europe’s largest manufacturers,” said Whiting. “Where one tonne of lime or cement produced typically creates one tonne of carbon, this is an innovative solution to the sustainability challenge.”
3. SWITCH SUPER FUNDS
Every working Australian is technically an investor through their superfund – and there are plenty of environmentally-conscious options to choose from. There’s now more and more evidence that sustainable super funds actually outperform ‘normal’ funds, too.
The Responsible Investment Association of Australasia (RIAA)’s Cassandra Williams singled out Australian Ethical’s Balanced Fund for predominantly excluding fossil fuels. The fund has a three-year performance rate of 8.62 per cent.
“This allows it to invest in a company like Contact Energy, which generates 80 per cent of its electricity from renewables, falling back on gas when low rainfall reduces its hydro-power,” Williams told Yahoo Finance.
Comparison site Finder names other ethical super funds such as AustralianSuper, Sunsuper, Aware Super, Uni Super and Verve Super.
Williams recommended Aware Super’s Australian Equities Socially Responsible Investment (SRI) for screening out companies that get more than 5 per cent revenue from coal mining, production or processing, coal-powered energy, oil and gas, or fossil fuels.
“It is a participant in Climate Action 100+, an investor-led initiative engaging companies on improving climate change governance and cutting emissions,” Williams added. Aware Super's Australian Equities SRI’s 3-year performance is 9.26 per cent per annum.
HELPFUL TOOL: RIAA has a website called Responsible Returns which lets Aussies find ethical investment options across banking, super and investment products.
Many super funds now have an ethical option, so you can enquire with your super fund to switch, without the hassle of leaving your fund.
“When looking at sustainable funds, your fund should be able to clearly explain their screening criteria, investment philosophy or framework, and the tools they use to assess investments,” said Australian Ethical chief customer officer Maria Loyez.
4. INVEST IN ETHICAL ETFs
Investing in a climate-friendly future has been made easy through sustainable exchange-traded funds (ETFs), which can be thought of as a basket of stocks all bundled up in one fund.
RIAA’s Cassandra Williams pointed to BetaShares’ Climate Change Innovation ETF (which has the clever ASX ticker of ERTH) for consisting of companies that get at least half its revenue from efforts to address climate change or reduce carbon emissions.
“This covers clean energy providers, along with leading companies tackling green transport, waste management, sustainable product development, and improved energy efficiency and storage,” said Williams.
BetaShares CEO Alex Vynokur told Yahoo Finance the fund screens out companies that are directly involved in generating fossil fuel power, like coal, oil, or natural gas.
“ERTH has already reached over $114 million in funds under management,” he said. “ERTH has returned around 12.3 per cent since inception in March earlier this year, confirming that sustainable investing does not necessarily mean sacrificing investment returns.”
There’s no minimum investment, meaning you can invest in it with as little as the price of a cup of coffee, though Williams noted a minimum amount may be set by online brokers.
“The fund will typically hold around 45 stocks in industries such as renewable energy, healthcare, environmental services, education, water and waste treatment, to name a few,” said Whiting.
It’s got some serious credentials too; its 3-year performance is 14.6 per cent per annum, and it won Finder’s Green ETF of the Year 2021 award as well as topping the list of Canstar’s rundown of high-performing ethical ETFs.
5. CHECK OUT MANAGED FUNDS
A managed fund is one where you, as an individual investor, pool your money with other investors which is then managed by a professional investment firm.
Australian Ethical has eight managed investment funds you can pick from, ranging in risk appetite. You do need to have a minimum investment of $1,000, however, or $500 if you begin a regular investment plan of $100 a month.
“This option is ideal for parents or grandparents who want to save up for their children or grandchildren. It is also great for young professionals because you can withdraw funds at any time by filling in a request forms,” said Loyez.