Should “green” funds invest in fossil fuels?

Bill McKibben’s groundbreaking Rolling Stone story (Global Warming’s Terrifying New Math) and’s “Do the Math” divestment campaign raise important and difficult questions about fossil fuels. One that is starting to roil the world of socially-responsibly investing is this: How should mutual funds that strive to be “green” or “sustainable” or “socially responsible” deal with the fossil fuel companies in their portfolios? Should they divest, as McKibben argues?

That was the topic of a column I wrote last week for the Guardian Sustainable Business, which generated some noteworthy responses. It’s part of the British newspaper The Guardian, which has one of the most popular English language media websites in the world. Here’s how the column begins:

“We’re going after the fossil fuel industry,” Bill McKibben tells about 1,800 cheering fans in a Washington, DC, theatre. “They’re trying to wreck the future, so we’re going after some of their money.”

Al Gore notwithstanding, McKibben – an author, academic and founder of the grassroots climate group – is America’s leading environmental activist. His 21-city Do The Math tour begins a campaign to persuade colleges, churches, foundations and governments to divest their holdings in coal, oil and natural gas companies.

“It does not make sense,” McKibben tells the Washington audience, “to invest my retirement money in a company whose business plan means that there won’t be an earth to retire on.”

He’s right about that, but the divestment campaign raises a thorny question: where can investors who worry about climate change put their money?

Divest for our Future,’s divestment website, recommends “environmentally and socially responsible funds“. The trouble is, the biggest and best-known mutual funds that call themselves environmentally and socially responsible also invest in fossil fuel companies. They evidently haven’t heard McKibben’s message.

Is this green?

The column–you can read the rest here–goes on to report that the Parnassus Equity Income Fund  holds about 14% of its assets in oil, natural gas companies and electric utilities that burn fossil fuels, that the TIAA-CREF Social Choice Equity Fund owns shares in dozens of oil and gas firms including Hess, Marathon and Sunoco, and a pair of shale gas giants, Devon Energy and Range Resources, that the Calvert Equity Portfolio  has about 10% of its portfolio in fossil fuels, including  Suncor, which says on its website that it was “the first company to develop the oil sands, creating an industry that is now a key contributor to Canada’s prosperity,” and that the Domini Social Equity Fund has, among its top 10 holdings, Apache Corp, an oil and gas exploration and production company.

Are you surprised to learn that these funds invest in oil and gas companies, including those in the Canadian Tar Sands? Perhaps naively, I was.

If you believe McKibben’s math, as I do — and it hasn’t been challenged by the fossil fuel industry–the idea of exploring for new oil and gas is folly. Using data from the Carbon Tracker Initiative, McKibben estimated that the earth could burn another 565 gigatons of carbon dioxide and stay below 2°C of warming. Fossil fuel corporations have 2,795 gigatons in their reported reserves – five times the safe amount. We don’t need any more.

My Guardian column–which is the first of a series that I’ll be doing for the newspaper–was intended to highlight the fact that SRI funds weren’t as clean and green as many probably believe them to be. It didn’t set out to answer the question in the headline: Where can investors who worry about climate change put their pension?

After the story ran, I heard from the managers of two socially-responsible funds that, as a matter of policy, work hard to stay away from fossil fuels.

Carsten Henningsen, chairman of Portfolio 21 Investments,  emailed me to say that his company for the most part avoids fossil fuel companies, including those that extract natural gas (but not those that burn it). Here’s the policy:

Portfolio 21 Investments does not invest in companies directly involved in the extraction and production of fossil fuels ?coal, oil, and natural gas.  Natural gas has a lower greenhouse gas (GHG) emissions profile than either oil or coal.  Despite natural gas’s lower GHG profile, it is a combustible mixture of hydrocarbon gases, formed primarily of methane.  Deposits are found at varying depths beneath the Earth’s crust, both onshore and offshore, requiring the use of both conventional and unconventional extraction methods.  Given the elevated environmental risks associated with extraction, Portfolio 21 Investments will not invest in extraction and production.  However, due to the current limitations of renewables (in terms of current capacity and financial attractiveness), and  the lower GHG profile of natural gas, Portfolio 21 Investments will invest in companies involved in the transmission and distribution of natural gas as well as in utilities that utilize natural gas as a fuel source.

I also heard from Leslie Samuelrich, senior vice president, Green Century Capital Management, a fund company that was started in 1991 by environmental groups. She writes:

Investors concerned about climate change should look to use their investments as a vehicle to address the problem.

That’s why Green Century offers a mutual fund, the Green Century Balanced Fund (GCBLX), that is fossil fuel-free.

The Balanced Fund is an actively managed fund that holds a mix of stocks and bonds that meet tested environmental criteria. The Fund does not invest in the exploration, drilling, refining or production of oil, gas or coal.  The Balanced Fund provides an opportunity to invest in sustainable companies and environmental innovators.  The Fund also seeks to provide competitive returns to its investors and has a four star overall rating from Morningstar.

I’m not offering investment advice here, of course, but I do think socially-conscious investors should look into their funds’ portfolios, which are made public twice a year. If you want your mutual fund to divest fossil fuel companies, let them know.

A final thought. I have a lot of respect for the people I know at Calvert and Domini (where I’ve been an investor). They both do lots of shareholder activism around environmental issues. Here, in full, is the thoughtful reply that I got from Domini’s Adam Kanzer when I asked him about this issue:

Of course we’re reconsidering our approach to fossil fuels. We would expect anyone who has taken a close look at the science to regularly reassess their exposure to fossil fuels. Bill McKibben is absolutely right to focus attention on fossil fuel investment, and I fear his math is correct. Personally, I think the Carbon Tracker report is one of the most important reports I’ve read in a long time. Investors – and society – ignore these facts at their peril.

The question for us is how we can be most effective in our role as investors. How can we adequately reflect both our shareholders’ desires and our own principles, and also have a positive impact on climate? These discussions are ongoing and will continue. We believe a range of strategies need to be brought to bear on the problem.  We currently exclude individual companies that, in our view, fail to responsibly address the key sustainability challenges they face. We exclude industries where we believe the core business model is inherently destructive, and incapable of reform.  Nuclear weapons are a good example. In the energy sector, we currently exclude coal, nuclear and the major integrated oil companies. With respect to coal, we also generally exclude coal-based utilities, railway companies that derive most of their revenue from transporting coal, and we have also excluded marine shipping companies for which transporting oil and coal is a substantial part of their business. We also seek to exclude companies that derive significant revenues from tar sands development.

Our funds’ energy exposure is currently tilted toward natural gas, which we continue to view as a ‘transitional’ fuel towards a renewable energy future. At least for the near term, the lower carbon intensity of natural gas is important (We are well aware of the current debate around fugitive methane emissions, and are tracking this closely). We recognize natural gas is a short-term solution.  However this approach appears to be yielding benefits.  The abundance of natural gas, for example, has reportedly driven down the price and production levels of coal.  A move away from fossil fuels can’t happen overnight, and it’s important to support “better” sources of energy even as we look to alternatives. We believe it is important to remain flexible, and to adjust our policies and priorities as new information comes in.

We have also actively engaged with natural gas companies in our portfolio about hydraulic fracturing, and are engaged in a number of climate change initiatives, including corporate engagement on sustainable forestry and coal financing.

One way of viewing social screening is that it is a way to make a statement and send a signal to the marketplace. So the question for us on screening out industries is: have we made a strong enough statement about an issue? With fossil fuels we have made a strong statement by excluding coal, coal-burning utilities and most large integrated oil companies.  What we are considering now is whether we need to make an even stronger statement by re-evaluating our position on natural gas.

It’d be interesting to see Domini or Calvert poll their investors on this topic: Would they be willing to accept lower returns, in the short run, in exchange for a portfolio free of fossil fuels? Would you?


  1. says


    You’ve correctly noted the rethinking that’s occurring within the sustainable investing community regarding fossil fuel investments. I want to take this opportunity to emphasize that IF investors are going to hold fossil fuel companies, they should engage these companies on a continuing basis to hold them to the highest environmental and social standards. Since 2009, Green Century Capital Management and my organization, the Investor Environmental Health Network, have co-directed investor engagements with energy companies conducting shale operations, asking about how they’re managing environmental risks and community impacts. This is a matter of both sound management and the obligation to minimize environmental footprint. Frequently, sound environmental practices go hand in hand with cost savings. More importantly, sound practices are critical to promoting companies’ “social license to operate”. If risks are perceived as too high,communities, states, and countries will say “No” or “Non” to drilling, as thus far has been the case in, e.g., New York State, Quebec, France, and Bulgaria. What’s needed is a solid commitment by companies to adopting best practices and reporting on them, so investors who remain in the sector can distinguish leaders from laggards. About a year ago we published “Extracting the Facts: An Investor Guide to Disclosing Risks from Hydraulic Fracturing Operations” We’ve been pleased they’ve been supported by investment managers on three continents managing more than $1.3 trillion in assets. We’re beginning to see companies produce explicit statements of how they operate and how they’ll report their progress on key performance indicators of environmental and social risk management. General assurances from companies in full page media ads that they know how to frack safely are insufficient; companies should be judged by hard indicators of how they work systematically to cut methane emissions, reduce spills, and identify and respond to community concerns.

    • Marc Gunther says

      Thanks, Rich, this isa very useful perspective. I have no doubt that the shareholder activism work that you and your colleagues are doing is extremely valuable. I wonder if this requires holding fossil fuel companies at the scale that SRI funds do now. Maybe the SRI funds could hold much smaller, or taken, amounts of oil and gas companies, expressly for the purpose of doing shareholder activism? I don’t know the answer to that questions–maybe the companies would pay the funds no attention if they held just 100 shares. But are the companies listening now? More important, are they changing?

      • says


        As always, you ask terrific questions. I won’t speak to the issue of the size of investments…that’s the realm of portfolio managers and, like you, I’m neither a portfolio manager nor a portfolio advisor. I do, however, want to speak to your question of whether the companies are changing. Over the last three years, my investor partners have filed 31 shareholder resolutions at 19 companies asking for increased disclosure. When we first began doing this, there was very little disclosure. There were way too many responses from companies of “we’ve been doing this for 60 years without serious problems”, ignoring the fact that contemporary fracturing combined with horizontal drilling bears no comparison to the more modest fracturing associated with vertical wells in the past. There are now serious issues of moving millions of gallons of fracturing water and thousands of gallons of chemicals. For many communities, the sheer magnitude of the operations raises serious questions of traffic jams and road maintenance, among other issues. The initial reactions to our requests for information, and to the criticisms from community activists, tended to be very defensive and undetailed. I wrote about this phenomenon in a blog last year. See: Over time disclosures have been improving and, reflective of this, many of the resolutions my investor partners have filed have been withdrawn in exchange for increased disclosure. For the full list, search on “hydraulic fracturing” at the list of resolutions here: When we began our engagements, there really were not good models for disclosure. One company might be good on waste water recycling and another might be good on chemical use reduction. Through the bilateral conversations we were having with companies and through some multi-party informal conversations convened by Boston Common Asset Management and Apache Corporation, I believe everyone came to realize the need for some sort of disclosure road map. These conversations spurred drafting of the “Extracting the Facts” disclosure guidelines. The guidelines’ December 2011 message was reinforced by the International Energy Agency when it published “Golden Rules for a Golden Age of Gas” several months later, in which they\ agency discussed the need for companies to do more quantitative reporting to help secure their social license to operate. Our guidelines’ message on reporting on key performance indicators of environmental and social risk management were also reinforced by a high-level advisory panel to the Department of Energy secretary, which strongly suggested that quantitative reporting on key performance indicators would be a vehicle for advancing best management practices. As I mentioned, some companies have been improving their reporting over time; leadership companies are highlighted in “Extracting the Facts” as we attempt to promote a corporate “race to the top” in best practices. I believe the shareholder pressure is important because as much as strong regulation is needed, regulation at the state level is both uneven and often underfunded, as has been documented in reports from the University of Texas, Resources for the Future, and investigative journalists. Regulation is binding and shareholder resolutions are not, but I firmly believe that our engagements are pushing companies to do more and say more than they would in the absence of our activism and in the absence of stronger, better-funded regulation in some states.

  2. Stephen Viederman says

    Dear Marc, Unburnable Assets and Do the Math raise the issues. Green funds can divest but the stocks will not go away as there is still a market for them. The bigger question is what can the institutional investors do, such as the members of the Investor Network on Climate Risk? Engagement can only go so far. Pushing for greater transparency and reporting is important but a slow process. And the fossil fuel industry changing their business models is a long-term fantasy. Their Chairs and CEOs may be very caring people in the evening and on weekends, they may even contribute money to environmental and conservation organizations, but they know what their day jobs expect of them. This is a problem not only of the fossil fuel industry. It is endemic in all of society.

    Perhaps someone should try to construct a fossil fuel free portfolio for large institutional investors to see if it possible to obtain the financial returns they need to meet their obligations now and in the future.

    Be well, Steve

  3. says

    Personally I would certainly be prepared to accept lower short term returns in exchange for a green and responsible portfolio. I worry that people who share this opinion however are an overwhelming majority, our culture in it’s current state is one of naivety and recklessness, people who would rather live rich now than think about the legacy that they are leaving. Congratulations on the Guardian column also, being from the UK I’m directly aware of the influence that the Guardian holds, it’s a notable achievement to be asked to contribute and thoroughly deserved based on the consistent quality of this site.

  4. Paul Bugala says


    Thank you for this thoughtful piece and your kind words about Calvert.

    We have just posted a statement on that describes why we think our work complements and the Do the Math campaign. (

    As our statement indicates, we are committed to using the power of our investment decisions and advocacy to play our part in making a difference on climate change.

    Paul Bugala
    Calvert Investments

  5. says

    With all due respect to all – whom I do respect greatly – shareholder advocacy, which I participate in and which is great for encouraging transparency, does not solve the inherent problem, which is that the core purpose of this sector will not be changed from such efforts. Getting this industry to acknowledge climate change risk and report on it will not lead to emissions reductions; they’ll change when either forced by the government to do so or when the price of their stock collapses due to a major sell-off. How about we take this on instead of asking them to publish reports?

    Unfortunately, all these incredibly meaningful and valiant efforts are all peripheral and don’t go near far enough to creating the change we wish to see. We don’t have time to dilly dally on this issue – our survival is at stake, and no one is treating it as such.

    One more pertinent point is that most SRI funds that hold fossil fuel companies don’t hold them to engage their management in conversations, they hold them just because they want the sector exposure but don’t want to hold the usual offenders. It’s done not out of principle but out of economic self-interest – not exactly sustainable or socially responsible behavior. Additional rationale for why divestment is an appropriate response for this industry can be found in my most recent monthly column:

    Michael Kramer
    Managing Partner
    Natural Investments

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