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Sustainable Investing

Our Core Fund Company Gets Serious About Climate Change

Climate change is in the headlines daily and it is getting harder to ignore scientists from disparate fields who are sounding the alarm about global warming and its consequences. It is believed that dangerous storms, devastating fires, year-long droughts, and poor air and water quality are all evidence of climate change. Sustainability and sustainable investing are ways to respond to climate change.

What is Sustainability and Sustainable Investing?

The UN World Commission on Environment and Development states that “sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” As individuals, we are acting sustainably when we reduce, reuse and recycle. Sustainable investing aligns values regarding environmental, social and governance (ESG) practices with a sensible investment approach.

HTG uses Dimensional Fund Advisors (DFA) mutual funds as core investments when constructing client portfolios. DFA introduced two sustainable funds (U.S. and International) to their line-up of mutual fund offerings in 2008, relying on scientific and climate experts to create effective sustainable investment solutions. For more on DFA’s sustainable investment process, read A Rising Interest in Sustainable Investing. Over time, interest in sustainable funds has grown and ten years of data supports that DFA’s sustainable strategies have comparable results to their core holdings.

Ten years later, DFA introduced an emerging markets sustainability fund, and more recently a global fixed income sustainability fund as their first sustainable bond fund. If you are interested in incorporating sustainable funds into your portfolio, please contact your HTG advisor.

Another Approach Towards Sustainability

As an advisor concerned about our environment, I was pleased to read DFA’s announcement last month that it is among the first in the financial services industry to have their worldwide operations certified as Climate Neutral by purchasing carbon offsets. This is a further indication of their commitment to ESG and I wanted to better understand what certified Climate Neutral signifies.

What are Carbon Offsets and Climate Neutral?

An organization such as DFA first analyzes their carbon footprint by developing a greenhouse (GHG) emissions inventory following a standard protocol to measure emissions. Scope 1 emissions are direct emissions from on sight operations; Scope 2 emissions are associated with purchased energy; and Scope 3 from their supply chain (shipping of raw materials and finished product).

Once having quantified their carbon footprint, the organization knows how many carbon offsets they will need to achieve greenhouse gas neutrality, offsetting its emissions by purchasing carbon credits from projects around the world that are reducing or removing GHG emissions. In the case of DFA, they report that their carbon credits are coming from a forest protection project in Zimbabwe, forest conservation in Australia, conservation of tropical forests in the Amazon and forest protection in the U.S. While avoiding de-forestation is a common project for producing carbon offsets, many other types of projects exist, such as installing solar panels in small villages that otherwise would have installed a diesel generator for electricity generation.

South Pole, a climate solutions provider, has certified that DFA purchased these carbon offsets to cover their 2020 greenhouse gas emissions. South Pole is one of many companies supporting climate action projects around the world.

Will Carbon Offsets Help?

Offsets are not the be-all end-all. To limit climate change, it is important to reduce GHG emissions as fast as possible. The most impactful way for a firm to reduce emissions is to change its operations in a measurable and permanent manner. Offsets can buy us time to develop more long-lasting methods to eliminate emissions, but they are not the ultimate solution to the immediate need for economic, political and technology coordination that must happen across the globe.

DFA has taken a leadership role in addressing climate change by both developing science-based sustainability funds and addressing its own carbon footprint.

A Sustainable Tip

As individuals, we too can reduce our carbon footprint and it is important to do our research. I was interested to learn that while switching to paperless saves trees, relying on cloud storage is not without a cost to the environment. The server where documents are saved requires heating and cooling which uses massive amounts of electricity and energy and contributes to greenhouse gases at a level similar to air travel. It is suggested that each of us review our cloud service, remove old files and documents that are no longer needed or download them to a hard drive. Photos and videos are particularly data-heavy items to consider.

Jennifer Nicasio, CFP®
Jennifer joined HTG in 2005. As an advisor, she helps clients make thoughtful and informed decisions on all aspects of their finances. Jennifer is a CERTIFIED FINANCIAL PLANNER™ practitioner and Certified Divorce Financial Analyst®. As a CDFA™ professional, she helps clients understand the short and long-term implications of decisions they are making during the divorce process. Jennifer has a BA from Middlebury College.
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