Trail Financial Planning, LLC is a fee-only financial planning and investment management firm located in Bellingham, WA

Sustainable investing – add some green values to your portfolio

Sustainable investing – add some green values to your portfolio

Drink, breathe, eat – We all do it.

Water, air, food – We all need it. 

I am a card-carrying environmentalist.  Green is my favorite color.  I like wandering in wild spaces.  I like encountering wild critters.  But, I am also a hypocrite.  I drive, I use single use plastics, I build fires where I am “not supposed to.”  I am human – lovely, complex, imperfect.  Even though I know that bike commuting costs me only 12 minutes and some sweat, while preventing 4 pounds of carbon dioxide from being released into the atmosphere, I still choose to drive half the time.  On Earth Day, I drove to work.  I am not proud.  The hard part about making a values-based choice is choosing values.   

In the last few months, I’ve been researching how to infuse my values into my investments.  In particular, I am interested in reducing my exposure to the fossil fuel industry.  I don’t say eliminate, because I also drive a car.  Fossil fuels make our current lifestyles possible.  There are probably intrepid souls who ride their bikes to Hawaii.  That’s not me.  I fly, and I love it.  But I also know that fossil fuels are exacting a price on the natural world I know, enjoy and live.  I struggle with the dichotomy.  

So, when I find a way to reduce my environmental impact, without drastic changes to my lifestyle, I pay attention.   One such way is through my investments.  For most of us greenies, the most pressing issue in sustainability is climate change, (though shelved in the Scary section right next to “Habitat and biodiversity loss.”)  In this blog post, I will share an investment strategy that matches my values – balancing ethics with economy and efficiency.  It’s a Prius of the investment world.  It ain’t sexy, but it is effective.  Because its Earth week, and I am a science teacher who can’t help himself, I must do a bit of environmental science 101.

The comfort of the Greenhouse Effect

Climate change is exactly what it says – a change to our climate.  Average temperatures, snow packs, growing seasons, rainfall, the happiness of coastal peoples, are all pieces of a changing climate.  Global projections are for a warmer world, rising sea levels, more severe weather events, etc.  I care, because I am care about people around the world, and because the air I breathe was in China just seven days ago.  What climate change means to your local environment, your kids, and your grand kids will depend on where you live.  Where I live, on the west side of the Cascades, projections are for a warmer and wetter future.    

The primary driver of climate change is a super charged “Greenhouse Effect.”  The super charged bit is important,  because the normal greenhouse effect is seriously awesome.  It is not hyperbole to say that the greenhouse effect is vital to life on Earth.  Without the effect, there would be no such thing as humanity, polar bears, cars, or plastic bags for that matter.  Life as we know it needs the Greenhouse Effect, or more directly, the temperature to allow water to stay liquid.  Our current average global temperature is a comfortable 59°F.  Without the greenhouse effect, the average global temperature would be a frigid and frozen 0°F.   

The greenhouse effect acts a bit like a cozy comforter on a winter night, keeping the Earth warm, toasty and comfortable. 

The discomfort of a super-charged greenhouse effect 

 A super-charged greenhouse effect is kind of like a double-thick comforter that never got removed, and now it is July.  Instead of being cozy, you are sticky and wet, your pajamas cling to your skin.  Yuck.

The super-charged greenhouse effect is due to an increasing number of greenhouse gas molecules in the atmosphere.  Water vapor, methane and carbon dioxide are the primary greenhouse molecules – they allow sunlight in, but trap (reflect actually) the outgoing heat.  Of the three molecules, carbon dioxide (CO2) is the big kahuna behind climate change, mostly because there are so many CO2 molecules, and the level is steadily rising.  

Carbon dioxide is released from the combustion of fossil fuels – carbon-hydrogen bonds are broken apart, releasing energy (fire).  The leftover carbon is very reactive, so it combines with oxygen to create CO2.  Carbon dioxide is not an evil molecule, in fact it’s pretty benign – it’s not poisonous, we breath it in and out without consequence, and it is the primary building block of the beautiful flora around us. 

But, CO2 levels have been steadily rising since the beginning of the modern fossil-fueled era.  It’s the increasing levels of CO2 that is making the super-charged Greenhouse.  For every gallon of gas burned, approximately 20 pounds of CO2 is released into the atmosphere.  The genie is let out of the bottle seven billion small choices at a time, day in and day out.

Can the situation be fixed?

The toughest part about rising CO2 levels is that there is no villain.  Unless we look in the mirror, unless the villain is us (and I mean the global us, not just the US).  Much of our first world way of life, and high standard of living, is thanks to fossil fuels.  Every time fossil fuels are burned, the carbon goes from a nicely contained form (like a coal seam, or underground oil field) into a nebulous free-wheeling gaseous form.  While it is relatively simple to wipe up a spill of gasoline, or bury a seam of coal, try catching all of the smoke released from a fire, let alone the invisible, buoyant CO2 molecules.  Ever farted in a small room and wished you could “take that back?”  Good luck.  Luckily a fart will disperse into a wider atmosphere.  But, carbon emissions are already dispersed.  There is nowhere else to go.  Thus atmospheric concentrations are increasing.  If you could smell carbon dioxide like you can a fart, we’d all be saying, “Hey, who cut the cheese?”

Aligning your investments to combat climate change

The problem I have had with investing in a sustainable manner, is just how big and multi-faceted the question is.

  • What constitutes sustainability? 
  • Which is more important, saving bison?  lowering greenhouse emissions?  using paper bags over plastic? 
  • Which companies are doing the best work?
  • Why do we need a six syllable word to represent a concept that should be simple?

The list of questions is long, and can lead to “analysis paralysis.”  For me though, not any more.  I’ve finally done enough research to be confident in a strategy and a tool.  The strategy I like is one that starts with sound investment principles – broad diversification, low fees, and passive management (not picking individual companies).  Next, an objective, data-driven sustainability screen is developed to help rate each company.  The worst ranking companies according to the sustainability screen are removed from, or reduced within, fund ownership.  The resulting investment fund is diversified, efficient, and results-driven. 

The investment fund company I work with, Dimensional Fund Advisors (DFA), uses such an approach.  They start with their core investment strategy.  The fund owns every company in a market (broad diversification), but not in equal weights.  The fund tilts ownership to own a bit more of companies (or bonds) with specific characteristics that the long-term historical record has shown to produce better investment performance.  They don’t pick and choose individual stocks or bonds.  Rather, they allow market prices to populate a portfolio according to a set of empirically tested rules.  Such an approach is cost effective, and is the foundational investment strategy of DFA.

Next comes the sustainability screen, with a bit of math.  Each company’s total greenhouse gas emissions is divided by the company’s revenues.  This gives a sort of “climate change efficiency” score, kind of like the “miles per gallon” rating of a car.  Then, the companies with the worst scores are removed from the fund.  Companies with poor sustainability performance get a reduced position within the fund.  The amount of reduction is adjusted with an eye of the cumulative climate change efficiency score for the fund.  Figure 1 shows the results for DFA’s US Sustainability Core 1 mutual fund as of March 31, 2019.   

Figure 1.  Sustainability results for US Sustainability Core 1 portfolio.  Graphic from Dimensional Fund Advisors (DFA)

By carefully eliminating some of the highest emitting investments, and reducing the exposure to others, current greenhouse gas emissions associated with investments within the fund are lowered by nearly 80%, and potential emissions lowered by 99.9%.  In this way, broad diversification can still be maintained, and fund expenses can stay low.  I like the story, and as a fan of data, I especially like to see the results.

The fund shown above (a fund owning the entire US market minus sustainability screened out companies) also reduces/eliminates ownership of companies based on a few other sustainability measures including:

  • Factory farming
  • Cluster munitions manufacturers
  • Tobacco revenues
  • Child labor
  • Special cases 
    • Palm oil manufacturers – responsible for significant deforestation, especially in Indonesia
    • Volkswagen – removed due to poor corporate governance in the wake of the air quality emissions issues the company had 

DFA has similarly screened funds for international, emerging markets and the global bond market.  There are other investment funds and investment companies that are highly regarded in the sustainable space.  Calvert Funds, Pax funds, and Bellingham-based Saturna funds all have sustainable mutual fund offerings.   

Dimensional Funds maintains a website where you can read more, much more, about the investment strategy at Dimensional Fund Advisors Sustainability webpage.  If you like data, I suggest downloading the 6-page “Evolution of Sustainability Investing.”

Is performance sacrificed, or are the expenses much higher?

My research suggests that there is little difference in investment performance between sustainable funds and non-screened funds.  I’ve even read research suggesting that sustainability-screened funds (with sound investment principles) perform better than non-funds.  But, that research is likely too new to be conclusive over the long, long term. 

Dimensional Funds also maintains a website where you can read current fund performance and expenses at Dimensional Fund Advisors fund details.

How important are your investments to climate change?

To be honest, aligning your investment portfolio with sustainability values probably has a limited impact.  It is an indirect connection.  On one hand, if you choose not to buy shares of Exxon, does Exxon go away?  No.  On the other hand, company executives pay attention to their companies stock prices.  Prices are driven by supply and demand.  As more investors demand investments that are more sustainable, and divest from less sustainable investments, the prices of those investment will respond to less demand (price has downward pressure).  Management may make business choices accordingly. 

It’s sort of like buying a car off of Craigslist, maybe like a Prius.  On one hand, you are making a statement in the world that you value the Prius.  But unlike a car, your investments don’t actively create greenhouse emissions as you use them.  Thus, aligning one’s investment portfolio with one’s values does something, but it is only some.  The problem of climate change is seven billion choices happening in real time, around the world.  Fixing one choice won’t fix the problem.  But, if lots of people start choosing differently…  If a fund company like DFA with over $500 billion in assets under management changes the flow of its growing capital…   

There are many actions we can take as individuals, as local and national citizens, that has a direct impact on carbon emissions, and thus climate change.  I am not going to go into a massive laundry list.  Researchers from the University of British Columbia wrote a very good paper about what actions have the greatest direct impact to climate change (by releasing more greenhouse gasses) summarized by the following graphic:

Image from paper by Seth Wynes.  Read the full paper here:

There is no single action that an individual can do to reduce their carbon footprint more than to reduce their personal burn of fossil fuels.  Cars are one of the hungriest uses.  Why?  It takes a lot of energy, or work, to increase the kinetic energy of a 3000 pound vehicle.  Straight up physics.  That said, I’ll probably use my car tomorrow.  I strive to reduce my trips whenever I can, but in this blog I try to keep it real.  I have a carbon footprint.

I am very interested in sustainability.  If you want to talk more about adding sustainability in your own portfolio, whether through the funds I mention, or other fund classes, schedule a free 30 minute consultation with me.  I am happy to talk.


Whoa, you are still reading this!  You are into it.  You might want to read other posts in my “investing series,” that you can find at  Other blogs in this series are:

Investing 101 – Why invest?  Create a process and a plan

Investing 102 – When?  Use your emotions to fuel your why, and when you need the money temper them

Investing 103 – What?  What should you invest in?  

Investing 201 – What if?  Risk and return in the stock market.  What is right for you? 

Investing 202 – Diversification and fees.  Why do they matter?  (future blog post).

Investing 203 – Sustainability investing- add some green to your portfolio (this post)

Investing 301 – How?  Create a comprehensive investing strategy.  (future blog post).

John Chesbrough

John is a financial planner and investment manager. He, along with his business partner Elizabeth Snyder, founded, a fee-only, independent financial advisory firm called Trail Financial Planning (Trail FP) in Bellingham, WA. John and Liz enjoy working with people who care for others and their community – parents, firefighters, therapists, doctors, nurses, and teachers. They work with people by appointment. To learn more, or to schedule some time with John or Liz directly, please visit