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Sustainability Matters

Climate-Aware Fund Investing

Three ways to incorporate climate concerns into your large-cap funds portfolio.

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The 2016 election may have a galvanizing effect on climate-aware investing, given the new president’s stated doubts about climate change, push for environmental deregulation, and support for the fossil-fuel industry, especially coal. Most energy and utilities companies will continue their move away from fossil fuels and toward alternative energy because it increasingly makes economic sense to do so. Large companies throughout the global economy will continue to take steps to lower their carbon footprints, and regulators, stakeholders, and investors will continue to support the transition to a low-carbon economy. In the aftermath of the election, it’s not hard to imagine investors redoubling their commitment to investing in ways that take climate change into account.

There are several ways fund investors can do this. The most prominent is to get rid of funds with exposure to fossil fuels. Fossil-free funds generally exclude companies that own oil, natural gas, and coal reserves. Some fossil-free funds may also exclude companies involved in the refining and transport of fossil fuels, suppliers of oilfield equipment, and utilities that rely heavily on nonrenewable energy for their power generation.

Jon Hale does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.