Personal Finance Corner Reader Question: Is There Criteria for Environmentally Friendly Companies?

One of the hottest trends in investing right now is ethical investing. And a subset of that is environmentally friendly investing. Unfortunately, it can be difficult to determine what "environmentally friendly" investing is. After all, deciphering company practices and what-not can be complex and time-consuming. This was the subject of a recent question a received from a Personal Finance Corner reader:

I read your article on "Five Environmentally Friendly Investing Ideas". Do you know of any standard or criteria for what constitutes "environmentally friendly" companies?

Unfortunately, there is no real cut and dry criteria on what makes an environmentally friendly company. However, there are some things that you can look at in order to judge a company's "friendliness" toward the environment:

1. Is the company actively taking significant steps to reduce its carbon footprint? This can include purchasing carbon offsets.
   
2. Does the company get products from producers and manufacturers that follow environmental and sustainable practices? One way to look at food companies: Do the products come from sustainable agriculture and organic sources, or do the products come from large, polluting operations?
3. Are products made from recyclable and/or biodegradable materials?
4. Does the company actively invest in research that leads to more renewable energy sources?
5. How does the company dispose of its waste products?

These criteria can help you decide whether a company is environmentally friendly. However, they aren't foolproof. But they can give you a good idea of what to look for when deciding how environmentally friendly a company is.

Another thing I find useful includes lists made by others. Such groups as Climate Counts and the Green 50 rate companies based on their pollution levels, carbon footprint and efforts to reduce these things. Another indicator I find helpful is what companies are located in such funds as the WilderHill Clean Energy ETF and the Sierra Club fund. Such funds can help you find companies that have been rigorously screened for their environmental practices.