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Math OER
Investor Responsibility Playground

You can't escape the responsibility of tomorrow by evading it today.

- Abraham Lincoln

investor responsibility

Let's think about environmentally responsible investing.

How much is a typical investor responsible for the carbon emissions created by the companies he or she invests in?

There is no clear answer. The investor does own a share of those companies. But responsibility is also shared with the other people who create, buy, or use the products (food, medicines, computers, travel, cement—a big one!).

This real life problem has no one right answer. But we can still use math to explore the issues and find useful insights.

Please pardon me as I barf a bunch of information at you.

To be simple, let's assume that the investor is fully responsible for his or her share of the companies invested in, and only owns an S&P 500 index ETF. What does the math say?

All of the S&P 500 companies together create about 1.85 billion tons of emissions annually, and have a total market capitalization of about 23 trillion dollars.

We can do the division. Someone who owns $1,000 of an S&P 500 index fund is in some sense "owning" 1.85 billion tons ÷ 23 trillion dollars × 1,000 dollars ≈ 0.08 tons of emissions annually.

Prices for carbon offsets have huge variation. At an average price, 0.08 tons of annual carbon emissions costs about $1 of carbon offsets each year. But we might instead use the annual social cost of carbon that experts agree on better at about $50 per ton, which assigns 0.08 tons a social cost of 0.08 × $50 = $4 per year for that $1,000 investment.

So our answer is about $4 annually per $1,000 invested. We could say the responsibility is about four-thousandths of that person's investment worth annually.

By the way, the S&P 500 companies on average spend 4% of their expenses on emissions reductions. Overall, US companies are spending about 6.5 billion dollars annually on emissions reductions. Although the U.S. still has nearly the highest per capita emissions, it does lead the world in reducing emissions.

Maybe we should popularize the idea that the investors should do something, erring on the side of being completely responsible for the shares they own by contributing four-thousandths of their investment worth each year towards the climiate change crisis?

Investors own about 22% of that total market capitalization. So if every investor annually contributed four-thousandths of their investment worth, it would add 23 trillion dollars × 22% × 0.004 ≈ 20 billlion dollars to the above 6.5 billion dollars per year. That could make carbon-dioxide removing technologies economically feasible many years earlier!

Your task is to present this information as attractively and persuasively as you can. Your presentation need not be long: perhaps you can use a single page, slide, or infographic.

Group work is encouraged! Use your own words, charts, and/or diagrams.

How much do you agree with this answer? What issues does it ignore or deal with incompletely?