Green Investing

Save for a comfortable retirement and use your money to make a difference by green investing.

| June/July 2005

Investing doesn’t necessarily mean gritting your teeth, buying shares of large companies and telling yourself that the ends (financial security in retirement) justify the means (giving money to companies with practices that may run counter to your values). The alternative is socially responsible investing (SRI), where you or the person who manages your money focus on companies that operate according to values akin to yours.

For example, you might purchase stock in renewable energy companies instead of oil firms, invest in a business that’s committed to employing a domestic workforce rather than outsourcing to offshore labor, or simply avoid companies that produce alcohol and tobacco products. And those are just a few examples — the numerous SRI options support a range of values, from liberal to conservative perspectives on social, religious and environmental issues.

SRI may be a niche compared to other types of investing, but it’s hardly chump change. In 2003, SRI accounted for more than $2 trillion, according to a study by the nonprofit Social Investment Forum. That’s more than $1 out of every $9 under professional investment management in the United States. It’s also enough money to get the attention of traditional stockbrokers and the companies in which they invest.

There are many forms of SRI — from pension funds to community investing. The most common segment is mutual funds, which pool the dollars of individual investors to buy stock in companies. But regardless of the form, the basic principle is straightforward: SRI uses one or more screens, which are criteria used to avoid investing in companies that, for example, sell tobacco, operate in countries with oppressive governments, abuse the environment or don’t pay employees a living wage. The more screens that a company can’t pass through, the less likely mutual fund managers will invest in it — consequently the company will have less access to money for research, new factories, even its daily operations. In a sense, SRI is one way you can hit an irresponsible company where it will hurt: in the wallet.

If that strategy sounds familiar, that’s because it is. SRI may evoke memories of South Africa’s old apartheid regime, which fell largely because investors boycotted companies that did business there. A more recent example is Sudan, which is under the thumb of a genocidal government. That concern has lead to scrutiny of foreign companies that directly or indirectly benefit the regime through their business. Although Talisman Energy, Canada’s largest independent oil company, initially resisted calls to suspend its operations in Sudan, it relented when socially conscious investors sold their shares in disgust, a move that dramatically cut the value of its stock. SRI also made news during episodes of corporate malfeasance such as the Union Carbide poison-gas disaster in Bhopal, India, the Exxon Valdez oil spill and the Enron accounting scandals.

“During the recent downturn in the stock market, with all the controversies, SRI funds didn’t suffer the outflows that other mutual funds did,” says Cliff Feigenbaum, publisher of Green Money Journal, a newsletter that focuses on SRI. “They actually got an inflow because people didn’t want to be part of the corporate irresponsibility.”

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