Future Danger: The Fossilized Portfolio

Dinosaurs once dominated the earth, but these creatures -- many formidable, powerful giants -- are now extinct. The epic fossilized remains of many dinosaurs residing in museums are amazing to behold, although they're completely alien to our living world.

Of course, most current discourse regarding "fossils" has to do with fossil fuels. (Incidentally, the creatures that make up fossil fuels like oil, gas, and coal actually predated dinosaurs.) Beyond any schoolchild's lessons about prehistoric and even primordial times, today's debate about fossil fuels is all about the future, not about the past.

Recent investor attention, and even agitation, about fossil fuel companies and climate change should remind us of dinosaur danger. It's risky to assume that a fossilized portfolio will always guarantee the great, stable returns it delivered in the past.

Today, there's growing shareholder activism and increasing awareness of fossil fuels, and the serious risks (and investment opportunities) in tackling the dangers of climate change. Any investor, large or small, can be part of this movement.

The climate change topic heats up
The US SIF Foundation, an association that brings together sustainable and responsible investors of all types, is releasing a series of handbooks for individual investors under the umbrella of "How Do I SRI".

The organization just released its first publication, illustrating how individual investors like you and I can go beyond simply addressing climate change in our investment theses, but also choose investments directly to help curb it. The first guide is called "Investing to Curb Climate Change: A Guide for the Individual Investor" (link opens a PDF), which focuses primarily on individual investors who are concerned with climate change, and what they can do to make their investments matter.

At its core, the information reflects many longtime Foolish tenets. Investors can use their "votes, voice, and power" to make a difference. In fact, this very column has often tackled the fact that every investment dollar and voice can make a difference.

The first handbook in the series focuses on climate change and fossil fuel companies, the divestment of which has been a growing trend in the responsible investing arena. In fact, it's very timely, given the amount of talk about fossil fuel divestment campaigns by everyone from students to churches.

How to make a difference
Through direct ownership, shareholders can show whether they approve of a companies' policies or not. For example, they can put their money behind the companies that have good policies in place to drastically reduce their carbon footprints. They can sell shares of the companies that aren't addressing the risks, or are downright bad corporate citizens in this regard. Investors can let their consciences be their guides here, and make the decisions about which tack they'll take.

The US SIF report points out an informational resource that most Foolish investors are probably already familiar with: the risk factors section in companies' annual 10-Ks filed with the SEC. Companies are increasingly disclosing climate-change-related risks, including the regulatory environment.

The Carbon Disclosure Project is another good resource to check out. More than 4,000 companies currently participate, reporting their data on greenhouse gas emissions and their initiatives to combat climate change risk.

Not only does the report recommend paying attention to shareholder resolutions and voting according to ideals in this area, it also points out that shareholders who own $2000 worth of shares of a company's stock for at least a year can file their own resolutions to put issues up for a shareholder vote at the company's annual meeting. Even individuals who don't meet the financial criteria on their own can band together with other like-minded shareholders to file a resolution.

The report includes another great piece of advice for investors who choose to sell due to ethical concerns on climate change and other issues. Let the company know why you sold. Look on the company's investor relations page and let the contacts know why you've decided to take your money and run.

An unseasonably warm proxy season
US SIF is not the only organization involved in this growing trend.

Environmental advocacy group Ceres has long brought together companies, NGOs, policymakers, and environmentalists to talk about the economic risks and opportunities in climate change.

Just today, Ceres released a rundown of shareholder resolutions regarding fossil fuels issues. This past proxy season, an impressive 110 resolutions were filed at 94 major companies, tackling fracking, fossil fuel reserve risks, and climate change risks and opportunities.

Interestingly, energy behemoth ExxonMobil (NYSE: XOM  ) is one of the companies cited for not having started a dialogue with shareholders. Even more interesting, a significant 30% of ExxonMobil investors voted in favor of a fracking resolution.

On the victorious side of things, though, shareholder resolutions were withdrawn at 40 companies when managements agreed to have discussions about the issues. One particularly striking example is EOG Resources  (NYSE: EOG  ) , a company that conducts hydraulic fracturing (more popularly known as fracking) to extract natural gas.

EOG Resources is improving its disclosure of greenhouse gas emissions, and is working to reduce the use of toxic chemicals in the fracking procedure. Even more, it has stopped using freshwater for its business, and instead reuses all the water that comes to the surface during the fracking process.

Have you ever heard of fugitive methane emissions? It sounds like an exciting story (or maybe even a funny one), but apparently methane emissions have a worse potential effect on global warming than carbon dioxide. Shareholder votes at several natural gas producers garnered significant support, including an impressive 38% voting in favor proposals regarding methane emissions at ONEOK (NYSE: OKE  ) .

Interestingly, ONEOK shares are surging about 20% today after its announcement that it will separate its natural gas distribution component into a separate company, One Gas. Regardless of the bullishness surrounding this transaction, maybe another thing investors should bear in mind is the company's willingness to acknowledge climate change and engage with concerned shareholders.

Here is Ceres' full list of the 2013 shareholder resolutions, which includes companies that have agreed to address climate change and environmental issues, as well as the results for those shareholder proposals that went to vote.

Fossils are for museums, not portfolios
Much like the future of our world, the future of investing is going to look very different than it did in the past. Addressing climate and environmental concerns are essential; again, what worked in the past often does not work in the future when it comes to public companies. Failing to evolve does result in extinction.

When it comes to fossil fuels, don't let your portfolio become a dinosaur. History is interesting and important, but it's most valuable in a dusty museum, not in a portfolio set to yield profitable growth. Finding the right plays while historic amounts of capital expenditures are flooding the energy industry will pad your investment nest egg. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza". Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

Check back at Fool.com for more of Alyce Lomax's columns on environmental, social, and governance issues.


Read/Post Comments (11) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 25, 2013, at 3:40 PM, andiconda wrote:

    Fossil Fuel is made a scarcity to profiteer very unregulated and out of control prices (which our government has no buissnes in controling right republicans?. doubly No reason dismiss all use of it, however, for the mass transportation of our human flesh, for the sake of the entire planets climate and ecosystems health, all humans should be 100% in on a new clean energy source. We have the technology

  • Report this Comment On July 25, 2013, at 6:37 PM, tigerade wrote:

    Divest from fossil fuels today.

  • Report this Comment On July 25, 2013, at 8:15 PM, bohacz wrote:

    Fossil fuels will be the main source of fuels for the next 50-75 years. Are we going to use windmills or solar panels to energize our cars, trucks, railroads, airplanes? What about electricity and heat for our cities. Windmills? Solar? I don"t think so. Next snow storm in your city let us see what a windmill powered snowplow will do. Nothing will replace natural gas, oil or coal to energize the world's cities. if you think differently I hope you invest in solar or wind, whereas, I am investing in oil, natural gas and pipelines. Let us compare notes in 5 years. Rich

  • Report this Comment On July 26, 2013, at 4:41 PM, unclemike7 wrote:

    Keep drinking your KoolAid............I'll keep investing for my future enjoyable retirement.

  • Report this Comment On July 26, 2013, at 8:26 PM, DufferWD wrote:

    Alyce, you call this an investment article? I'm with Uncle Mike.

  • Report this Comment On July 26, 2013, at 10:58 PM, aleax wrote:

    Interestingly, it's at least possible that natural gas (differently from petroleum and coal) may not all be a _fossil_ fuel -- see http://www.rationaloptimist.com/blog/is-gas-made-in-the-eart... . Those lakes of frozen methane on Titan (a moon of Saturn) are not likely to come from biological sources (i.e, "fossils"), after all...

    If it does eventually turn out that NG can be produced by outgassing and/or natural recycling of carbonate in the planet's crust (and so is essentially inexhaustible, like e.g geothermal energy per se), would that change your investment thesis regarding NG (as opposed to coal and oil)?

  • Report this Comment On July 27, 2013, at 2:18 PM, cmalek wrote:

    The writers at Motley Fool ought to get on the same page. One pundit is pushing investing in oil companies, another pundit is advocating against it. What's a confused investor to do?

  • Report this Comment On July 27, 2013, at 5:25 PM, lowmaple wrote:

    Diversify. You can buy both.

  • Report this Comment On July 29, 2013, at 9:55 AM, TMFLomax wrote:

    cmalek,

    The writers at Motley Fool all have different opinions on different kinds of investing strategies. It's not that different from disagreeing on whether "value investing" is better than "growth investing," and people even often disagree with what those strategies entail. We encourage all those different opinions and sharing of information so that investors can decide what they believe is best for their portfolios -- or for their consciences -- and go from there. (Personally, I don't believe that positive returns and a clean conscience are at odds, of course.)

    Best,

    Alyce

  • Report this Comment On July 29, 2013, at 12:58 PM, seaside72 wrote:

    Alyce and all those that agree with her could make a bigger statement by boycotting all stocks whose companies have products derived from fossil fuels. And, going one step further by boycotting the products themselves. Think about it and lets encourage further research.

  • Report this Comment On July 30, 2013, at 11:59 AM, TMFLomax wrote:

    Thanks for sharing all the thoughts everyone! It's a big topic with many angles.

    Best,

    Alyce

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