Fast forward two decades, and his investment philosophy is no longer as black and white. Since the economic downturn a decade ago, he has moved a majority of his retirement portfolio into aggressive growth funds and only factors environmental concerns into the equation when investing in individual stocks.
Smerdon, 43 years old, who lives with his wife and two children in New York City, is juggling his conscience along with his family’s financial health. “It’s the kind of thing where you start building wealth and you say, ‘What’s being stupid and what is not?’ All of that consciousness came in ‘08 and ‘09 when I realized I don’t want to be caught in a conservative trap where I’m not beating inflation.”
Smerdon isn’t an ordinary investor worried about the future of the planet. He’s a climate scientist at Columbia University’s Lamont-Doherty Earth Observatory and co-director of the Earth Institute’s undergraduate program in sustainable development.
He does his part to save the planet, powering his home with renewable energy and saving the biodegradable salad bowls he uses at lunch to compost at home. But he also realizes that things aren’t always so simple. Given the constraints on his time, his resources, and limited investment options, it’s hard to be 100% pure.
For Smerdon, that means relinquishing some of those ideals when investing in bonds, real estate and any variety of funds while constructing an online brokerage portfolio to include specific companies whose core businesses are more in keeping with his work and his values.
“There is this tension between the kinds of things that make sense as an investor and how you can best invest your values and your conscience,” says Smerdon, who says he has seen annualized returns in the midteens since he first began investing in 2013. “I like to think those things balance out in some kind of compromise.”
Some of his colleagues are more rigid in their investment philosophy. Satyajit Bose, associate director of Columbia’s Program in Sustainable Finance, says he avoids stocks such as defense companies. He also shuns stocks on the Norwegian Pension Fund’s list of investments that are excluded from the country’s $1.07 trillion government Pension Fund Global due to ethical reasons.
Steven Cohen, former executive director of the Earth Institute, doesn’t do very much investing of his own, but he doesn’t think complete divestment from fossil fuels is the best approach. “[Climate change] is not going to be solved without the private sector, so I would take them on,” he says. “I would engage with them. I’m not big on divestment.”
Smerdon, Bose, and Cohen are among several hundred earth scientists, economists, and other business and policy experts at the Earth Institute and its 16 academic and research centers. Among their findings so far: “Human activity and the desire for economic improvement are straining the planet’s resources, threatening the health of our environment and ability to thrive.”
Smerdon, who reads stock assessments while putting his kids to sleep, now believes that putting his money into mutual funds makes a lot of sense, but that has forced him to adjust to having less control over the specific companies he invests in.
“Within my retirement account, I’ve basically given up on any kind of idealized investment principles” because within the traditional funds options, he’s unable to weed out stocks he would otherwise prefer not to put money in. Oil companies are virtually impossible to avoid, he says.
Even the exchange-traded funds that come the closest to aligning with his background in climate change—the “low carbon” ETFs—often include oil and defense stocks that run against his conscience.
In 2013, he opened an E*Trade account, which gave him leeway to select individual stocks. Since then, gains in individual stock purchases have diminished his ETF share. Exchange-traded funds like the iShares Social Fund (DSI) and the Vanguard Mid-Cap ETF (VO) still make up 15% of his funds portfolio, but that is a far smaller share than in the past.
Smerdon’s work as a climate scientist inevitably seeps into the construction of his stock portfolio. His climatological research has shown that the Southwest and the Plains States may be facing global warming megadroughts—droughts that last for several decades—as early as 2050. He owns shares of Pennsylvania-based water utility Aqua America (WTR), but says he’s skeptical of investments “that depend on the minimal and fickle water resources in the West,” such as the agriculture sector.
Climate-related opportunities and risks aren’t the only things that Smerdon considers when picking stocks. Nostalgia drives his investment in Abbott Laboratories (ABT), the subject of investment talk he heard about at the dinner table when he was growing up. Smerdon’s parents own the family stock that has been passed down from previous generations but Smerdon bought his own shares.
“With the baby boomers aging, it’s probably stupid not to be in health care in some form or another,” he says.