Note: Marketplace podcasts are meant to be heard, with emphasis, tone and audio elements a transcript can’t capture. Transcripts are generated using a combination of automated software and human transcribers, and may contain errors. Please check the corresponding audio before quoting it.

Amy Scott: If I’m an investor, you know, worried about the climate crisis, what kind of impact do my retirement savings have?

Alex Wright-Gladstein: It turns out that moving your investments to a climate friendly investment option is the single most impactful thing that the average American can do for climate change.

Amy Scott: We’ve been talking so far this season about other people’s money, the trillions of dollars of investor capital that can fund climate solutions or keep fueling the crisis. But what about you and me? What can we as individuals do to protect our savings from climate risk and not contribute to the problem? To find out, I called up Alex Wright-Gladstein. She’s the founder and CEO of Sphere, a company focused on climate friendly investing, and Alex says there’s a lot of invisible power in our retirement portfolios.

Alex Wright-Gladstein: It turns out it’s more impactful than the combination of going vegan, never flying again, driving an electric car, putting solar on your house.

Amy Scott: Sphere has a tool online where you can look up the carbon impact of your workplace retirement plan. I type in Marketplace’s parent company.

Ooh, $19 million. This is how much American Public Media Group employees have invested in fossil fuel companies through their retirement savings plan.

And scroll through the report, which is based on tax filings from 2021.

On average, about $15,700 per employee, and then it compares us to some other companies. So Walmart is similar. Apple is actually lower, 8.1%, but of course, as that’s a percentage, the actual money would be significantly more.

If my employer divested from fossil fuels, the website tells me, it would be like taking 7800 cars off the road each year. Anyone listening in HR? So that’s my workplace as a whole. For a more granular look, Alex points me to another website called fossilfreefunds.org, where I can enter the ticker symbols for the individual funds I’m invested in.

All right, so…

And that’s when things get a bit grimmer.

Fidelity international index. I’m going to look up that. Ooh, it gets an F.

Alex Wright-Gladstein: Yeah.

Amy Scott: Oh shoot. Fossil fuel exposure of 10.33% places the fund in the F tier. Oof, okay.

Alex Wright-Gladstein: It’s invested in companies including Shell and Total and BP, etc.

Amy Scott: Alex tries to reassure me.

Alex Wright-Gladstein: I will say that’s pretty standard for any international index fund.

Amy Scott: Okay…

I poke around a bit more, try out a few more index funds that I have. It doesn’t get much better. A D is as good as it gets. Ouch. Alex says, lately, more people are looking for greener alternatives.

Alex Wright-Gladstein: Especially since the most recent election, I think people realized they can’t rely on the government to save us when it comes to climate change, and so they’ve been turning to what they can do.

Amy Scott: That raises a really important question, which is kind of the question that is overarching our series, can we invest our way out of the climate crisis?

Alex Wright-Gladstein: I believe the answer is yes. I really do believe that this is the most impactful thing that we can do to turn around climate change, and we absolutely can invest our way out of the crisis.

Amy Scott: I’m Amy Scott. This is How We Survive. Last episode, we looked back at the origins of the ESG backlash. In this episode, we look forward to the future of climate-conscious investing, how we as individuals can make a difference with our own retirement savings, and how the country’s largest city is using its shareholder power to accelerate the energy transition. While that acronym ESG might be dead or deeply wounded, the principles behind it live on. This is episode three, reincarnation.

Before she started Sphere, Alex Wright-Gladstein was running a clean tech company and wanted to offer her employees a climate-friendly option in their retirement plan. But she had a hard time finding any.

Alex Wright-Gladstein: And when I finally got offered some options by our 401K advisors, they were offering ESG options. And I had never heard the term ESG before. I didn’t know what it meant, but I looked up the funds, and I saw that they were invested in fossil fuel companies. And I was like, Okay, I don’t know what ESG means, but I don’t think it means climate friendly.

Amy Scott: Remember, the climate part of ESG is concerned with climate risk, how companies are preparing for the risks the climate crisis might pose, not necessarily how good they are for the environment. So Alex decided to create her own index fund, the Sphere 500 Climate Fund.

Alex Wright-Gladstein: The key thing we do is exclude fossil fuel companies.

Amy Scott: The Sphere 500 is made up of the top 500 companies in the US by market value, minus fossil fuel companies. It also excludes some other businesses, like tobacco, private prisons, and weapons manufacturers. Alex says Sphere also votes its shares in favor of climate friendly proposals, which she says is rare for traditional fund managers.

Alex Wright-Gladstein: Most people don’t think about this, but we’re having our shares voted on our behalf by fund managers who are voting against climate related shareholder proposals 98% of the time.

Amy Scott: Alex says none of this means investors lose out on returns. The Sphere 500 has low fees, similar to any S&P 500 index fund, and it performs about as well.

Alex Wright-Gladstein: It’s really brilliant how really it’s the fossil fuel industry and the fossil fuel lobby has framed this as, Well, you gotta choose between investing with your progressive values or investing for good returns, when data actually shows that you don’t have to choose. You can do both.

Amy Scott: Today, Sphere’s fund is available in more than 200 401K plans, but not to public retirees in Texas. Remember the blacklist we talked about last episode? Sphere’s fund is on that list, meaning Texas pension funds can’t invest in it. Alex says Sphere protested the decision.

Alex Wright-Gladstein: We said, Yes, we care about climate change, but look, here are all the financial reasons that we’re excluding fossil fuels. We showed how they’ve been the worst performers of the economy over the past 10, 15, 20 years. We showed how volatile the industry is, and how if you want to avoid that volatility, it can make sense to exclude them.

Amy Scott: But it stayed on the blacklist. Now the company is part of a lawsuit challenging the state’s anti-ESG law on constitutional grounds. But while Texas and a growing number of states have sought to outlaw climate-conscious investing, other governments are taking the opposite approach, like New York City.

How did someone manage to get graffiti on that building? That’s amazing.

Brad Lander: That is impressive.

Amy Scott: From a high rise in Manhattan’s financial district, I’m taking in the view of the New York Harbor with Brad Lander, controller of New York City.

Brad Lander: We are in Seven World Trade Center overlooking Brooklyn and Queens and Long Island and lower Manhattan. It’s a gorgeous view this morning.

Amy Scott: As the city’s chief financial officer, he monitors the health of its finances and its public pension funds, money belonging to hundreds of thousands of New Yorkers living in the boroughs surrounding us.

Brad Lander: You can see what a harbor city it is. You know, it’s hard not to come up here and think about what Superstorm Sandy did and how long we have to go to be ready.

Amy Scott: In 2012, New York City was caught by surprise when Superstorm Sandy walloped the East Coast. It caused massive flooding in the city and an estimated $19 billion in damage. 52 people died.

Brad Lander: Everyone was impacted. Of course, people in communities that were were flooded and displaced were most directly impacted. The subways were out for a few days, and the power was out and you couldn’t get gasoline into the gas terminal so you couldn’t buy gas in the gas stations.

Amy Scott: It was a long road to recovery, and Controller Lander says it was a wake up call.

Brad Lander: So it really did spark something in the city.

Amy Scott: So in the aftermath of the storm, New York decided to take action. The state and the city are now working on slashing emissions and making buildings more efficient, and taking a hard look at their investments.

Brad Lander: If we don’t collectively achieve decarbonization goals, it’s not only going to cost lives like it did in Superstorm Sandy, it’s going to cost trillions of dollars, and we’ll feel the impact of that in our funds.

Amy Scott: There’s the physical risk to investments from extreme weather and sea level rise, but also, so called transition risk, from the shift to a low carbon economy. You don’t want a portfolio full of fossil fuel stocks when everyone’s driving an EV.

Brad Lander: So we’ve adopted one of the most ambitious Net Zero implementation plans, one of the boldest climate transition investing strategies of any US public pension fund.

Amy Scott: That strategy involves divesting from some fossil fuel companies and engaging other companies, like utilities, to pressure them to reduce emissions. Not everyone is happy with that approach. A few years ago, some employees filed a lawsuit accusing the city’s pension plans of a breach of fiduciary duty for divesting from fossil fuels. 

Brad Lander: But the judge dismissed the case because their pensions are being paid, our returns are good, and the judge concluded that they lack standing.

Amy Scott: In fact, he says last year, returns were 10%, beating most of the system’s public sector peers. The city is also investing its pension funds in climate solutions.

Brad Lander: We increased our clean energy and climate transition investments now to over $11 billion in some amazing companies.

Amy Scott: One of those companies is Nine Dot Energy.

Yeah, we made it.

Adam Cohen: Our little corner of the northeast Bronx. 

Amy Scott: Pretty cool. I’ve never been up here.

In a fenced in gravel lot sandwiched between an elementary school and a big shopping center, I meet up with co-founder, Adam Cohen.

All right, you want to show us around?

Adam Cohen: Sure.

Amy Scott: With his navy hoodie, he looks the part of a young entrepreneur.

Adam Cohen: We can walk this way.

Amy Scott: We walk down a row of big gray cabinets.

Adam Cohen: So these are batteries. These are big batteries.

Amy Scott: Can you unlock one of those cages for us or no?

Adam Cohen: No.

Amy Scott: What would happen?

Voice 1: A really painful death. No, I’m just kidding.

Adam Cohen: No, nothing. Nothing would happen.

Amy Scott: These cabinets hold a combined three megawatts of battery storage. Nine Dot estimates that’s enough to power about 3000 New York City households for four hours on a hot summer day. The batteries sit here all charged up with energy from the power lines overhead.

Adam Cohen: And then hold that power until the utility says, Please give it back.

Amy Scott: When the grid for the city gets stressed, maybe it’s an especially hot summer day and everyone’s running their AC, the city utility, Con Ed, can call on Nine Dot to help relieve that stress.

Adam Cohen: So last summer, it was called half a dozen times, so in the peak of the peak days.

Amy Scott: Enough to reduce greenhouse gas emissions by a combined 24 metric tons. That’s the equivalent of 9000 car trips on the Cross Bronx Expressway. Nine Dot’s hope is that more of these battery storage farms can be built all over the city, reducing the reliance on dirty power plants and eventually helping the grid transition to renewable sources.

Adam Cohen: The sun only shines when nature tells it to, the wind only blows when nature tells it to, but people use electricity when they decide to, and so a battery helps mediate that process. It pulls in the extra power when it’s available and then we put it back out when people call for it.

Amy Scott: Nine Dot is still in growth mode, but Brad Lander and the city of New York hope the investment pays off, not just for retirees, but for future generations, like the kids at the school right across the street from the battery farm.

Virtue Onoja: I’m definitely an artist. One thing about me, I’m definitely an artist.

Amy Scott: Virtue Onoja is a sixth grader who attended the Bronx Charter School for Better Learning II. Two years ago, Nine Dot invited students to paint a mural along the outside of the fence with a local artist.

Virtue Onoja: Down over here, I did like most stuff over here. I drew like most of the park and the trees.

Amy Scott: Walking me up and down the fence, Virtue points out some of her drawings.

Virtue Onoja: I drew a clear blue sky, no pollution, no nothing. Beautiful flowers, beautiful yellow flowers and the sun.

Amy Scott: There are also drawings of windmills and electric school buses. It’s a hopeful imagining of the future that the city is trying to invest into reality. But while New York is loudly and proudly pushing ahead, another phenomenon has emerged in the wake of the ESG backlash.

Bruce Usher: I expect the next four years are going to be a period of what we call green hushing.

Amy Scott: Coming up after the break.

Amy Scott: Just a few weeks ago reading the news, I noticed Larry Fink, the CEO of BlackRock, was out with his latest open letter. It’s a wide ranging essay touching on the democratization of investing, infrastructure and the retirement savings crisis. In 27 pages, no mentions of ESG, no surprise, or climate change. There was one mention of decarbonization in reference to China. Instead, he argued for energy pragmatism. That’s something he talked about recently as keynote speaker at one of the largest oil and gas conferences in the world.

Larry Fink: I think across the board, we have to think about power and energy in a pragmatic way. When the whole conversation, including some of my CEO letters, back a few years back when we talked about that we’re going to have to focus on decarbonization. I still believe that, but I also caution that any decarbonizing technology right now is highly inflationary.

Amy Scott: As in, too expensive.

Larry Fink: We have to be working side by side in trying to find ways of reducing the costs of wind and solar and other energy sources. But let’s be clear, we’re going to be dependent on dispatchable power for a long, long time.

Amy Scott: Dispatchable power meaning sources that can be turned on or off and still rely heavily on fossil fuels. Gone is the urgency from Fink’s previous letters. And to be fair, the global situation has changed. Russia’s invasion of Ukraine increased demand for US natural gas. The explosion of AI requires more and more energy, and the United States has elected a pro-fossil fuel president who is hostile to the energy transition and actively trying to stop it. All of these factors, along with the ESG backlash, have led investors to push climate risk off the main stage and into the wings.

Bruce Usher: I expect the next four years are going to be a period of what we call green hushing.

Amy Scott: This is Bruce Usher at the Columbia Business School. We heard from him in the first episode about the origins of ESG. You’ve heard of greenwashing, where companies make misleading claims about how eco-friendly they are. Bruce says, with green hushing…

Bruce Usher: Businesses are not talking about what they’re doing on climate change for political reasons, or they just feel there’s not that, you know, it’s not advantageous for them to talk about it. But in fact, the business activity may not change that much. If renewable energy is profitable, people will keep doing renewable energy. If, if selling electric vehicles is successful, they’ll keep selling electric vehicles.

Amy Scott: So while BlackRock may not talk so much about ESG, Bruce says phrases like transition finance have taken its place.

Bruce Usher: Transition finance is financing the transition from fossil fuels to cleaner energies. It’s very similar investing. The point is that companies are going to change what they say, based on the political temperature, but at the end of the day, if there’s a profitable business in these industries, they will continue to invest in them.

Amy Scott: I asked Jason Isaac about this. Remember from last episode, he was the architect of the original anti-ESG law in Texas.

Amy Scott: So have you heard the term green hushing?

Jason Isaac: I wasn’t using that term green hushing, but I may have to add that to my vocabulary.

Amy Scott: Jason agrees, even after the Texas law passed, he’s not convinced financial firms have changed their ways.

Jason Isaac: These financial institutions are essentially now kind of like reverse virtue signaling. They’re virtue signaling to Republican or red states that, oh, we’re getting out of the Net Zero Asset Managers Initiative. We’re getting out of the Net Zero Banking Alliance. But in their statements, they’re saying we’re going to continue the policies that align with the energy transition. We’re going to continue to work towards net zero and decarbonization in alignment with the Paris Accords.

Amy Scott: Meanwhile, ESG is still popular in Europe and Canada and other parts of the world, but there’s no question Jason’s and others’ efforts have had a chilling effect. In the past two years, investors have pulled more money out of US ESG funds than they’ve put in, according to Morningstar. So many firms have withdrawn from the Net Zero Asset Managers Initiative it suspended activities. And Brad Lander, New York City controller, says that matters.

Brad Lander: It is deeply disappointing the ways that asset managers in general including BlackRock and large financial institutions have walked back from what they know is wise fiduciary investing. This is an urgent crisis. If we had 100 years for the energy transition that we have to make, it might be a different story. But no, if you know climate risk is financial risk, and you believe it’s your fiduciary duty to invest in ways that are attentive to risk, you’ve got to have the courage to stand up and say so.

Amy Scott: We started this season with a question, was I naive to think Wall Street might actually save us from the climate crisis? And the answer is, yeah, a little bit. But the reality is also more complicated than I realized. These are crucial years to be slow pedaling climate action, the damage is very real. But as inaction becomes more and more costly, investors seeking profits and ways to manage their risks from climate change, will continue to fund solutions, whatever their motivations. Like it or not, nothing motivates people like money.

Thanks for listening. If you’ve liked this series, please rate and review and share this with a friend, and if you’re hungry for more How We Survive, we’ve done seven seasons now for you to dig into all about climate solutions. I’m Amy Scott. Sophia Paliza-Carre and Hayley Hershman produced this episode, with help from Katie Reuther. Caitlin Esch is our Supervising Senior Producer. Editing by Paddy Hirsch. Scoring and sound design by Chris Julin, mixing by Brian Allison. Special thanks this week to Elizabeth Trovall. Our theme music is by Wonderly. Bridget Bodnar is Director of Podcasts. Francesca Levy is the Executive Director, and Neal Scarbrough is the Vice President and General Manager of Marketplace.