Can you be an environmentalist and a stock market investor?

[Adam Zapple]

Can you really care about the environment if you are investing in corporations that create chemicals, plastics, fuels etc. that inevitably destroy the planet?  I am working toward becoming more environmentally conscious and this is something I've been putting some thought into.

[daverobev]

Owning companies is no different from using them, I think.

Do you have a phone? Then you are supporting a phone company. By buying phone company stock, you are just taking the other side of the deal - you own company, company pays you; you use company's services, you pay company.

There are, of course, 'ethical' funds. There are also Sharia compliant funds.

Unless you are going to actually stock pick, I think it is very hard to do that much which will change anything. You could invest in something like ICLN, which is all about renewable energy. You can buy bonds with local fairtrade companies or solar power coops.

It is very much a sliding scale. Unless you are going to live in a mud hut built with your own hands, using tools you made yourself, wearing clothes you made yourself, you are at least on the scale.

I think, when I'm rich (ha, ha), I will invest anything above my 4% SWR into solely ethical stuff. When (if) we end up buying a house, I intend to put solar panels on the roof. I intend to get an electric car... but not yet, it just doesn't work for me yet. And so on.

[Eric]

For the most part, larger companies (like those in the S&P 500) don't actually issue more shares to raise money.  They just use profits.  When you buy stock, you're doing it on the secondary market.  The company itself doesn't get a whole lot of benefit from you owning a share of their stock that they issued 40 years ago that you bought from some other investor.  (especially not at the level you're likely to invest at)  They receive a much bigger boost from you contributing to their profits.  As such, if you do not like Walmart, owning or not owning Walmart stock doesn't have much of an impact on them either way.  But refusing to shop at Walmart makes a much bigger difference.  There is of course some benefit to them to having a higher stock price, which you are slightly contributing to by buying it, but at some point it's cutting off your nose to spite your face.

[GuitarStv]

I think that if you're looking down at say index investing from 1000 ft, no.  The market at it exists today is based upon ever increasing constant consumption.  If you're profiting from the market, you're directly profiting from (if not contributing to) the consumerism that is destroying the world.

[Prairie Stash]

One of the strange things about ethical investing is it leaves more profit for the unethical investors. Companies are sometimes shunned, which tends to hold their share price back. The share price has no bearing on their ability to create profit, so they end up in a situation where the share price does not reflect performance, it under states performance and people get outsized potential profits. So then the profits end up flowing to other people, so that they can invest in more SUV's. The only way to hold a company back is to not buy its products.

As an environmentalist I can use the profits to buy solar panels or something else. I personally find the best you can do is to take those dirty profits and create something good. Whatever "good" means to you, how are you going to fund it and help it grow? Maybe you use that money to grow trees, fund research or whatever you desire.

Look at Bill Gates, he took massive profits from his company and has reimagined toilets for the world (with reduced water consumption). He could have also spent all that cash on a giant mansion powered by whale oil. I wont ever come close, but I think I'm a better judge on how to spend money then most people (which is what most people think I suppose).

[ketchup]

For the most part, larger companies (like those in the S&P 500) don't actually issue more shares to raise money.  They just use profits.  When you buy stock, you're doing it on the secondary market.  The company itself doesn't get a whole lot of benefit from you owning a share of their stock that they issued 40 years ago that you bought from some other investor.  (especially not at the level you're likely to invest at)  They receive a much bigger boost from you contributing to their profits.  As such, if you do not like Walmart, owning or not owning Walmart stock doesn't have much of an impact on them either way.  But refusing to shop at Walmart makes a much bigger difference.  There is of course some benefit to them to having a higher stock price, which you are slightly contributing to by buying it, but at some point it's cutting off your nose to spite your face.

This.  Buying stock in Exxon-Mobil is not going to make them more successful, it just lets you ride on the coattails of their profits.

[FIKris]

Can you really care about the environment if you are investing in corporations that create chemicals, plastics, fuels etc. that inevitably destroy the planet?  I am working toward becoming more environmentally conscious and this is something I've been putting some thought into.

Adam, I thank you for raising this, as I've grappled with the same concerns.  Everyone has their own risk tolerance; I think there is also an element of "ethical tolerance" unique to each investor.

For me, I follow the work of CERES: https://www.ceres.org/about-us "a sustainability nonprofit organization working with the most influential investors and companies to build leadership and drive solutions throughout the economy."  I also try to use my position as an investor and shareholder to encourage the companies I invest in to operate in a more environmentally conscious manner--there are good bottom line reasons for doing so as well oftentimes: for example if a large company is not measuring and managing it's energy and water consumption, it's likely losing money that could have been saved if they better monitored their consumption.   If they're not seriously looking at renewable energy + storage options and evaluating if they could save money or realize tax benefits by pursuing them, they are doing their investors a disservice.

I've also diversified my investment strategy with rental properties, and I've taken steps to improve the environmental performance of those properties as well.   This has done extremely well for me: rental properties are also eligible for renewable energy tax credits, and money spent to make sustainable improvements to the homes is deductible.   Renters appreciate and have paid about a 15% premium for these upgrades, and when it comes time to sell, the sustainable features I've included on my homes have helped the properties sell faster and for more $ than market competition.

Hope this helps give you some ideas.   I look forward to hearing how you decide to approach things.

[seattlecyclone]

Pretty much every business contributes to environmental degradation. If you're not drilling oil out of the ground, you're using it to power your factory or transport your goods to market or heat your office building. Does that make investing of any kind immoral? Perhaps in a sense it does, but what really is the alternative? While you're working you're directly contributing to the success of one of these businesses with your labor. Is that more or less of a moral act than using your saved money to benefit from the profits of these businesses?

I think the basic framework of market economies have moved humanity forward, and will continue to do so. At the same time, the threat of climate change is real. We can't just flip the switch to stop using fossil fuels, but we can phase in a carbon tax to encourage more and more people and businesses to switch to greener energy sources as they become more price competitive.

[jpdx]

Well said, seattlecyclone.

I also care deeply about the environment, and yet I live in a house made of chopped-down trees. Does that make me a hypocrite?

If investing in the total stock market does not reflect your values, VFTSX might be a good choice for you. More important, I think, is that you make ethical consumption decisions throughout your life -- from what you eat, to where you live, to how you get around.

[GuitarStv]

FWIW, chopped up trees are one of the more environmentally sustainable house building materials.  Stuff like concrete and steel is an awful lot more damaging.  :P

[J Boogie]

FWIW, chopped up trees are one of the more environmentally sustainable house building materials.  Stuff like concrete and steel is an awful lot more damaging.  :P

I'd say it's pretty region-specific. Certain regions lend themselves better to certain building materials, both in terms of building performance and longevity as well as the initial impact of sourcing/processing the materials.