How to Go Green: Investing
[by Rebecca Silver and Kristin Underwood]
During the past few years, the business world has awakened to the concept that "green," meaning environmentally conscious, and "green," meaning financially lucrative, are not mutually exclusive. But how can this knowledge translate to individuals who have their own green to invest? Whether or not you knowingly do so, as a conscious consumer you use your purchasing power to demonstrate which products and services you support. If you have money available to invest, you can take this concept a few steps further by investing directly in your favorite environmentally-minded companies and helping to bolster both existing and emerging sustainable industries.
The challenge of green investing is twofold: To increase personal wealth while avoiding harm to people and the environment. Ideally, socially responsible investing can help work to help make the world better. That can be a daunting task, but our green investing guide is an armory of tools that help you get started down the path to green prosperity.
As with any significant financial investment, we advise you to do your research before you bet the farm on any one sustainable investment strategy. Keep in mind as you are choosing investment opportunities that, if the company you choose to support doesn't make money, you aren't doing yourself or them any good by backing them. Carefully consider not only which investment plan best suits your level of financial commitment and needs, but also which environmental goals, sustainable enterprises, and green organizations you are most eager to support.
Note: Planet Green does not endorse any business in this guide and is not in the business of providing financial advice. Any potential investor acting on any advice provided in this guide does so at their own risk. Planet Green advises potential investors reading this guide to always seek financial advice from a financial advisor before investing. No information provided in this guide should be considered an inducement to invest.
Special Thanks to Jeff Siegel, Managing Editor of Green Chip Stocks, and to Russell Baruffi, fellow at the Erb Institute for Global Sustainable Enterprise at the University of Michigan, for their contributions to the content of this article.
|Top Green Investing Tips||Further Reading on Green Investing|
|Green Investing: By the Numbers||Green Investing: Getting Techie|
|Where to Get More Green Investing Info||How to Go Green: Index|
|Green Investing: From the Archives|
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Top Green Investing Tips
- Choose a Green Investing Sector
Green investing sectors include renewable energy, organic and natural foods, and pollution controls and environmental cleanup. Each of these sectors is further broken into subgroups and sub-subgroups, according to Jeff Siegel of Green Chip Stocks. Choose the sector(s) which best aligns with your environmental and personal interests and scout for the best financial growth opportunities within your chosen category of interest. Although we would like to believe that all green securities are good investments, remember that there is risk when investing in any new technology sector or in any new company. Remember that diversification is key to any successful investment strategy. You can protect your funds and bolster multiple environmental sectors, through diversifying your portfolio by investing in a variety of green sectors.
- Screen for Green
Create guidelines and boundaries for yourself when choosing which types of environmentally focused companies to invest in. For example, some green-minded mutual funds screen out things like tobacco and military products, but not nuclear power and clean coal technology. In addition, when investing in mutual funds decide whether you want to go with a fund that uses a positive screen or a negative screen when selecting which companies to back [see the "Getting Techie" section for more details on positive and negative screening].
- Beware of Greenwashing
Greenwashing is an important concept to keep in mind when evaluating all investment opportunities, but is particularly pertinent when deciding whether or not to financially back a specific company. Ask yourself: "What identifies something as a green product or service?" When reviewing a company's green claims, do your research. Determine what is really involved in the technology they are developing or the claims they are making, and filter by how these answers line up with your personal values. Remember if a company's green claims about their products, services, and operations turns out to be false, you will suffer too when the company's stock plummets. Planet Green and TreeHugger outline a few tips on how to spot greenwashing when scouting for products and companies.
- Create A Green Investment Strategy
As with traditional investing, personal green investment strategies are diverse and can be difficult to navigate. As an individual, you are faced with innumerable options when looking for new investment opportunities. Fortunately there are a plethora of resources available for you to help search out the best opportunities. Where to begin?
- Ask Questions - Look into how your potential company deals with problems, how they relate with the community, and whether their environmental policies are green or just greenwashing.
- Peruse Sustainability Indexes - Indexes, such as the Dow Jones Sustainability Indexes are useful tools to gauge not only a company's financial but their environmental performance.
- Read Annual Reports and CSR Reports - Companies usually have their annual and Corporate Social Responsibility (CSR) reports available to download through their individual websites.
- Consult with a Green Investment Analyst - Many investment analysts are beginning to specialize in green and socially responsible stock options. For those with the means, this route can offer you a personally tailored experience when delving into green stock options.
- See the "Where to Get It" section of this guide for further suggestions on resources.
- Become a "Stakeholder"
Buying green stocks has become a sound decision for both the planet and for your pocket book. In 2007, the Dow Jones Sustainability Index rose by 10.4 percent, outperforming the Dow Jones Industrial index, which only rose by 6.4 percent. As more and more shareholders continue to opt for green stocks, the growing trend has not only become an indicator of increased value in these green companies, but has finally solidified a place for green industries within the market as a whole. What better time to become a shareholder in one of these future forward sustainable enterprises, helping the company, their environmental efforts, and your finances to grow!
- Stakeholder - Rather than simply holding shares in a company, take a vested interest in your investments as a stakeholder. Stakeholders can affect or be affected by a company's actions. Whether you own stock in a company that already has a strong positive environmental record, or in a company that desperately needs environmental reform, voicing your green opinions can push the buck for stronger environmental reform.
- Exercise your Voting Rights - As a holder of common stock in a company, you are eligible to vote and propose changes within that company. As an individual, unless you are the holder of a great deal of shares in a company, your vote may seem quite small. You may, however, be able to reach out to other likeminded shareholders to forming a larger voting body, in order to fight for sustainable reform within the company.
- Mutual Funds
Mutual funds are managed by money managers who use a pool of funds collected from many investors to invest collectively in a diversified portfolio of securities such as stocks, bonds, and other assets. While a traditional mutual fund's goal is to maximize capital for the investors, the second goal of some funds is to invest in social and green equities, thus bolstering these emerging sectors of industry. When selecting which socially or environmentally responsible investment fund to entrust your green to follow these cues:
- Investing Record - Look at their investing record and which social/environmental companies they currently support and have invested in, in the past.
- Screening - Determine what their green guidelines are and whether or not they use positive or negative screening.
- Voting - Key to note is that the managers of these funds are allowed to vote on stakeholder issues--make sure their voting record, just as with their portfolio, is in line with your social and environmental concerns.
- Investment Clubs Individuals come together to form investment clubs when they want to maintain more control over which companies they want to invest in than when investing in mutual funds, but lack the personal funds to be able to set up a separately managed account. By pooling their money in an investment club they can make larger financial investments (and in theory larger profits) while still maintaining a high degree of personal control. As with any peer group, express your personal goals and concerns, as well as your new found green investing expertise, to either start a green investment club, or to encourage the members of your current club to make green through investing in green.
- Community Investing and Microfinance
Investing in an individual or community is a unique way to both direct your resources toward a singular environmental effort, and to potentially change the life, environmental priorities and/or financial future of your chosen entity.
- Community investment opportunities span the globe, from using your time as a form of investing by helping to green the spending of a local organization to investing in a community halfway around the world, via Microfinance lending.
- Microfinance, a form of banking, serves low-income individuals or groups who need a loan in order to start or grow their business. The goal of these loans is to give these people an opportunity to become financially self-sufficient and ultimately to boost economic growth within the communities they are a part of. The beauty of microfinance, from a lending standpoint is that not only do these loans give the lenders the opportunity to invest at a very low contribution level (often less than $100), but that the loans have a very high rate of return (in that the recipients usually have outstanding pay back records). Microfinance is often linked with sustainable micro-lending, giving you the opportunity to engage not only your social but also your environmental investment goals.
- Venture Capitalism (VC) For those of you with a little more cash--several thousand to upwards of a million dollars--available, and also an interest in really putting your money where your mouth is, consider backing a venture capitalism firm or becoming a venture capitalist yourself! Green VC firms (Environmental Capital Partners and GreenSource Partners, for example) are few, but they are gaining ground by focusing on areas such as: renewable energy, green technology, organics and public health related industries.
- Retire Responsibly: Retirement and Pension Funds
Both publicly and privately controlled retirement funds invest your money over the course of your entire working life. Collectively, pension funds world-wide are the largest single investor category, ahead of mutual funds, hedge funds and insurance companies, and therefore have huge potential impact on social and green industry sectors, according to The Economist. How to begin? Investigate the investing strategy and policies of your current fund. Determine if your company places its employees' funds in the hands of an asset management company or professionals hired to direct and manage their employees' investments, or if they allow you as the employee to direct your own investments by selecting from a group of investment products.
- Pension Funds Controlled by an Asset Management Company - If your company puts its employees' funds in the hands of a single entity, you may have limited control over the companies the entity chooses to invest in. Look at their plan to determine whether they have a social or green investing strategy in place. The bad news is that if you find your pension fund is investing in companies that do not fit your green criteria, you may have limited ability to switch your plan. In this circumstance, its best to explore alternative options offered by your company and determine which if any will better suit your goals.
- 401Ks and IRAs - 401Ks and IRAs are both types of defined contribution retirement plans which are often participant-directed, or which allow the employee or plan holder to select from a number of investment options. When presented with self-guided options, determine which of the presented options most aligns with your personal, financial, and environmental goals.
Green Investing: By the Numbers
- $25.1 trillion: The amount of money currently invested in socially responsible investment funds.
- One out of every 10 dollars: The amount of money currently invested in socially responsible funds.
- 10.4 percent: The amount the Dow Jones Sustainability Index rose in 2007, outperforming the Dow Jones Industrial index, which only rose by 6.4 percent.
- 260: Socially screened mutual funds in the U.S., with an asset value of $201.8 billion. Mutual funds are the fastest growing option of socially responsible investing.
- 109: SRI funds available in the U.S. in 2004, compared to 367 SRI funds available in Europe.
- 348: Number of shareholder proposed environmental and social resolutions in 2007. Of those, 177 of the proposals went to a vote.
- 40 percent: The amount by which the green energy sector grew, in global sales, in 2007.
- 50 percent: the amount by which residential solar installations grew in 2007; wind installations grew by 30 percent and organic food production grew by 20 percent over the same period.
- Community investing is the fastest growing area of socially responsible investing.
Green Investing: Getting Techie
Investors use "positive" and "negative" screens to target their wealth towards the type of investments they want and away from the type of investments they don't want. A "positive screen" deliberately invests in enterprises that the investor wants their capital put toward, such as enterprises working in the clean tech or organic food industries. A "negative screen" deliberately eliminates enterprises that an investor doesn't want capital put toward, such as alcohol or tobacco companies.
Shareholder vs. Stakeholder
A shareholder, also known as a stockholder, is a partial owner of a company though stock. Stock entitles its owner to a share of the profits of the company, and sometimes a right to have say in the direction and leadership of the company, with each shareholder typically having influence in proportion to the amount of the stock they own. Stakeholders, on the other hand, include anyone who has an interest in and is directly affected by the outcome of a company, including shareholders, management, suppliers, employees, and the community.
Socially Responsible Investing (SRI)
An investment strategy whereby your goal is to maximize profit and social good at the same time, otherwise called double-bottom line opportunities. Socially Responsible Investing has been in practice since the 1700's, when the concept was developed by Quakers looking to do well by doing good. SRI strategies typically avoid businesses involved in alcohol, tobacco, gambling, and weapons and other military industries.
Venture Capitalism (VC)
Venture Capitalists provide early stage funding to start-up businesses trying to get off the ground. Since the early stages of a business are so uncertain, Venture Capitalists takes on greater risk in these early stage investments, but the ventures that succeed are profitable enough to make it worth the investment. Social Venture Capitalism is modelled on this concept of early stage risky investments, but returns are social or environmental in nature, in additional to fiscal.
For a definition of other financial terms please we recommend Investopedia.com, which has an expansive list of resources, definitions, and information about investor education.
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Where to Get More Green Investing Info
Note: Planet Green does not endorse the businesses in this guide and we are not financial advisors. This information should not be considered an inducement to invest with any of these companies.
Investing Resources and Networks
- Business Week's Green Business Special
- CoopAmerica Social Investing
- Dow Jones Sustainability Index
- Eco-Investment Club
- Global Reporting Initiative
- Green Biz
- Green Chip Stocks
- Green Grants Machine
- Investors Circle
- LOHAS (Lifestyle of Health and Sustainability)
- New York Times Green Business Section
- Social Investment Forum
- Social Funds
- Social Venture Network
- Sustainable Business's Progressive Investor
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Green Investing: From the Archives
Dig deeper into these articles on green investing from the TreeHugger and Planet Green archives.
- Read this baseline article on green investing to get some basics down, with some comments by readers on additional sources of information.
- Get a summary of tips by Progressive Investor on how to build your green investment portfolio.
- Check out the Ebay of ecological investing; need a small business loan but afraid no one will fund your eco-idea? This might be the place to start.
- Get smart with Sustainablebusiness.com's list of sustainable stocks.
Socially Responsible Investing
- Get the scoop from Amy Domini of Domini Social Investments, who discusses the growth of social investing and what that means in this video interview.
- Read Outside magazine's two cents on why investing in green is good for business and the planet.
- Learn about Morally Responsible Investing, a cousin of Socially Responsible Investing, from The Panelist.
Investing in Green Technology
- Cash in on this post on energy-banks, i.e. funding green energy projects because of their high return on investment, complete with plenty of reader comments to get you thinking.
- Invest in trees with Madera Nobles in Spain and help offset your (and others') carbon emissions.
- Read this impressive report by E2 and Cleantech, two groups tracking green investments, finds that these SRI-related industries account for 11 percent of the U.S. venture capital market. The only two industries claiming more investment funds are biotech and software.
- Dig in to the details of a mutual fund that offers a "New Alternative".
- Take a TreeHugger look at Portfolio 21, a green mutual fund.
- Deanne Stone of the Women's Equity Mutual Fund explains what makes socially responsible investing unique.
- Check out the Pax World Fund's advice on socially responsible investing and the types of activities that should be invested in or avoided.
- GreenTechInvestor ran a piece on How to Participate in the Green Technology Revolution" offering for readers to become education in investing Solar, Wind and Green Technology.
- EcoBusiness Links compares several carbon offset programs, including analyzing the price per ton of carbon, and the projects your money will support.
- Xigi rounds up an impressive list of social and sustainable investment companies and opportunities.
- The Natural Capital Institute developed this Responsible Investing website to take a critical look at the good and the bad of North American socially responsible investment mutual funds.
- Business Ethics Magazine Online shows us how responsible companies are financially better off than others.
- Coop America includes a Socially Responsible Investing chart on their website which includes a pretty comprehensive list of funds and data, in some cases, tracking the fund as far back as ten years.
- Coop America recently posted a list of proxy votes coming before major corporations. If you own stock, keep your eyes peeled for upcoming votes and don't be afraid to bring an issue up for vote.
- Know What You Own" Service, by Calvert Funds, looks at what funds your money manager is investing your money in and compares these with socially responsible investment returns.
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Further Reading on Green Investing
The following links are merely examples of places to go for more information. TreeHugger and Planet Green are not able to offer investment advice directly, but we are happy to point you in the direction of a few more sustainable investment options.
Socially Responsible Investing
Other Resources for Good Tips