The Basics: How to Divest

Before we dive in – let’s talk about one important related topic for a moment. If you work with a professional investment advisor, ask them about the ideas on this page and the two other “Fund” pages. If they don’t agree with the arguments we make, we’d argue that you should carefully consider getting a new advisor. Why? Because the hallmark of the financial industry is sticking to the status quo – following the herd. That shouldn’t be a surprise. Since the invention of money, that’s what mainstream financial organizations do. Status quo thinking leads to disasters like the financial crisis of 2008. The points we make here are not part of the herd thinking.

Fortunately, you can find advisors who are not stuck in the past. Check out tools like one on the SustainFi website. Ask around. Look for advisor blogs like this one.

Back to the main topic. Here are the core ideas behind the broader suggestions and steps we describe:

  • As in all aspects of life, “perfection is the enemy of the good.” Embrace that idea and removing money from fossil fuel investments is very easy.
  • From just an investment perspective, investing in fossil fuel companies is increasingly risky, and getting more so with each news cycle. Do some research. Look for articles about “stranded assets and why the book value of fossil fuel companies will crumble over time. Look for articles about the decade of big bankruptcies in the coal industry.
  • “Cap” is short for capitalization – the dollar figure you get when you multiply the number of company shares times the share price. There are no standard designations, but large-cap usually means a capitalization greater than $10B, mid-cap is between $2B-$10B, and small-cap is below $2B.
  • The major players in the fossil fuel business are “large-cap” companies. For example, ExxonMobil’s market cap is currently about $400B.
  • There are hundreds of diversified small and mid-cap funds to pick from – both are bread-and-butter offerings for fund companies. Even in a corporate retirement plan, you will have options to pick these types of funds.
  • A common conclusion of comparisons between mid or small-cap funds versus large-cap funds is that both tend to outperform large-cap stocks. Also look at the historical performance of market indexes that track different market cap stocks. Take a few minutes and look around for yourself. The point? There is no justification for the argument that you have to have investments in large-cap companies to be diversified.
  • And there are large cap funds that are specifically fossil fuel free. They are easy to find using brokerage websites or this Fossil Free Funds site.
  • Many people who are interested in moving away from fossil fuels are thinking about reinvesting some money into the “clean energy” or “alternative energy” economy. This new energy economy is growing exponentially, and that trend is only going to accelerate as more businesses and governments start pushing harder and harder to move away from fossil fuels.
  • Investing in the clean energy economy doesn’t mean you have to invest in risky technology or start-up company funds. There are all sorts of options – including “green” bond and “green” income funds.