--- title: Carbon Collective - Invest in your future. Heal our climate. description: Carbon Collective – your automated investment manager built for solving climate change. --- [![Carbon collective](https://www.carboncollectiveinvesting.com/hubfs/raw_assets/public/CarbonCollective_August2021/images/carbon-collective-green-investing-logo.53b28bee.svg "Carbon collective")](https://www.carboncollective.co) - About - Employers - [Sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k) - [401(k) Comparison Tool](https://www.carboncollectiveinvesting.com/401k/plan-comparison-tool) - Individuals - [FAQ](https://www.carboncollective.co/en/knowledge/faqs) - [ETF](https://www.carboncollectivefunds.com/) - Learn - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing) - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics) - [Blog](https://blog.carboncollective.co/) - [Tools](https://tools.carboncollective.co/calculator/) - [Log in](https://app.altruist.com) [Talk to a Human](https://ask.carboncollective.co/f4o5dylkg) [Sign up](https://carboncollective.typeform.com/to/J7HajGky) [![Carbon collective](https://www.carboncollectiveinvesting.com/hubfs/raw_assets/public/CarbonCollective_August2021/images/carbon-collective-green-investing-logo.53b28bee.svg "Carbon collective")](https://www.carboncollectiveinvesting.com/) - About - Employers - [Sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k) - [401(k) Comparison Tool](https://www.carboncollectiveinvesting.com/401k/plan-comparison-tool) - Individuals - [FAQ](https://www.carboncollective.co/en/knowledge/faqs) - [ETF](https://www.carboncollectivefunds.com/) - Learn - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing) - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics) - [Blog](https://blog.carboncollective.co/) - [Tools](https://tools.carboncollective.co/calculator/) - [Log in](https://app.altruist.com) [Talk to a Human](https://ask.carboncollective.co/f4o5dylkg) [Sign up](https://carboncollective.typeform.com/to/J7HajGky) ## How We Build Our Sustainable, Climate-Focused Portfolios ###### *What’s included and excluded? How is the Climate Index constructed? How will it all get updated in the future?* ### Intro: How do you define climate-focused investing? Why should one company be included over another? Especially given that most of the world still runs on fossil fuels.  Ethical investing can get complicated quickly. In building our climate-focused portfolios at Carbon Collective, we wanted a strategy that:  - Was simple enough that anyone could double check every decision - Could be easily updated during our annual rebalancing - Would drive as much climate impact as possible.  Read on to dig into the details of how we do it. --- ### Jump to: - [How we Build our “Core” Portfolios](https://www.carboncollectiveinvesting.com/pillar/how-we-build-our-portfolios#core) - [How we Build our “All Green” Portfolios](https://www.carboncollectiveinvesting.com/pillar/how-we-build-our-portfolios#Green) - [How we Build and Update the Climate Index](https://www.carboncollectiveinvesting.com/pillar/how-we-build-our-portfolios#Index) - [How we Calculate Carbon Emissions Data](https://www.carboncollectiveinvesting.com/pillar/how-we-build-our-portfolios#Data) - [Learn More](https://www.carboncollectiveinvesting.com/pillar/how-we-build-our-portfolios#More) --- # How we Build our “Core” Portfolios We built our Core Portfolios to be a replacement for a standard index-tracking portfolio. With exposure to over 1,500 stocks, our Core Portfolios offer a similar diversity and risk/reward profile as their equivalent benchmarks on the New York Stock Exchange but in a package that is built to drive climate impact. Here’s how we do it:  **Step 1: Remove the high-carbon sectors**. Collectively, the utilities, energy, materials, and industrial sectors are responsible for >85% of the carbon emissions (Scope 1 and 2) of all publicly traded companies. These sectors represent ~20% of the total value of the stock market. As most of the companies in these sectors are dependent upon fossil fuels, we remove this 20% of the stock market, entirely.  **Step 2: Give their share to the Climate Index.** The [Climate Index](https://www.carboncollectiveinvesting.com/climate-index) is our collection of publicly traded companies who are building [Drawdown](https://drawdown.org/) solutions to climate change. Our core portfolios allocate the ~20% that was freed up by removing the companies making climate change worse to those who are building solutions.  **Step 3: Hold the remaining, low-carbon sectors (with a few tweaks).** The remaining sectors (technology, communications, healthcare, consumer staples, consumer discretionary, financials, and real estate) are already comparatively low-carbon and largely do not depend on fossil fuels for their core business. While these companies are not necessarily building climate solutions, they can most easily switch to zero-emission alternatives. We invest in them to take a seat at the table and push these companies to transition, faster.  **Step 4: Balance with green and government bonds.** To hit your desired risk/reward tolerance, we balance the stock portion of our Core Portfolios with a combination of green and government bonds.  Learn more about how we build our Core Portfolios # How we Build our “All Green” Portfolios If you want your entire investment account to be invested in solving climate, you may want to look at our All Green portfolios. Invested in only the Climate Index and green bonds, they are far less diversified than our Core Portfolios and have a higher/risk return profile.  The portfolio construction is simple. Whereas in our Core Portfolios, the stock allocation is split between the Climate Index and the companies in low-carbon sectors, the All Green Portfolios only have the Climate Index. And instead of a combination of green and government bonds, they only have green bonds.  See the [historical performance of our All Green Portfolios](https://www.carboncollectiveinvesting.com/returns) # How we Build and Update the Climate Index The Climate Index is our full list of every publicly traded company building solutions to climate change on the New York Stock Exchange.   To build it, we begin with an inclusionary ethical filter, finding every publicly traded company that is building a climate change solution listed in project [Drawdown](https://drawdown.org/). Next, we apply an exclusionary filter, removing the companies that make more revenue from sales to the fossil fuel industry than from their climate solution. This process works for all but two sectors: utilities and waste management companies. For these we use more specific inclusionary criteria.   Finally, we use a financial filter. The company must be trading on the New York Stock Exchange (no OTC or pink slips) for at least $0.50/share at the time of our annual update. The remaining companies get weighted based upon their current market caps (with a ceiling at 5% of the total index and a floor of 0.01%).  We go through this process annually, adding new companies that come onto the market and removing any who no longer meet our ethical criteria for inclusion.  See the full details of how we build and update the Climate Index.  # How we Calculate Carbon Emissions Data [Fossilfreefunds.org](https://fossilfreefunds.org/) is a great, free tool that allows you to see the carbon footprint breakdown of the top mutual funds and ETFs from across the globe. (We only use free, open-source tools because we believe you should be able to replicate our analysis without needing to go over any paywalls).  To build our Core portfolios we used their tool to analyze the carbon footprint of each sector of the stock market under the ownership principle. Under the ownership principle, if you own 1% of a company’s stock, you own (and are responsible for) 1% of its emissions.  Fossilfreefunds.org provides the carbon footprint per $1m invested. We combine their data on sector ETFs with the total valuation of each sector of the stock market to get an approximation of the total Scope 1 and 2 carbon footprint of each stock market sector. This method also gives us some indication of Scope 3. By looking at the stock market as a whole, we can see the B2B supply chain.  Using the same methodology, we compare the carbon footprint of Carbon Collective’s core portfolios with a series of other popular index-based portfolios.  See the results of the comparison and learn more about how we calculate emissions data.  # Learn More - Want to learn more about green investing? Check out Sustainable Investing 101 - Looking for some inspiration? See the awesome companies of the Climate Index - Or see how our climate-focused portfolio performed in our backtesting ### Watch the Webinar Watch the on-demand Sustainable Investing 101 webinar! Learn how to be a smart investor who cares about climate change. [Watch Now](https://www.carboncollectiveinvesting.com/sustainable-investing-webinar) ### Get Our Newsletter Go a level deeper with us and investigate the potential impacts of climate change on investments like your retirement account. Join Newsletter ![close-typeform](data:image/gif;base64,R0lGODlhEQARAIAAAODn7P///yH5BAEHAAEALAAAAAARABEAAAIqBIKpab3v3EMyVHWtWZluf0za0XFNKDJfCq5i5JpomdUxqKLQVmInqyoAADs=) ### Talk To A Human Joining a new investment service can be intimidating. We’re here for you. Click below to email us a question or book a quick call. [Ask a Question](https://ask.carboncollective.co/f70pooobq) - Portfolios - [Performance](https://www.carboncollectiveinvesting.com/returns) - About - [Sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k) - Learn - [FAQ](https://www.carboncollective.co/en/knowledge/faqs) - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing) - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics) - Contact - [Contact us](mailto:hello@carboncollective.co) - [Legal](https://www.carboncollective.co/legal) - [Privacy Policy](https://www.carboncollectiveinvesting.com/hubfs/2022-11%20Carbon%20Collective%20Privacy%20Policy.pdf) - [Back to top](https://www.carboncollectiveinvesting.com/pillar/how-we-build-our-portfolios#top-of-page) DISCLAIMERS: Advisory services provided by Carbon Collective Investment LLC (“Carbon Collective"), an SEC-registered investment adviser. A copy of Carbon Collective's current written disclosure statement discussing Carbon Collective’s business operations, services, and fees is available at the SEC’s investment adviser public information website – [www.adviserinfo.sec.gov](https://adviserinfo.sec.gov/firm/summary/310129) or [our legal documents here](https://blog.carboncollective.co/legal-documents/). The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. Carbon Collective does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Carbon Collective’s web site or incorporated herein, and takes no responsibility therefor. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Investments in securities: Not FDIC Insured • No Bank Guarantee • May Lose Value. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Before investing, consider your investment objectives and Carbon Collective's charges and expenses. Carbon Collective's internet-based advisory services are designed to assist clients in achieving discrete financial goals. They are not intended to provide comprehensive tax advice or financial planning with respect to every aspect of a client's financial situation and do not incorporate specific investments that clients hold elsewhere. For more details, see our Form CRS, Form ADV Part 2 and other disclosures. Past performance does not guarantee future results, and the likelihood of investment outcomes are hypothetical in nature. Not an offer, solicitation of an offer, or advice to buy or sell securities in jurisdictions where Carbon Collective is not registered. © 2023 Carbon Collective Corporation. 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