CHAPTER
12
How Do I Know What I Own?
Most people know the companies that they hold as direct equities. But very few know which company stocks are embedded in their retirement plans, 401(k), 403(b), mutual funds, ETFs, and other investing vehicles. This is why we built a free, open-to-the-public web tool specifically designed to compare fund holdings with any given list based on ESG criteria. The first version is called Fossil Free Funds.157 A gender diversity, gun, and prison version will be developed soon. These tools are described in detail in the next chapter.
The fundamental takeaway is that those who divest and those who engage have the same goal, and divestment and engagement strategies strengthen each other by using market forces to bring about change. As Executive Secretary of the UN Framework Convention on Climate Change,158 Christiana Figueres said in a recent New Yorker article, “Where capital goes over the next fifteen years is going to decide whether we’re actually able to address climate change and what kind of a century we are going to have.159
The first step is to find out what those investments are—and it isn’t quite as simple as just asking. In the global economy, many investment vehicles seem to have opted for maximum complexity and opacity, so it’s often difficult to determine, first of all, what companies are held within various indexes, mutual funds, and ETFs. Once you know, it’s also very difficult to tell if these companies—regardless of their public statements—are actually aligned with your values.
We built a web tool to enable transparency on any environmental, social, or governance issue and, as of the writing of this book, have deployed one related to climate change. We also have one for gender—specifically the number of women on the boards of the companies within any given fund.
The way it works is that you type your fund name or ticker into the search bar shown above, and instantly you see the number and names of companies that have zero, 30 percent, or 50 percent female board members. Below is what you would see if you set the threshold at 30 for companies in an ETF called SPY from State Street that tracks the S&P 500. Note that 444 out of 500, or 86 percent, do not make the cut, including Apple, Microsoft, and Exxon.
Figure 11: Gender diversity on corporate boards can be screened in your mutual funds. Used with permission of As You Sow and iStock Photo.
Figure 12: 86 percent or 444 of the Fortune 500 companies have less than 30 percent women board members. Used with permission of As You Sow and iStock Photo
We also built a version to enable anyone to see the fossil fuel companies in their fund holdings. With human-caused climate change being a profound and acknowledged threat, investors with assets worth over $3.4 trillion160 have signed a pledge161 to divest from fossil fuel stocks and invest in a clean energy future. The majority of those assets are held by pensions, sovereign wealth funds, endowments, and foundations. Additionally, over 50,000 individuals have also signed the pledge.162 It is growing every day.163 The vast majority of these people have pledged to divest from fossil fuel companies but cannot act on that pledge, as they have no idea how climate complicit they are because they do not know what they own.
HOW THE PLATFORM WORKS
Fossil Free Funds offers analysis of the 3,000 mutual funds that are held in the most US 401(k) plans. As the common definition of fossil free is evolving, the platform will allow anyone to screen against five accepted lists and standardized industry classifications, building toward a common definition. You can select and deselect for any combination of:
• Carbon Underground 200™: Largest 100 coal and largest 100 oil and gas companies as measured by proven reserves factored for carbon intensity
• Filthy 15: Ten largest coal-fired utilities and five largest coal extraction companies
• Coal: Morningstar Industry Classification—coal mining companies
• Oil/Gas: Morningstar Industry Classification—oil and gas companies, including exploration and refinement, service industry, pipelines, and smaller extraction companies
• Fossil-Fired Utilities: Morningstar Standardized Business Classification of utilities with 100 percent renewable power generators removed
A BRIEF TOUR
The Fossil Free Funds financial transparency web tool allows users to search through a database of mutual funds to see what portion of the fund is comprised of fossil fuel companies. The interface is very simple: two levels enable users to enter any one of 3,000 mutual funds into the search bar. In the screengrab below, the fund that is held in the most 401(k) plans, Vanguard Value Index I, with the ticker “VINIX,” was searched.
This takes you to a second level that instantly shows the Carbon Underground 200 (CU200) companies in the selected fund. In the case below, note that 4.65 percent of this fund’s holdings are in the CU200. If you go to the website and run this search, you will see much more detail than we can show in the screenshot below. There are 24 companies sorted by weighting: ExxonMobil at 1.89 percent, Chevron at .95 percent, and so on. You can unfurl the list to see all 24.
Figure 13: Type in a ticker or fund name and discover the fossil fuel companies embedded in your mutual funds and 401(k) plan. Used with permission of As You Sow and Indigo Creative Design. Background photos used with permission of Fuse, Corbis, Getty Images and Olga Khoroshunova, Hemera, and Thinkstock.
Figure 14: The VINIX mutual fund has 4.65 percent of its holdings in companies with the largest reserves of coal, oil, and gas. Used with permission of As You Sow.
By selecting the four other options below the text, “Choose Your Fossil Fuel Sectors,” users self-define “fossil free.” They can select any combination or all of them if they want to see all the coal, oil, gas, service industries, and utilities.
As the screen below shows, if all fossil fuel sectors are selected, VINIX has 11.32 percent fossil fuel companies. On the actual website you will see that this is 72 companies total, worth $21 billion. The largest holding is ExxonMobil at 1.89 percent; next is Berkshire at 1.34 percent, and so on.
Figure 15: A deeper look reveals that 11.32 percent of VINIX is composed of companies that have fossil reserves, provide extraction services, and are fossil-fired utilities. Used with permission of As You Sow.
By customizing their fossil fuel screen, users will be able to easily see which companies in a mutual fund are contrary to their personal values.
By sourcing mutual fund data from Morningstar and screening against lists like Fossil Free Indexes’ Carbon Underground 200, the Fossil Free Funds tool shines a light on the murky world of investment vehicles. This free website enables individual and institutional investors to have instant access to the information necessary to divest from fossil fuels and construct a portfolio that aligns with specific divestment and investment objectives. We believe that what is transparent can be transformed.