In the U.S., there are just 15 mutual funds (with the highest sustainability ratings from Morningstar Inc.) that have zero exposure to fossil fuels.
Fifteen.
Zero exposure means the funds have had no investments in thermal coal extraction, thermal coal power generation, oil and gas production, oil and gas power generation and oil and gas products and services during the past 12 months, according to researchers at Morningstar.
From a universe of so many so-called sustainable funds, “it is really surprising how many still hold fossil fuels,” said Alyssa Stankiewicz, a sustainability analyst at the Chicago-based research firm.
With shares of most clean-energy stocks falling for a second straight year, there are some options for environmentally-conscience investors. Morningstar analysts recommend four funds: Brown Advisory Sustainable Growth, Calvert Equity, Parnassus Mid Cap Growth and Pax Global Opportunities.
The biggest of the four is the $6.5 billion Brown Advisory fund. Its five largest holdings, as of Dec. 31, were Microsoft Corp., Alphabet Inc., UnitedHealth Group Inc., Intuit Inc. and Danaher Corp., and the fund’s three-year annual return is 24.5%. (The S&P 500 rose at a rate of 20.4% in the same period.)
The smallest of the endorsed funds is the $131 million Pax Global Opportunities Fund. Its biggest investments were Microsoft, IQVIA Holdings Inc., Mastercard Inc., Linde Plc and HDFC Bank Ltd. at the end of September. The fund’s three-year record is an annualized gain of 18%.
Morningstar issued a report last week that focused on sustainable funds. There are different types of sustainable funds: Some focus on managing exposure to broad environmental, social and governance issues that may affect companies and their industries. These include business ethics, treatment of workers, carbon emissions and pollution. Others narrow their approach to more discrete themes, such as gender diversity in companies or climate change mitigation strategies.
In the past year, a large number of climate-focused funds have launched. Some invest in companies seeking to lower their carbon risks, while others steer assets to companies developing innovative solutions to climate change. And, sometimes it’s a combination of both.
Stankiewicz ran a search that found 81 funds with less than 1% exposure to fossil fuels on average over the past 12 months. (That includes the four mentioned above.) Morningstar assigns a carbon-risk score to each of the funds, which measures the obstacles they face from the transition to a low-carbon economy—and, the lower the score the better.
Of the 15 funds with no exposure to fossil fuels, Brown Advisory had the lowest carbon-risk score, at 2.03; and the $168 million Vert Global Sustainable Real Estate Fund had the highest score, at 8.19.
Vert’s higher score is likely because building and construction projects are typically high polluters. In fact, the building sector accounts for about 38% of all energy-related carbon emissions, according to the United Nations Environment Program.
So investors beware—even funds with no specific fossil-fuel investments can still hold a lot of dirty assets.
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