A recent study by the PNC Financial Services Group found that over 70% of well-to-do Americans (those with at least $500,000 in investable assets) have “green” values and a strong interest in environmental issues and encouraging companies that follow a socially responsible path. The fact that these socially responsible investors (SRI) now actually make up the majority of investors is a relatively recent development in the industry and reflects the changing values of our society.
In light of the current economic situation, many well-known companies are literally on the verge of bankruptcy. Can investors maintain this socially responsible attitude and still make money? Is it possible to find both sustainable investments and reliable performance in today’s economy? Do ‘green investments’ make sense, and is socially responsible investing still as financially viable as more traditional investment options?
Based on information from the Social Investment Forum, (a US national non-profit membership association dedicated to promoting socially responsible investing), the answer is ‘yes’. Based on a comparison of indexes between SRI funds (the Domini 400) and a non-SRI index (S&P 500), the results indicate that SRI investments truly are competitive with more traditional investments. The report shows that since 1990 (when the Domini 400 index began) the SRI fund index has shown total returns of 10.83% while over the same time period, the S&P 500 index has shown growth of 10.33%.
On a more granular level, Amanda Plyley, Communications Manager at Portfolio 21 mutual funds, says that green investments are equally as viable as more traditional investments. She says “Portfolio 21 has exceeded…the S&P 500 Index since the fund’s inception on 9/30/99”, and concludes, “it’s reasonable for an investor to evaluate ‘green’ and ‘traditional’ investments side by side”.
How does an investor go about finding suitable ‘green’ investments for themselves?
Start by defining what ‘green’ means to you personally. There is no generally accepted definition of what a ‘green’ investment actually is. Every person has his or her own standards. For example, an oil company that has developed a more environmentally friendly way to extract crude oil (and lessen the impact on the environment) might be considered green by some, while others would never accept the idea that any oil company could be ‘green’. Or, if you enjoy an occasional drink, you might not be put off by investing in an organic liquor stock while other investors obviously would.
Once you know what ‘green’ investments mean to you, take advantage of the spadework done by the various mutual fund companies. Sites such as The Social Investment Forum (http://www.socialinvest.org/) provide regular reports on the state of the ethical investing industry and make it easy to access information by providing links to individual fund’s websites. There you will be able to track an individual fund’s performance over time, determine the investment makeup of the fund and find out about the positive and negative screening filters individual funds use to select their investments.
These tools often eliminate companies that manufacture or profit from tobacco, alcohol, firearms or gambling while choosing companies that have a strong human rights agenda and support diversity in their operations. Since each fund uses slightly different criteria, looking at the screening criteria will allow you to find a fund compatible with your own ‘green’ criteria.
Growth opportunities for green investing
In the current economic situation, ‘green’ investing seems to provide unique opportunities to tap into new and growing areas. Without doubt, the increased awareness of both the public and the government on environmental impacts is creating openings for technological innovation, fostering new businesses and affecting the way traditional businesses operate. In addition, changes in traditional thinking regarding the role of government in business is creating further investment opportunities.
Emphasizing this perspective, in a January 2009 article in Investment News, Joe Keefe, president of Pax World Management Corp. (a socially responsible fund company) was quoted as saying “After we put the financial crisis behind us, you’ll see 2009 or 2010 as a transformational year for sustainable investing”. Further, he emphasized the probability “ that the government will introduce incentives through tax policy and subsidies is strong”. As a result, “companies will be competing for opportunities, new markets will be created…and that’s going to be good for investors”. Fortunately we are watching the vision of Mr. Keefe take place in our rebounding market.
Finding the new opportunities to invest may well be a challenge, but experts suggest these as three potential growth areas.
· Solar and wind energy to power our homes and industry.
· Alternative energy and sustainable fuels for vehicles (products such as ethanol and methanol as well as biofuels and biodiesel).
· Technologies to recycle water and desalination considering the impacts of climate change and population growth on the world’s water supplies.
There seems to be no doubt that socially responsible investing remains a viable option for investors. However, even when investing ‘green’, remember the basic rules of investing haven’t changed.
· Investigate before you invest. Read the prospectus and understand the company, mutual fund or ETF you’re investing in.
· Don’t invest money you can’t afford to lose.
· Diversify. Don’t put all your money in one sector.
· Buy shares in companies that are making a profit or mutual funds with positive long-term performance.
· Finally, be patient
By Murray Anderson
Looking for more information on Socially Responsible Investing?
http://www.socialinvest.org/resources/performance.cfm - Social Investment Forum is the U.S. national nonprofit membership association for professionals, firms and organizations dedicated to promoting the practice and growth of socially responsible investing.
http://www.kld.com/indexes/ds400index/index.html The Domini 400 SocialSM Index (DS400) is a float-adjusted, market capitalization-weighted, common stock index of U.S. equities. Launched by KLD in May 1990, the DS400 is the first benchmark index constructed using environmental, social and governance (ESG) factors. It is a widely recognized benchmark for measuring the impact of social and environmental screening on investment portfolios.
http://www.socialfunds.com/ SocialFunds.com features over 10,000 pages of information on SRI mutual funds, community investments, corporate research, shareowner actions, and daily social investment news.