You can call it green investing, or investing with a conscious, but socially responsible investing is integrating social and environmental criteria into your investment choices, as well as choosing investment vehicles that do the same.
Most socially responsible investors avoid companies that do not match their own personal values or standards. Some people go the extra step of seeking out specific funds featuring businesses that are making strides in developing or selling environmentally friendly products and services.
Of course, investing of any kind will depend largely on your own personal values, coupled with your financial objectives. Since there is no single approach to this type of investing, also referred to as sustainable investing, the onus is on the individual investor to conduct due diligence in an effort to determine which businesses or funds are meeting his or her criteria. This often means reviewing the corporate social responsibility (sometimes referred to as “CSR”) of various companies or the fund holdings of mutual fund families. Many such funds screen companies very carefully regarding areas such as sustainability practices, human rights, worker safety, products manufactured or sold, packaging, CO2 emissions, and overall concern for the environment.
As “green” becomes the color of choice for many businesses, evaluating corporate social responsibility typically requires looking beyond the current initiatives to examine the environmental track record of a company to see if it has been on a sustainable path and is not just jumping on a bandwagon. By looking at the fund’s holdings and the overall makeup of the fund, you can determine whether the fund meets your criteria and expectations. You can then look at the success of the fund over 5-10 years and then at the recent transactions to see where the fund might be headed in the future, as past performance is not an indicator of future success.
The key is to look at what direction the fund manager has been taking. For example, is he or she moving into emerging markets with young companies and businesses that embrace green business concepts? Is the fund manager looking at larger, established companies that are clearly in the process of making significant strides in that direction? Is he or she falling for greenwashers (companies that exploit the public’s interest in green initiatives without being truly green)? It is your job to determine which potential investments you believe have the potential for growth. The same holds true when looking at individual companies in which you can purchase stock. What are they doing now? What is their track record regarding sustainability and reducing their carbon footprint? Where are they looking to go in the future?
You can also get involved in a more direct manner by investing in a company where you can influence its direction by shareholder participation and activism. As a shareholder, you can encourage and promote positive change.
If you choose to go the mutual fund route, you may wish to look at some of the major fund families that offer several socially responsible investment options, including Calvert, Domini, MMA, and Pax. At the Social Invest Forum you’ll find a chart listing these funds and their criteria for selecting investments.
Of course, socially responsible investing also translates into personal purchasing habits. Do you buy (or avoid buying) specific products based on the social and environmental culture of the company? Social awareness can also translate into community awareness, and you can choose to invest in businesses or specific projects that will positively affect your community.
As is always the case, there is another view of socially responsible investing. The counterargument, as posed by some investment advisors and money managers, is that by aggressively investing based solely on profit potential, you can ultimately walk away with much greater returns that can then funnel into environmental activism. In other words, make money at a higher rate of return and use that income to support and fund environmental initiatives.