Impacting investing + climate action with Zach Stein of Carbon Collective

Zach Stein is a cofounder of Carbon Collective, an automated investment manager built for solving climate change. Carbon Collective helps people make smart, sustainable investments by nixing fossil fuel corporations, backing climate solutions, and pressuring the rest of the market to decarbonize. Managing your financial investments can be complicated and intimidating, but it shouldn’t also cause you climate anxiety! Zach broke down how Carbon Collective works, and why you can feel great investing with them.

Can you start off by telling us what exactly Carbon Collective does?

We make it really easy and simple to invest in portfolios built around the climate transition. Wall Street is too invested in fossil fuel companies to actually create products and services that align with that, so we created a smart alternative.

How was Carbon Collective founded and what brought you to that point?

My cofounder James Regulinski and I, who have known each other since we were four years old, set out to build Carbon Collective at the beginning of 2020. We didn’t necessarily set out to build a financial product company, we just wanted to build better tools that would enable individuals like us to collectivize our climate action. We started by interviewing 120 people like us — people with climate anxiety who were trying to understand what actions they can take — and what came up again and again was that there was no place to invest things like our IRAs that didn't either feel like it was climate charity (it wasn't a smart investment), or like it was total greenwashing. So we knew that we wanted to build something better out of the belief that climate should not be a box that you check on an investment platform, but that we need a company dedicated to and focused on how are we leveraging investments to generate as much change as we can.

How do you define sustainable investing?

When we look at the overall stock market, about 20 percent of the companies on it are dependent upon the long term use of fossil fuels for their core business. So that means that in 20 years, if they are to operate their core business, we're going to need to be pumping oil and gas in similar amounts as we are today. This includes fossil fuel companies themselves, as well as airlines, petrochemical companies, cement manufacturers, steel, etc. None of them have the technology necessary to decarbonize. We divest from that 20 percent of the stock market. We believe that — both ethically and financially —  it doesn’t make sense to hold that. In a lot of ways, these industries, and especially the fuels that they're dependent upon, are fundamentally under decline.

We take the share we’ve divested and give it to companies that are building solutions to climate change. We call it the Climate Index. As far as we know, it is the broadest and most comprehensive list of every single publicly traded company on U.S. markets that is building a solution to climate change. We don't look at climate commitments or anything like that, we just look at last year's revenue as the projector of the future. So if a company built a climate solution — let's say General Electric — if they make wind turbines, that's a climate solution, but they make more revenue from their natural gas turbines and their jet engines, both of which are product lines that are dependent upon the use of fossil fuels. Therefore, we do not include them in the Climate Index. We have the list published on our website. It's all very transparent. I think it's unlike anything that has been done before.

We take the share we’ve divested and give it to companies that are building solutions to climate change. We call it the Climate Index.

We also pull out some others like private prisons, tobacco, and weapons, but aside from that, we hold the remainder of the stock market. This allows for a broadly diversified portfolio. And in our theory of change, these are actually the companies that we should be using our votes on to pressure. Coca Cola, for example — they're not an environmentally friendly company today, but Coke can sell me a beverage using their secret recipe in the world where we solve climate change. A decarbonized world. They hypothetically could run on 100 percent renewable energy — everything could be delivered with electric cars, they could change how they manage their watersheds, they could even change how they spend their lobbying dollars. That means that it's upon us as their shareholders to pressure them to get to that future much faster.

We're not saying change the thing that makes you money (like it would be to do that to an oil company). We're just saying change how it's powered, do the things around it. It's a much easier ask. And frankly, it's what we have to do. If we were to focus that energy on telling fossil fuel companies to stop pumping oil, but the Coca Colas of the world still want to buy that oil, we're not going to solve anything. We actually have to decrease the demand for fossil fuels on that side, rather than the supply side.

What do you look for when you are choosing companies to reinvest that 20 percent in?

We use Project Drawdown, which has a comprehensive list of solutions to climate change put together by hundreds of scientists, engineers, and academics. We use that as our definition of a climate solution, and then find every single publicly traded company that is building at least one of those solutions.

We actually have to decrease the demand for fossil fuels on that side, rather than the supply side.

There are crucial solutions like Indigenous land protection, for example, that couldn’t be included within publicly traded companies, but there are also many solutions that can be. From solar and wind, to batteries and electric cars, to capturing methane from landfills, to home insulation, to LEDs, to plant-based foods... We do an inclusionary filter of all of the companies that fall into those categories — about 400 of them — and then we do that exclusionary filter, which is what I described before using the GE example.

What major roadblocks have you come up against since founding Carbon Collective?

I think the biggest is just that we're new. People know who the major investing services are, and first and foremost, you need to feel like your financial well-being is being looked out for. Earning that trust just takes time, there's no shortcut, but I'm very confident that we're going to get there.

What do you think is the best way to explain why people can feel comfortable and safe working with you despite the youth of the business?

We find a few things help people feel comfortable. First, we're not trying to pick which stocks will win or lose, but applying index-based investing principles with climate as our lens. Second, we share as much of our data — from portfolio construction, to historical data — as transparently as we can on our website in language that anybody can understand. Third, we're real people. When you sign up to Carbon Collective you get a personalized welcome video from our team welcoming you. We want you to feel like you have a real person who cares about you and climate change as a resource.

Any current projects you’re especially excited about?

We're about to make a big push on our 401k program, which has been pretty amazing. We've really done no advertising and people are already finding us. Any climate founders that might be reading this, or if you work at a smaller mission driven company — definitely come talk with us! Or if you’re just an individual with a 401k and you’re interested in these issues, come chat. I think we can be pretty helpful in making sense of this space. And then you can see if Carbon Collective would be the right partner for you.

Thank you, Zach!

Get in touch with the Carbon Collective team here if you’re interested in getting involved.