Heads up, Green Investors: Climate-Focused Mutual Funds Have Stakes in Oil

By Anum Yoon

With all eyes on the COP21 World Climate Summit in Paris this month, the world watched as global leaders met to try to affect lasting change and create a binding agreement for reducing carbon emissions.

French President Francois Hollande called the event “the last chance to save the world,” and though his words are dramatic, they may not be far from the truth. Scientists are concerned about rapid temperature rise on the planet and warn that the consequences of another 2-degree rise could be disastrous.

Economic leverage

Apart from relying on governmental institutions to act, one way in which concerned citizens and institutions around the world are seeking to slow climate change is by investing in green energy businesses and companies that do not pollute the environment or deal in damaging fossil fuels. For example, universities are divesting their endowments of companies that sell fossil fuels, and conscientious investors are seeking to retool their own portfolios to seek out green investments.

The boom in green investing comes with a major caveat, though: Several of the most popular mutual funds designed to appeal to eco-conscious investors include holdings in major oil and gas companies, according to data from Reuters.

Top-performing climate-conscious mutual funds

Of the 20 largest mutual funds designed to address climate change, nine had positive rates of return for 2015, as of November. The top five performers earned between a 9.1 and 15.8 percent return and did not include any investments in fossil fuels. These top funds are, in order of performance:

• AEGON Climate Change Reszveny ba: 15.8 percent


• Schroder ISF Glo Climate Change Equity A Acc: 13.7 percent


• Nordea 1 – Climate and Environment Equity BP EUR: 13.2 percent


• Jupiter JGF Global Ecology Growth L EUR Acc: 10.8 percent


• RobecoSAM Global Small Cap Equities EUR B: 9.1 percent

Investors in these top mutual funds are getting what they paid for and proving that environmentally-minded investments can also earn impressive returns.

Climate-focused mutual funds with oil and gas investments

Of the same 20 mutual funds, six were found to contain investments in oil and gas companies. Of these six, only two had positive returns so far in 2015, while the other four experienced net losses as of November. The mutual funds with fossil fuel investments include:

• Mirova Globael Transition Energy Equity Fund RAE: 8.2 percent


• Climate Assets GBP R Acc: 0.3 percent


• Jih Sun Anti-Global Warming Fund: -0.5 percent


• Shinko Global Warming Prevention Equity Fund: -2.2 percent


• Nomura Global Climate Change Fund: -3.5 percent


• HSBC GIF Global Equity Climate Change AC USD: -4.4 percent

These funds held anywhere from 1.27 percent to 5.79 percent of their investments in fossil fuels.

Check the prospectus to understand the fund’s goals

A careful reading of any mutual fund’s prospectus will reveal all of its investments, and this is especially important for the rising class of conscientious investors carefully considering the ethical pros and cons of their investments. If the investors' goals are that zero of their dollars go to companies that produce oil and gas, they must look beyond the potentially misleading name of the fund and read the prospectus in full. This due diligence is important, as the names of mutual funds are not regulated.

It’s also worth considering the overall goal of the fund. For example, the HSBC fund listed above states in its prospectus that it strives to invest in and support “companies that aim to be the market leaders in their respective sectors at managing their businesses in the face of climate change.” Given that goal, fund managers feel comfortable choosing to invest in oil and gas companies that are taking steps to address climate change in their practices, perhaps by reducing waste and increasing efficiency in other areas of their supply chain.

Market leaders might be oil and gas companies doing more than their counterparts for the environment, though it’s difficult to tell from the prospectus alone how high the bar is set for leadership in this area. In a sector rife with pitfalls for investors, some eco-conscious investors may decide that encouraging companies to try harder is a worthy goal for their money.

The bottom line

As always, individual investors should practice due diligence and thoroughly research mutual funds before buying shares. Knowing how well a given fund performs in both its monetary returns and its ethical makeup is key to getting the most out of any portfolio.

In the end, it’s up to each person to decide for themselves whether a better strategy is to avoid putting money into fossil fuels entirely, or to reward oil and gas companies who are making a good-faith effort at cleaning up their acts. Regardless of which philosophical take is preferred, conscientious investors are changing the face of the market in ways that will continue to resonate in the future.

Image Credit: Life of Pix

Anum Yoon is a writer who is passionate about personal finance and sustainability. She often looks for ways she can incorporate money management with environmental awareness. You can read her updates on Current on Currency.