Green Growth – An Ethical Index Fund

In the spirit of trying to take more action in life, I occasionally mail various strangers to ask questions to try to entice them into action beyond what I am capable of doing.

I don’t know how successful this actually is, but it is worth the shot, right?

I have been thinking about our investments lately. Wondering if I should take the risk and try to invest in individual companies, solely for the reason that I want my money to have a positive impact on the world, and not to fund things like weapons and fossil fuels.

But that has generally not been the way index funds work. By and large, they buy a small chunk of the entire market, warts and all.

There have been some actively managed funds on the market that dabble in sustainability, but I have not felt convinced that the extra fees are worth it for their inclusion/exclusion criteria.

So I mailed a few financial corporations to ask if they would be willing to consider blazing a trail in the financial industry by creating algorithms for ethical, sustainable index funds.

Lo’ and behold, one of them had just launched such a product one week prior!

Who Are They?

Their name is KLP (Norwegian), and they are a Norwegian pension company. I will have to apologize in advance, as I am not sure if people in other countries are able to invest in KLP.

They began as a few municipalities getting together to ensure the pension of their employees, and it has grown to be the biggest pension company in Norway.

KLP has bought and sold shares in their various funds for years with much stricter ethical guidelines compared to many other investment companies. They don’t buy companies which manufacture the worst cluster bombs or the heaviest tar sand oil, but they have still invested in fossil fuel companies because they are simply such a big slice of the world economy.

What Is This New Fund?

It is called “KLP AksjeGlobal Mer Samfunnsansvar“, which roughly translates into “KLP global shares more societal responsibility”. It is the first fund in Norway to be awarded the Nordic Swan label, an old and generally recognised sustainability label.

MSCI World Index

It begins with the MSCI World index, which covers all sectors and about 1650 companies. Then all companies working in sectors like tobacco, weapons manufacturing and fossil fuel are removed, as well as any company which breaks international norms (about 1450 companies left).

Lastly, they remove all companies that performs poorly when it comes to giving back to society, taking responsibility for their local environment and workers rights.

In the end, you’re left with a slice of the world economy about 750 companies large, but much less destructive and harmful to workers.

So this fund has no rules for inclusion, but they do have firm guidelines for the exclusion of companies.

Will I Be Investing In This Fund?

Short answer? Yes.

I will be, as soon as it becomes available at Nordnet. I am already investing a bit in whole-world index funds. This just seems a better choice among what is currently available.

It’s not perfect, but as far as index funds go, not investing in the worst offenders, even if they are huge companies, is a significant improvement.

Is This The End All, Be All?

No.

There are still issues with this fund. One being that they are invested in only 750 of the biggest companies in the world.

Those are 750 companies which are better than the competition, but they are still massive companies. By definition, small promising startups are left in the dust.

I still am a little bit too much of an idealist. I want to “think globally, but act locally”.

I still want to invest in solar panels, wind power, organic farming and local production/less plastic.

I don’t know how yet, but I know I want to do that.

But at least the 8-12% of my monthly take home pay that is currently getting invested will be invested in a better, or at least less worse way.

What Can You Do?

If you still do not have such index funds available to you, and you want them – don’t just hope they will show up one day.

Write mails to investment firms, to Vanguard, to Fidelity. Wherever you currently invest, and simply ask them if such a thing is available, and if they might consider it.

Be kind and polite. Highlight things like being a frontrunner in their field, market demand and improved reputation.

Don’t be dissuaded if they respond that they are not considering it at present. Just keep contacting companies and ask for sustainable/ethical index funds.

Hopefully they’ll begin to listen once they realise customer feedback on the subject is so large that it might be worth looking into.

The Index Fund Of The Future?

I dream of an index fund, or even excellently managed fund, which invests only in renewable energy, organic farming, healthy infrastructures, sustainable buildings and other future forward organisations.

What sort of companies would you include in a fund like that? And which companies would you most certainly exclude?

I most certainly don’t know enough about investment banking to even begin to fathom how to begin the process of creating a fund of any kind. Based on all the different criteria involved, it is easy to see how selection/exclusion algorithms for such index funds would grow real complicated real fast. Would it be easier if such a company was actively managed?

If you invest in a range of sustainable companies, are you sort of creating your own personal fund? Provided you diversify enough to spread the risk out?

Right now, my investment fun money which I put in an actively managed climate and environment fund is the only one in red. My index funds are in the green.

On the other hand, I know the environment is much more important than little green men. But if these funds don’t make much money, is it better or just as well to donate to environmental charities instead?

What Do You Think?Green Growth - The Launch Of An Ethical index Fund

It is frustrating, but just like the last time I wrote about index funds, I feel as if I have no answers easily available.

What would you do? What would you choose? Should we just start utilising our shared capacity and look for sustainable companies all over the world, make a list, and start investing in those with “fun money” as many often refer to as about 5% of your investment portfolio?

A sustainable warrior fund! How awesome would that be? It’s lots of people making small changes like these that could eventually help #movethedate.

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6 Comments on “Green Growth – An Ethical Index Fund

  1. It’s heartening to see someone else in the financial independence (FI) space initiating this discussion. I had much of the money in my employer based retirement accounts in what’s refered to in the U.S. as the SRI (socially responsible investing) funds available through these accounts for about 10 years. As I described in a recent post on my blog (http://www.triplebottomlinefi.com/why-not-just-invest-in-sri-socially-responsible-investing-index-funds-and-call-it-a-day/), I find the list of companies that are often still included even after the SRI filters are applied (along the lines of the ones that you described in this post) extremely disappointing. Some of the companies that still make it into these SRI funds such as Apple, Johnson & Johnson, and Bank of America, push consumerism and extractive practices or offer services that are not in line with my values.

    I think there are other paths to FI outside of index funds and rental properties. They aren’t as simple, easy, or safe in the traditional sense. However, I think there is great potential for us to expend the FI lens to additional investing and income generation options that support a triple bottom line, which truly values people, planet, and profit. As of a year ago, I have moved the majority of my retirement savings into a self-directed IRA and am excited about the investing options this opens up for me and sharing more about these opportunities on my blog. I look forward to continuing this conversation with you and your readers in the future….

    Liked by 1 person

  2. Thanks so much for writing about this. This has been on my mind a lot since discovering the world of FI, and it’s an issue that’s not really talked about. Social justice and environmentalism are so important to me, and the anti-consumerism element of FI fits in really well with that. But when it comes to investments, having my money invested in companies that undo my other efforts don’t sit well with me. But then again other options are limited… I have a relatively small net worth, so the amount I do have invested in Vanguard isn’t huge, but I’d love to have an alternative. I like the suggestion to be pro-active and to get funds to take notice of potential customers like us. I’d sign up for a sustainable warrior fund straight away!

    Liked by 1 person

    • I know what you mean. It can feel so difficult to “put on your own oxygen mask” (taking care of your finances first) before helping others, but at the same time I would like to do that as sustainably as possible, if I can!

      Liked by 1 person

  3. Hmmm okay. Maybe I won’t move all my new investments this direction, but you have me thinking. Maybe even a small portion of my portfolio for now can go to this sort of fund at a minimum. It’s a hard one to be sure.

    Like

    • Yes, it’s sooo difficult. I would eventually like to be more like Vicki Robin who pays someone to actively manage her money into sustainable businesses. But there is not enough to throw around yet for that!

      Liked by 1 person

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