Fossil Fuel Free Portfolio

The equity portion of this portfolio consists of global sector funds, and excludes the following sectors: Energy, Materials, Utilities, and Infrastructure.  It is as diversified as possible, yet contains no extractive companies, major carbon emitters, or pipelines.  The total annual cost of this portfolio is about 0.43%.

 Fossil_Fuel_Free_Potfolio.jpg

Real Estate                         2.5%    iShares Global Real Estate Index ETF (CGR)

Healthcare                          5%      S&P Global Healthcare Index Fund (XHC)

Industrials                           5.5%      S&P Global Industrials Index Fund (XGI) 

Water                                   5%      S&P Global Water Index Fund (CWW)

Consumer Discretionary      5%      S&P Global Consumer Discretionary Index Fund (XCD)

Consumer Staples               4.5%      iShares Global Consumer Staples Fund (KXI)

Technology                          7.5%      Technology Select Sector SPDR Fund (XLK)

Cleantech                            4%      PowerShares Cleantech Portfolio (PZD)

Green Energy                      4%     NASDAQ CleanEdge Green Energy Index Fund (QCLN)

Environmental Services       4.5%     Market Vectors Environmental Services ETF (EVX)

Financials                           10%      iShares Global Financials Fund (IXG)

Telecommunications          2.5%      iShares Global Telecom Fund (IXP)

Canadian Gov’t bonds      30%     iShares DEX All Government Bond Index Fund (XGB)

Community Bonds            10%     ZooShare Biogas Co-operative 7-yr 7% bonds

 

Sector-by-Sector Equity

Since all funds based on geography (Canadian equity, US equity, etc.) include companies that are major extractors, transmitters, and emitters of fossil fuels, a different approach is needed. By choosing global sector ETFs, we can exclude carbon-intensive sectors. Energy includes many oil & gas companies, so it is an obvious one. As well, Materials includes the world’s largest of coal-mining companies so it’s out too. Utilities are the companies who burn coal and distribute that electricity to customers, and are responsible for about 1/3 of US carbon emissions. Finally, there are global infrastructure funds, but they are riddled with pipeline companies and thus not suitable.

Weighting

I've weighted sectors proportionally based on the MSCI All-Country World Index. The green sectors (cleantech, environmental services, water infrastructure, and green energy) are equally weighted to fill in the gaps, with water a little overweight since it is the least volatile.

Not a Perfect Portfolio

Sadly, there are not any sector specific socially responsible ETFs on the market. As a result, there are some companies in each sector that responsible investors may not be 100% comfortable with. I’m not putting a judgement on these companies - good or bad - but simply pointing out that many of my clients take issue with them. For example, the Global Industrials ETF includes military companies like General Dynamics and Lockheed Martin. The Global Consumer Staples  ETF contains companies who produce tobacco, alcohol, and soft drinks. Most global banks are still making large investments in energy and mining, so the Global Financials ETF could be considered an indirect investment in fossil fuels. Finally, the Government Bond ETF contains Alberta Provincial Bonds. Now this might be nit-picking, but a client pointed out that the province receives substantial royalties from tar sands development. If these sector ETFs contain companies that you are not comfortable owning, I suggest instead investing in 2 or 3 individual companies from that sector with the highest sustainability ranking to still get sector exposure.

Community Bonds

Highlighting the shift from fossil fuels to renewable forms of fuel, I’ve included ZooShare Biogas Co-operative’s community bond as part of this portfolio. The bonds will finance a biogas plant that takes manure and food waste, and turns it into heat, electricity, and fertilizer. They have a contract under the Ontario government’s Feed-In-Tariff (FIT) program that guarantees a subsidized rate for their electricity over the next 20 years. Available only to Ontario residents, this bond has a fixed rate of 7% annually.  There is no secondary market, so investors are locked in for the full seven year term.  

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Showing 3 reactions


commented 2014-09-21 16:11:42 -0400
Thanks Tim for the informative article. Cheers.
commented 2014-02-09 17:00:54 -0500
Hi, just so you know, PZD’s top holding SGS Ltd. One of the branches of this company works directly with fossil fuel extraction. Source:

http://en.wikipedia.org/wiki/SGS_S.A.

I’ve been looking into fossil fuel free investing a lot, and it seems like many funds that appear to be “green” are sneakily slipping in these sorts of holdings. Very frustrating!

I really like this portfolio, I’m currently in the process of setting up a fossil fuel free portfolio. It would be much nicer if things were more straight forward for Canadian FFF investors, and I think you did I good job of laying it out.

I would be interested in your opinion on this fund: (ticker ZQQ)
http://quote.morningstar.ca/QuickTakes/ETF/etf_Portfolionew.aspx?t=ZQQ&region=CAN&culture=en-CA

I went through all 100 companies, and not one of them invests directly in the fossil fuel industry (as far as I can tell).

Thanks for making this site!

-Mike
commented 2013-12-01 17:07:27 -0500
Thank you
Don't let your money do things you wouldn't