Future Danger: The Fossilized Portfolio
Dinosaurs once dominated the earth, but these creatures -- many formidable, powerful giants -- are now extinct. The epic fossilized remains of many dinosaurs residing in museums are amazing to behold, although they're completely alien to our living world.
Of course, most current discourse regarding "fossils" has to do with fossil fuels. (Incidentally, the creatures that make up fossil fuels like oil, gas, and coal actually predated dinosaurs.) Beyond any schoolchild's lessons about prehistoric and even primordial times, today's debate about fossil fuels is all about the future, not about the past.
Recent investor attention, and even agitation, about fossil fuel companies and climate change should remind us of dinosaur danger. It's risky to assume that a fossilized portfolio will always guarantee the great, stable returns it delivered in the past.
Today, there's growing shareholder activism and increasing awareness of fossil fuels, and the serious risks (and investment opportunities) in tackling the dangers of climate change. Any investor, large or small, can be part of this movement.
The climate change topic heats up
The US SIF Foundation, an association that brings together sustainable and responsible investors of all types, is releasing a series of handbooks for individual investors under the umbrella of "How Do I SRI".
The organization just released its first publication, illustrating how individual investors like you and I can go beyond simply addressing climate change in our investment theses, but also choose investments directly to help curb it. The first guide is called "Investing to Curb Climate Change: A Guide for the Individual Investor" (link opens a PDF), which focuses primarily on individual investors who are concerned with climate change, and what they can do to make their investments matter.
At its core, the information reflects many longtime Foolish tenets. Investors can use their "votes, voice, and power" to make a difference. In fact, this very column has often tackled the fact that every investment dollar and voice can make a difference.
The first handbook in the series focuses on climate change and fossil fuel companies, the divestment of which has been a growing trend in the responsible investing arena. In fact, it's very timely, given the amount of talk about fossil fuel divestment campaigns by everyone from students to churches.
How to make a difference
Through direct ownership, shareholders can show whether they approve of a companies' policies or not. For example, they can put their money behind the companies that have good policies in place to drastically reduce their carbon footprints. They can sell shares of the companies that aren't addressing the risks, or are downright bad corporate citizens in this regard. Investors can let their consciences be their guides here, and make the decisions about which tack they'll take.
The US SIF report points out an informational resource that most Foolish investors are probably already familiar with: the risk factors section in companies' annual 10-Ks filed with the SEC. Companies are increasingly disclosing climate-change-related risks, including the regulatory environment.
The Carbon Disclosure Project is another good resource to check out. More than 4,000 companies currently participate, reporting their data on greenhouse gas emissions and their initiatives to combat climate change risk.
Not only does the report recommend paying attention to shareholder resolutions and voting according to ideals in this area, it also points out that shareholders who own $2000 worth of shares of a company's stock for at least a year can file their own resolutions to put issues up for a shareholder vote at the company's annual meeting. Even individuals who don't meet the financial criteria on their own can band together with other like-minded shareholders to file a resolution.
The report includes another great piece of advice for investors who choose to sell due to ethical concerns on climate change and other issues. Let the company know why you sold. Look on the company's investor relations page and let the contacts know why you've decided to take your money and run.
An unseasonably warm proxy season
US SIF is not the only organization involved in this growing trend.
Environmental advocacy group Ceres has long brought together companies, NGOs, policymakers, and environmentalists to talk about the economic risks and opportunities in climate change.
Just today, Ceres released a rundown of shareholder resolutions regarding fossil fuels issues. This past proxy season, an impressive 110 resolutions were filed at 94 major companies, tackling fracking, fossil fuel reserve risks, and climate change risks and opportunities.
Interestingly, energy behemoth ExxonMobil is one of the companies cited for not having started a dialogue with shareholders. Even more interesting, a significant 30% of ExxonMobil investors voted in favor of a fracking resolution.
On the victorious side of things, though, shareholder resolutions were withdrawn at 40 companies when managements agreed to have discussions about the issues. One particularly striking example is EOG Resources , a company that conducts hydraulic fracturing (more popularly known as fracking) to extract natural gas.
EOG Resources is improving its disclosure of greenhouse gas emissions, and is working to reduce the use of toxic chemicals in the fracking procedure. Even more, it has stopped using freshwater for its business, and instead reuses all the water that comes to the surface during the fracking process.
Have you ever heard of fugitive methane emissions? It sounds like an exciting story (or maybe even a funny one), but apparently methane emissions have a worse potential effect on global warming than carbon dioxide. Shareholder votes at several natural gas producers garnered significant support, including an impressive 38% voting in favor proposals regarding methane emissions at ONEOK .
Interestingly, ONEOK shares are surging about 20% today after its announcement that it will separate its natural gas distribution component into a separate company, One Gas. Regardless of the bullishness surrounding this transaction, maybe another thing investors should bear in mind is the company's willingness to acknowledge climate change and engage with concerned shareholders.
Here is Ceres' full list of the 2013 shareholder resolutions, which includes companies that have agreed to address climate change and environmental issues, as well as the results for those shareholder proposals that went to vote.
Fossils are for museums, not portfolios
Much like the future of our world, the future of investing is going to look very different than it did in the past. Addressing climate and environmental concerns are essential; again, what worked in the past often does not work in the future when it comes to public companies. Failing to evolve does result in extinction.
When it comes to fossil fuels, don't let your portfolio become a dinosaur. History is interesting and important, but it's most valuable in a dusty museum, not in a portfolio set to yield profitable growth. Finding the right plays while historic amounts of capital expenditures are flooding the energy industry will pad your investment nest egg. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza". Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free.
Check back atFool.comfor more of Alyce Lomax's columns on environmental, social, and governance issues.
The article Future Danger: The Fossilized Portfolio originally appeared on Fool.com.Alyce Lomax has no position in any stocks mentioned. The Motley Fool recommends ONEOK. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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