Happy Nice Mall

It’s no secret that Exchange it happened Cliff since the beginning of the year. Tech giants like Apple, Microsoft, Google and Amazon have not been helpful at all. All of its stocks fell by double-digit percentages.

So far in 2022, the S&P 500 has dropped more than 12 percent and briefly dropped more than 20 percent below its peak, knocking stocks down. market where prices fall region. No matter how bleak the stock market is, the situation looks even worse if you’re worried about the future of the planet. The truth is that only one wide stock industry has delivered consistent returns over the past year: old-fashioned fossil fuel and the companies that extract, refine, sell and service it.

In fact, when I looked at the performance chart of the top companies in the S&P 500 for 2022, I found that 19 of the top 20 positions belonged to companies that are fossil fuel-related in one way or another. The best performing company was Occidental Petroleum with 139 percent gain.

This is not just a US phenomenon. Saudi Aramco, Competing with Saudi Arabia’s national oil company Apple for the difference of being most valuable in the world public company. For most of the past year, rising oil price have surpassed the value of businesses based on silicon chips.

If you’re paying attention to science, this is extremely weird. To cite only one, it is important statementA body of experts convened by the United Nations known as the Intergovernmental Panel on Climate Change, found In February, the world’s cities, farms and coastlines are not adequately protected from the dangers of climate change. already processed, including increasingly severe droughts and rising seas. The continued burning of fossil fuels will only make things worse, according to the report.

Still, the energy looks better than ever for short-term investors.

RussiaBank of America said in a report Thursday to clients that the attack on Ukraine and increased Western sanctions have improved fossil fuel prospects. “Our commodity strategists hope that a sharp contraction in Russian oil exports could trigger a full-blown 1980s-style oil crisis,” the report said. “Not having the energy is getting more costly,” he said. For energy prices, “we see more upside with China reopening, busy driving season and positive positioning/valuations”.

Two conflicting goals

This poses a classic dilemma for investors who want to follow the guidance of many academic studies and diversify completely. I try to do this by putting my money in low-cost index funds that monitor all stock and bond markets. These funds are great in so many ways. They reduce the risks of choosing certain stocks – owning the wrong stock at the wrong time – and highlighting the wrong sectors at inappropriate moments.

There is an important catch, though. Full diversification means owning all sectors and companies, and in the current environment this certainly includes traditional fossil fuel companies.

What should you do if you accept the findings of science and also want to obey the dictates of your conscience? Let’s say your main concern is to have clean hands, which for you means not making a personal profit from fossil fuels. One thing you can do is remove fossil fuel stocks from your portfolio. This is increasingly easy to achieve, even with 401(k)s and other retirement plans, assuming your workplace plan has a “sustainable” or “socially responsible” investment option.

But if you exclude fossil fuels from your investments, you will miss out on the best performing part of the market.

A simple way to see this cost is to compare two S&P 500 index funds. SPDR S&P 500 ETF TrustA plain vanilla backdrop that tracks the S&P 500 and SPDR S&P 500 Fossil Fuel Reserves Free ETF. The second fund does not cover high-performing but climate-warming fossil fuel companies.

The difference comes in the returns this year. The plain vanilla S&P fund fell 12.1 percent, while the non-fossil fuel fund fell 13.7 percent. Ah!

You might say these performance inconsistencies aren’t the end of the world, but the unrestricted use of fossil fuels may well be. You might add that when energy prices are lower, fossil fuel-free portfolios sometimes outperform the more inclusive index. This inequality may increase at a point in the future where fossil fuels are no longer a central part of the global energy mix. Still, there is an undeniable cost if you avoid fossil fuels.

But the benefits of diversification aside, there’s an argument for owning the entire market even if you’re uncomfortable with investments in fossil fuel companies. Through stock ownership, you can try to use your voice to ensure that the companies you invest in behave in ways you can accept.

That’s easier said than done. Like me pointedThe vast majority of shareholders—those who hold stock through mutual funds, exchange-traded funds, or retirement plans—cannot vote directly at policy and board meetings that take place annually in corporate America. Fund managers vote on their behalf, and until recently these managers didn’t bother to ask which shareholders preferred.

voting experiments

This began to change in an experiment involving number 1 engineactivist hedge fund Exxon Mobil and won a wildly successful battle.

Last June, Engine No. A coalition of investors led by 1 succeeded in replacing three executives on Exxon’s board in an effort to force the company to make a smart transition to a sustainable energy future.

In an interview on Tuesday, Jennifer GrancioEngine No. 1’s CEO said he won the Exxon war in a small way because the war was about money, not ethical or social choices.

“Fossil fuels are still needed — we know that,” he said. “But we also know that a good company will move towards a sustainable energy transition by allocating capital appropriately. Exxon Mobil didn’t have the right people on its board to do that.”

Ultimately, Ms. Grancio said, a company that doesn’t take into account the costs of properly coping with climate change will not be successful. These arguments include major index fund firms BlackRock, Vanguard, and State Street as Engine No. He convinced me to take the 1’s side.

Now, with the help of Betterment, a wealth management platform and TumeloEngine No., a British financial technology company. 1 asks investors about the S&P 500 index fund, capitalhow they want their votes to be cast with the provocative ticker VOTE.

A question chosen by Tumelo and Betterment asked whether fund shareholders support a resolution calling on Exxon to complete an audited report on the financial implications of achieving net zero carbon emissions by 2050.

“We took these survey results from Betterment and took them into account,” said Ms. Grancio. “And we voted in favor of that attorney” Black Rock and other investors. IT passedSome other decisions aimed at reducing carbon emissions in energy companies have not been successful.

just a start

That’s still light years away from direct voting by mutual fund investors, which I think is essential. Still, progress has been made with such flimsy steps: asking shareholders what they want and respecting their choices.

“I think the future is where people will have a real voice on these issues,” said Georgia Stewart, CEO of Tumelo. “This is just the beginning.”

this Securities and Exchange Commission introduced regulations that would require companies to naturally disclose climate-related risks. Many proxy campaigns have undoubtedly provided the impetus for the new rules. business groups has resist. this Ministry of Labor also thinks regulations retirement plan investors protect themselves from climate change risk, while some deputies in Washington and state governments He began to struggle with climate change disclosure, which was controlled by the Republicans.

These problems do not end.

I think they are critical to the millions of people for whom it makes financial sense to diversify by having a total market through index funds. However, it is difficult to recommend holding a stake in fossil fuel companies if the costs of climate change are not fully reflected in energy prices.

Tackling corporate contributions to climate change will likely require an active role from investors with the will and ability to monitor companies and vote in internal fights. But there will also be a need for large numbers of citizens who have influence over these issues in the wider political arena.

Shareholder campaigns to shape corporate behavior can only go so far. There are no proxy campaigns against Saudi Aramco or other state-controlled entities that extract energy from abroad. It is also not possible to vote by proxy in private companies that are increasingly entering the energy business in the United States and Canada.

“Climate change is a major planetary problem that will require sustained effort over decades,” he said. Boris Khentov, head of sustainable investment at Betterment. “These problems are complex and the solutions will be complex. Putting all the responsibility on your investment portfolio for changing the world is a fundamentally problematic proposition.”

There is no panacea here and no easy answer for investors. But at least there are some signs of progress at a time when there is little.