Socially Responsible Investing Goes Green
You drive and drink responsibly, spend your money responsibly, and act responsibly, don’t you? But do you invest responsibly? Can you invest responsibly? Is there such a thing as investing in socially responsible companies and, more specifically, investing in companies that are environmentally responsible (aka green) and socially responsible? If so, what does being green mean and for that matter, what does being socially responsible mean?
When I think of green investing, I think of buying shares of companies or mutual funds that invest in companies that fulfill 2 or more of the following criteria:
- design, market, sell, manufacture, and/or distribute products or services that harness or deliver renewable sources of energy;
- design, market, sell, manufacture, and/or distribute products or services that deliver energy savings;
- have passed some sort or environmentally-based selection process or “screen” in the lingo of mutual fund managers;
- have embraced sustainability as a primary business concern;
- are socially responsible.
Socially responsible investing (SRI) conjures up images of buying shares in companies with well-treated employees of diverse backgrounds who are paid a fair wage, and are paid and promoted based on merit and contribution. Depending on the SRI criteria, these companies may also not design, market, sell, manufacture and/or distribute products or services that include tobacco, weapons, and gambling.
So, how do you find an SRI mutual fund or green fund? And once found, how do you evaluate its social responsibility and greenness? I've done some research and found 3 funds with varying interpretations of green. I found Winslow Green Growth through an article on Kiplinger.com and came upon Portfolio 21 and New Alternatives via mentions on a user forum of Wesabe, a community of people who share information about money.
Information presented below has been gathered from fund and company websites in October 2007:
Winslow Green Growth (WGGFX)
- Environmental Screen: positive or neutral impact on the environment;
- Definition of Green: provide environmental solutions and/or pioneer green business practices often in the areas of renewable energy, healthy living, energy-efficiency, and green solutions;
- Investment Focus: small cap, growth, domestic;
- Social Responsibility Screen: none that I could find;
- Holdings include:
1. SurModics Inc., provider of surface modification and drug delivery solutions for medical device and biomedical applications;
2. Green Mountain Coffee Roasters Inc., company engaged in the sourcing, roasting, and sale of estate, certified organic, Fair Trade Certified™ signature blends, and flavored coffee through wholesale, direct mail, and e-commerce distribution channels;
3. Fuel-Tech Inc., provider of solutions to meet the pollution control, efficiency improvement, and operational optimization needs of energy-related facilities;
4. Orbcomm, global satellite data communications company with machine-to-machine (M2M) communications;
5. WFI Industries, provider of geothermal heating and cooling systems for residential, institutional, and commercial applications.
Portfolio 21 (PORTX)
- Environmental Screen: complex Company Evaluation Criteria; companies that "understand ecological risks and opportunities” and are “taking positive action to integrate sustainability strategies in their business models”;
- Definition of Green: companies that create ecologically superior products, use renewable energy, develop efficient production methods, and/or recognize environmental sustainability as a challenge and opportunity.
- Investment Focus: primarily large cap, international;
- Social Responsibility Screen: excludes companies with negative performance in employee relations, human rights, community involvement, or product safety; and those with significant business activities relating to nuclear energy, tobacco, gambling, or weapons;
- Holdings include:
1. Nokia, telecommunications company;
2. Novo Nordisk, healthcare company with core business of pharmaceutical drug development;
3. IBM, technology company focusing on business services;
4. HSBC Holdings, financial services company providing personal, business & commercial, corporate & institutional, and private banking services;
5. Novartis, pharmaceuticals and nutritional products company.
New Alternatives Fund (NALFX)
- Environmental Screen: emphasis on alternative energy sources but includes companies with products and services associated with recycling, natural foods, clean water, clean air, and natural gas;
- Definition of Green: positive impact on the environment;
- Investment Focus: subjective but includes evaluation of price and risk;
- Social Responsibility Screen: does not invest in oil, nuclear power, weapons, or tobacco or companies with business practices that allow discriminatory hiring, unfair labor, detrimental environmental, or animal testing activities.
- Holdings include:
1. Renewable Energy Corp. AS, producer of silicon for solar cells;
2. Acciona SA, construction and infrastructure company with activities that include renewable energy including wind, small hydro, biomass, biodiesel and solar sources;
3. Abengoa SA, engaged in biomass (ethanol cellosic project), solar projects, and aluminum recycling;
4. Vestas Wind Systems Abengoa SA, wind turbine manufacturer;
5. Schneider Electric SA, distributor of efficient electrical devices.
I enjoyed visiting Portfolio 21's website for a few reasons: 1) its perspective on what "green" is with a recognition that though companies strive for sustainability, nearly all create some (negative) impact on the environment; 2) profiles on all companies selected for investment with explanations of why these were chosen; and 3) some information on companies that have not passed its sustainability evaluations.
Oh, you might want to know about the financial performance of these funds; here are 5-year returns (as of October 8, 2007):
- Winslow Green Growth: 29.28%
- Portfolio 21: 21.63%
- New Alternatives: 24.59%
If you want to align your investing values with personal values, you can check out socially responsible funds and/or green funds such as these. For more on SRI, visit Social Funds.
Disclosure: I do not own shares in Winslow Green Growth, Portfolio 21, or New Alternatives funds.