How to divest your 401K from fossil fuels
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Over the past year I’ve educated myself on climate change and am convinced it is the great global challenge of our generation. To tackle it: most importantly we need to make our votes about climate change, but we also need to take every little personal action we can. Many small actions add up and can result in big changes.
Looking for an easy but impactful thing you can do to fight climate change right now? Divest your 401K from fossil fuels.
Why should I divest my 401K from fossil fuels?
A report this year showed that just 100 companies — all in the oil and gas industry — are responsible for 71% of global carbon emissions.
Burning oil, coal and gas is the cause of climate change. Our society has to shift to renewable energy for our houses, transport and industry to save us from the worst of climate change.
It’s the rational decision: for long-term investments — fossil fuels are going to lose.
When it comes to my 401K, I plan to hold the investments for decades. Not only are fossil fuel industries, like coal, already in steep decline, they are set to be replaced by new technology and hopefully heavily regulated out of existence in the coming years.
Because of this, it makes rational sense to me that in 30–40 years when I’m cashing out my 401K, fossil fuel investments made now will have lost huge value.
It’s also the moral decision: Fossil fuels cause climate change, and I can’t feel good about gaining personally from industries that pollute the air and damage the climate.
I don’t want anything to do with the 100 companies that drive most of the pollution in the world, or any companies that are attached to the harmful fossil fuel industry.
So how do you do it?
First step: Analyze your stocks on fossilfreefunds.org
A tremendous resource that shows what % of funds are invested in fossil fuel companies for each fund you are invested in.
Here’s some specifics changes I made as a result:
I subscribe to the boglehead lazy investment approach of distributing my 401K across broadly diversified low-cost funds. And I was easily able to maintain this strategy but deeply cut my fossil fuel investments in three steps.
- Switched my total stock market investment ‘VTI’ to a socially responsible fund ‘VFTSX’
2. Switched my broad international investment ‘VEA’ into international fossil fuel free fund ‘EEMX’
VEA’s investment in high polluting companies:
With a big swing towards technology and consumer stocks by switching to EEMX:
3. Moved my bonds investment into green bonds — choosing 2 diversified green bond ETFs Van Eck’s ‘GRNB’ and Blackrock’s new ‘BGRN’
This part of my strategy isn’t as much about avoiding fossil fuels as making low-risk bond investments that do good for the earth.
I learned about green bonds from a Times piece that shared:
Jon F. Hale, director of sustainability research for Morningstar, said he regarded that argument as credible. “When you think about impact, dollar for dollar, you probably are having a bigger impact” with a green bond fund than an environmentally minded stock fund
I now invest more in these two broadly diversified green bond funds than in the core Vanguard BND bond ETF, and I’m happy that this part of my investment strategy does good for the world.
I’d love to hear thoughts on this approach, or other things people could do with their investment strategy to do well for themselves while doing good for the planet!
