Sustainable Financial Planning in the Time of Coronavirus

For years, conventional financial advisors have directed a substantial portion of their clients’ assets into passive index funds that track the S&P 500 stock index, which currently has about a 9% exposure to fossil fuel companies.

Investors with taxable (non-retirement) investment accounts who are reluctantly still holding funds that contain coal, oil and gas industry stocks suddenly have an opportunity.

If you’ve owned these funds for years, significant unrealized capital gains have accumulated in your account. Selling those funds months ago would have resulted in substantial capital gains taxes.

Circumstances are different now, with substantial stock market losses, particularly in the energy sector.

So – worth considering: Exiting S&P 500 index tracking funds and other passive stock funds with high exposure to the energy sector NOW would cost you less in terms of capital gains taxes than it would have mere months ago.

A NOTE OF CAUTION: You must have a strategic plan for what to do with the proceeds when you sell these funds. If you don’t want to modify your asset allocation ratio of stocks/bonds/cash, and you are investing for the long term, you should be prepared to reinvest in cleaner, greener stock funds immediately – or you may get “whipsawed” by a sudden dramatic change in stock prices.

Your first step is to review your account’s current values. What are your capital gains exposures now? What are the alternative low-carbon/fossil-fuel free funds you could switch to?

As the world reacts to a warming climate, there’s been a rapidly growing consensus within the investment community that investing in stocks of oil, gas and coal companies is not only bad for the planet, but it may be just as bad for investment returns.

The chorus of agreement was recently echoed by the CEO of BlackRock, the biggest money manager in the world. Larry Fink’s Jan 9, 2020 annual letter to corporate leaders stated “The evidence on climate risk is compelling investors to reassess core assumptions about modern finance,” and declared the firm would be launching funds that shun fossil fuel-oriented stocks.

In late January,  2020, on CNBC’s “Squawk Box” financial program, Jim Cramer compared investor sentiment around oil and other fossil fuel stocks to the stigma attached to investing in tobacco companies, saying they are in the “death knell phase.” He added, “I think they’re tobacco.”

He also referred to institutional investors that were divesting their portfolios of fossil fuel stocks. “I’m done with fossil fuels … they’re just done. We’re starting to see divestment all over the world,” Cramer said. “You’re seeing divestiture by a lot of different funds. It’s going to be a parade that says, ‘Look, these are tobacco and we’re not going to own them.’

On November 5, 2019, the website published an article about pension investments in fossil fuels:

“…a new study shows that three major state pension funds in California and Colorado (CalSTRS, CalPERS and PERA), collectively lost over $19 billion in retirement savings for teachers, state troopers and public workers by continuing to invest in fossil fuels.”

State Treasurer Fiona Ma, who sits on the Boards of both CalPERS and CalSTRS, said: “These findings should put an end to the myth that divestment from the fossil fuel industry harms the financial well-being of our public pension funds. Quite the opposite is true.” 

Feel free to contact us at Green River Sustainable Financial Planning for a no-cost evaluation of your options.

Patrick Costello, CFP®, (415) 453-6000

[email protected]


*Indices mentioned are unmanaged and cannot be invested in directly.
Patrick Costello, Registered Representative, Securities off­ered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Cambridge and Green River Financial Services are unaffiliated. Investing involves risk. Depending on the di­fferent types of investments there may be varying degrees of risk. Socially responsible investing does not guarantee any amount of success.