The Supreme Court last week limited the Environmental Protection Agency’s ability to regulate greenhouse gas emissions to fight climate change — and that may leave eco-conscious investors wondering what they can do.
Certain investment managers offer funds meant to promote values such as environmental preservation and social good, and those funds have become more popular in recent years.
Trying to pick a so-called environmental, social and governance fund — especially one that aligns well with your interests — can seem challenging at first, however.
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“I think it can be really hard to know where to start,” said Fabian Willskytt, associate director of public markets at Align Impact, a financial advisory firm that specializes in values-based investing.
But there are some simple steps investors trying to make an impact on climate change can take to get started and invest with confidence. Court says Congress has regulatory authority
A coal burning power plant.
Dwalker44 | E+ | Getty Images
In a 6-3 ruling, the Supreme Court on Thursday stripped away some of the EPA’s authority to rein in planet-warming carbon emissions from U.S. power plants.
Chief Justice John Roberts and the court’s five other conservative members said Congress, not the EPA, has the power to create a broad system of cap-and-trade regulations to limit emissions from existing power plants to help transition the country from coal to renewable energy. (A cap-and-trade system is one policy mechanism to reduce emissions.)
Fossil fuel-fired power plants are the country’s second-largest source of carbon pollution in the U.S., behind transportation.
U.S. Supreme Court Chief Justice John Roberts and Supreme Court Justice Elena Kagan on Feb. 4, 2020 in Washington.
Mario Tama | Getty Images News | Getty Images
“Capping carbon dioxide emissions at a level that will force a nationwide transition away from the use of coal to generate electricity may be a sensible ‘solution to the crisis of the day,’” Roberts wrote. “But it is not plausible that Congress gave EPA the authority to adopt on its own such a regulatory scheme.”
While the decision still leaves room for the EPA to regulate emissions more broadly, many see it as a major setback for the Biden administration’s agenda to combat climate change. Meanwhile, climate legislation proposed by Democrats has been stuck in Congress.
“Today, the Court strips the Environmental Protection Agency (EPA) of the power Congress gave it to respond to ‘the most pressing environmental challenge of our time,’” Justice Elena Kagan wrote in her dissent, joined by the court’s two other liberal members. Just what are ESG funds?
Steve Cicero | Photographer’s Choice | Getty ImagesFunds that allocate investor money according to ESG issues held $357 billion at the end of 2021 — more than four times the total three years earlier, according to Morningstar, which tracks data on mutual and exchange-traded funds.Investors poured $69.2 billion into ESG funds (also known as sustainable or impact funds) last year, an annual record, according to Morningstar.These funds come in a variety of flavors. Some may seek to promote gender or racial equality, invest in green energy technology or avoid fossil fuel, tobacco or gun companies, for example.Women and younger investors (under 40 years old) are most likely to be interested in ESG investments, according to Cerulli Associates survey data. About 34% of financial advisors used ESG funds with clients in 2021, up from 32% in 2020, according to the Financial Planning Association.There are now more than 550 ESG mutual and exchange-traded funds available to U.S. investors — more than double what was available five years ago, according to Morningstar.“An individual investor has a lot more [ESG options] and can build a portfolio in ways they couldn’t 10 years ago,” said Michael Young, manager of education programs at the Forum for Sustainable and Responsible Investment. “Almost every [asset] category I can think of has a fund option, so we’ve come a long way.”But fund managers may use varying degrees of rigor when investing your money — meaning that environment-focused fund you bought may not necessarily be as “green” as you might think.Here’s an example: Some fund managers may “integrate” ESG values when picking where to invest money, but that strategy may only play a supporting (and not a central) role. Conversely, other managers have an explicit ESG mandate that acts as the linchpin of their investment decisions.But investors may not know the difference […]