Fossil fuels in your shares? Might be time to tick(er) them off

Shares - including low-cost index funds - are popular. But owning fossil fuel company shares directly or indirectly ain't great. Good news: it's fixable.

So you own some shares connected to fossil fuels.

Gosh darn it.

…and just in case you haven’t actually done the audit, I can (sadly) confirm you are invested indirectly in fossil fuels and/or the banks that fund them if you’re holding any of the following popular ETFs in Australia:

• VAS - e.g. Woodside and Commonwealth Bank

• VGS - e.g. Exxon Mobil and JP Morgan

• VDHG - holds VAS so e.g. Woodside and Commonwealth Bank

• IVV - e.g. Exxon Mobil and Bank of America

• IOZ - e.g. Woodside and Commonwealth Bank

• STW - e.g. Woodside and Commonwealth Bank

• NDQ - e.g. Baker Hughes Company and Diamondback Energy

• A200 - e.g. Woodside and Commonwealth Bank

• VHY - e.g. Woodside and Commonwealth Bank

• BGBL - e.g. Exxon Mobil and JP Morgan

• VTS - e.g. Exxon Mobil and JP Morgan

(These examples may hold other stocks of concern. I just stopped looking once I found the first two problematic ones per ETF.)

If you’re holding any of these, or other shares you’ve realised are connected to fossil fuels, it’s time to decide what you want to do.

First, don’t buy more

…right?

You don’t want to add more of these problematic holdings to your portfolio if you’re concerned climate change could rob you of feeling future rich.

If you plan to buy more shares – like those in the financial independence community who dollar-cost-average, meaning they buy smaller volumes regularly instead of saving up for big slugs – you might like to pick some new shares.

Apart from the obvious, specifically avoiding fossil fuel producers like those I’ve listed previously, if you’re keen on index funds like ETFs and LICs, it’s time to dig into those holdings.

» OK with having index funds with the fossil fuel funding banks?

…then choices abound!

Most ETF providers for example have an ethical option.

Like Vanguard, the original low-cost index fund provider, which has VETH and VESG. Devoid of fossil fuels, but holding the Big Aussie Banks.

Please feel free to leave other similar options in the comments section - I haven’t done an exhaustive search (yet!)

As with super, your fees – known as management expense ratios (MERs) here – are often slightly higher than the broader market tracking funds. And again, this is a price I’m personally willing to pay for the chance to keep the pie bigger.

The management fees saved have to compound up an awful lot to account for pie shrinkage.

But it’s up to you.

» Keen to avoid the banks funding fossil fuels too?

That’s a bit harder, but you do have options.

For example, BetaShares ETHI and FAIR.

There are probably more options out there, so please do share any you’ve found including the links to the holdings pages.

Don’t forget you can get financial advice on these, including from ethical advisers like those found in the Ethical Advisers’ Co-op (ANZ) who have access to comprehensive assessment tools like ethosesg.com.

Next, keep or sell what you’ve got?

Now, this is one area of money moving where you are more likely to incur a cost.

Specifically tax. As in, capital gains tax (CGT).

You could say the profit going to tax is worth it for the chance to offload holdings more exposed to stranded asset risks, but again - no crystal ball here.

Selling an asset like shares at a profit counts as taxable income.

Before you put in that sell order:

» Seek tax planning assistance

Be sure to talk to your accountant about the timing of such a sale.

I was personally willing to take the tax hit by selling the offending shares, but I’m in a pretty luxurious position. It might not suit everyone.

I figured the CGT penalty was suitable penance for my foolishness in not looking into my holdings (AFIC, IVV and VDHG) more closely. Especially as I held VDHG for my kids too (sorry kids!)

I still talked to my accountant, and ended up selling in FY25 as I thought there was a high probability I’d have another, much bigger CGT event in FY26 (and I did).

Spreading the CGT events over tax years helped keep total tax paid to a (legal) minimum.

I put the remaining cash straight back into buying more ETFs, but this time I chose ones without fossil fuels and the banks that fund them.

» …and you might like to keep a few anyway

You don’t have to sell your entire holding.

I’m on at hubby about this. Through the employee share scheme with BHP 1.5 decades ago, he got BHP shares, then South32 shares when they split, and then Woodside shares when the merger went through.

All three produce fossil fuels.

He wants to sell them all. I’d like him to keep a few of each for shareholder activism.

That’s right: you can keep a handful of shares so you still count as a shareholder, which allows you to vote at annual general meetings (AGMs), and to be part of raising motions too.

It’s leverage to use company law to your advantage, using your vote to pressure the company to change its ways. Challenges from shareholders are painful experience companies would prefer to avoid. It leads to bad press, and that’s the least of the board’s concerns.

This take on Woodside’s 2025 AGM gives you a taste of what it’s like for them.

But you don’t have to turn up to the AGM yourself if you don’t want to.

For any shares you keep in companies, you can assign your agency rights to representatives who can petition the company for change. This is the goal of all this money moving, so why wouldn’t you - right?

The Australasian Centre for Corporate Responsibility and SIX Invest are two examples I’ve assigned agency to. The former as a blanket instruction, the latter for specific campaigns.

I’ve been advised you can sign on with both at once, you’d only instruct one not to act on your behalf if both raised clashing motions at the same AGM.

Please note I participated in the crowdfund round for SIX invest so I am now a shareholder in their company. This means I have a vested interest in their success. Get independent advice if you’re not sure if they’re right for you.

Phew! That’s all the planning done!

Now it’s time for the rubber to hit the road on the anti-pie-shrinkage Electric Vehicle. Or bicycle. You know, whatever.

It’s time to ACT…