Contributed by a volunteer in The Carbon Almanac Community
This Daily Difference is part of a series in which we follow the author, a U.S. federal employee, who is taking advantage of a new rule which allows members of the U.S. Federal Thrift Savings Plan (TSP) to invest 25% of their retirement portfolio into green mutual funds.
After several late nights of research and many cups of black tea I have finally found a few mutual funds in the new U.S. Federal Thrift Savings Plan mutual fund window that I am eager to put my retirement money into. It bears mentioning now that if you are serious about making green investments with your retirement savings it could be worth your while to hire a financial advisor, because for me this has been an interesting, but time consuming hobby. I am not going to give financial advice, but I am going to share some other tools I found that helped me analyze funds make me feel sure that this significant chunk of my retirement savings is going to be put to work for a carbon-free future.
I opened my TSP mutual fund window and chose the “environment” menu from several menus that allow TSP members to invest in funds that pick companies striving for environmental, stewardship, community development or racial/gender diversity in leadership. For those of you who are enjoying learning investment jargon with me, this investment philosophy is called ‘ESG’ for short. That stands for ‘environment and social governance.’ For readers of the Daily Difference who are not members of the U.S. TSP, you might want to ask a financial advisor about ESG-oriented funds in your retirement portfolio. The great thing about the U.S. Federal TSP is it allows you to target a side of the ESG equation you value most.
On first glance of the listed companies in the fund portfolios, I wondered why some of the specific companies were chosen for an environmental fund. I saw companies that do web hosting and others that make medical equipment. If they do this with a low carbon footprint that is great, but I want to invest in companies that are doing something to expand the world’s green energy output. Many companies listed in the fund portfolios were ones I had never heard of. Soon I had opened up dozens of browser windows to research the companies and my head was spinning.
I found another online tool to help me, and that was a 7-day free trial to Morningstar Investment Research. I was able to search Morningstar’s database for the TSP environment funds that caught my attention. Morningstar provides deeper analysis on a mutual fund’s environmental impact. They rate the fund on how much of the portfolio derives income from fossil fuels, and also how resilient the companies in the portfolio would be in a decarbonized world. I was surprised to see that a purported environmental fund that looked good to me at first glance, had a very high carbon involvement rating according to Morningstar. This is because the fund invests in many utility companies that derive income from burning fossil fuel for energy, but there are also utility companies that are working on building solar, and wind assets. I decided not to rule this fund out immediately based on the high-carbon involvement rating because the fund also has a high decarbonization resiliency rating. I interpret it to be a fund that is investing in utilities companies that are doing what they are supposed to do, which is to transition away from fossil fuels.
I found another environmental fund on the TSP menu that I also liked because they invest in companies that make widgets that are not as high profile as turbines or solar panels, but are equally important for a green energy future. I have since learned about a lot of companies that make meters, switches, circuit breakers, and wiring that will be necessary for building a more-efficient North American electricity grid. I also saw companies I recognized in these funds. They are companies that make high-efficiency water heaters, furnaces, electric stoves and kitchen appliances. Funds with portfolios directed towards the high-efficiency household appliances and smart grid technology were rated by Morningstar as both low-carbon output, and highly resilient to our much needed decarbonization transition. Now I just need to reexamine the funds I have picked and make sure that they are passively managed and have reasonable fees. This has been hard work, and as much as I like my job I do want the option to retire.
At the end of these very long days researching funds and their portfolios. I am actually feeling very empowered with the fund research tools that are available. I’ve learned so much, and it’s been a reminder of how intertwined the global economy is. Large utilities setting up solar farms and small companies that make specialized switches for the smart grid are all going to play a role. It’s a good feeling to know that my modest retirement account could be a small shot in the arm for our movement towards a carbon-free future.