A closer look at Carbon Collective's Climate Only Portfolio
Learn more about how Carbon Collective is taking a climate-focused approach when developing their portfolio options.
By Briana Tang
UPDATED: May 18, 2022
Original: October 5, 2021
If you are looking for a robo-advising option that is truly focused on building a clean energy future, Carbon Collective’s Climate Only Portfolio might be the first place you should look. They took a climate-focused approach when building their automated investing service so that anyone can easily add climate positive investments to their portfolio. This article will give an overview of Carbon Collective and their different portfolio options.
What is Carbon Collective?
Unlike other robo-advisor platforms that provide ad-hoc climate-friendly options for clients, Carbon Collective was built with the purpose to help investors divest from oil and gas assets and invest in climate solutions.
Carbon Collective has three portfolio options:
- Core: Mix between stocks, bonds, and a small amount of cash. No investment in fossil fuel companies. Exposure to climate positive companies through Carbon Collective’s Climate Index and low-carbon ETFs. This portfolio also includes both US Treasury Bonds and Green Bonds.
- Climate Only: Mix between Carbon Collective’s Climate Index, Green Bonds, and a small amount of cash. No investment in fossil fuel companies.
- Safety Net: Majority US Treasury Bonds and a minority in Green Bonds. Minority of investments are also placed in low-carbon ETFs, the Climate Index, or cash. No investment in fossil fuel companies.
Within the Core and Climate Only Portfolio options, users can choose riskier or more conservative options to adjust the amount of exposure they will have to stocks or bonds. No account minimum is required when you sign up.
Carbon Collective uses a variety of ETFs to give users exposure to what they call “Low-Carbon Economy” investments. These include ETFs focused on Technology, Healthcare, Consumer Discretionary, Telecommunications, Consumer Staples, Banking, and Insurance. This allows the user to include diversification within their investments while still avoiding very carbon intensive companies. It should be noted that while these are not the main offenders in the climate crisis, many of the investments included here may have a significant carbon footprint. The platform allows users to adjust their inclusion of types of ETFs depending on their preferences.
What's included in Carbon Collective's Climate Index?
Carbon Collective’s Climate Index, a key part of their offerings, is built to include climate solutions as defined by Project Drawdown and IEA's Net Zero 2050 Report. Project Drawdown includes a wide variety of solutions including investments in women’s education and walkable cities, but currently the Climate Index only includes a subset of these focused on Clean Energy, Building Efficiency, Zero-Carbon Transportation, and the Circular Economy. The index also excludes companies that are heavily reliant on the fossil fuel industry, even if they do have some product lines or services focused on climate solutions. The index is balanced annually, and the amount included of each company is in proportion to its market capitalization. Carbon Collective also indicates that each included company passes an ethical criteria.
Anyone can examine the Climate Index on Carbon Collective’s website. At the time that this was written, the ten largest holdings were:
| Company Name | Ticker | Allocation |
| Tesla Motors, Inc. | TSLA | 5.00% |
| NextEra Energy, Inc. | NEE | 5.00% |
| Applied Materials | AMAT | 5.00% |
| Zoom | ZM | 4.94% |
| ABB Ltd | ABB | 4.34% |
| Waste Management | WM | 4.27% |
| Eaton | ETN | 4.19% |
| Nio Inc. | NIO | 4.12% |
| DocuSign | DOCU | 3.49% |
| Johnson Controls International | JCI | 3.34% |
Even in this small sampling, it’s apparent that a wide variety of companies included in the index have a significant interest in supporting a clean energy future.
Performance of Carbon Collective's Portfolios
As a newer entrant into the robo-advising category, it is not possible to directly examine the past performance of Carbon Collective’s offerings. However, the company does provide a backtested version of their methodology looking back 5 years.
All of Carbon Collective’s Core and Climate Only Portfolios outperformed the benchmark portfolios they compare themselves to. They state that benchmarks used are a similar mix of US stocks and bonds. However, it is important to note that there are some shortcomings to their ability to benchmark themselves historically. Carbon Collective’s actual performance is only available as of Oct 18, 2020. Additionally, they state that they are only able to benchmark performance to 2015 as many of the companies included in their portfolio were not traded publicly before that time.
Most climate-positive robo-advisor entrant thus far
By creating their own climate positive index and methodology separate from the generally lacking ESG standards used by others, Carbon Collective’s product offerings stand well above the other climate-focused robo-advisors on the market. For investors who want a hands-off way to invest in true climate solutions, Carbon Collective is the best option on the market.
Interested users do need to be aware that the portfolios have a short track record and do not currently have some of the more advanced features like tax-loss harvesting that incumbent players offer. Nonetheless, for the truly climate-minded investor, Carbon Collective should be seriously considered.
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