At least that is what a slew of new studies are debating when it comes to your money. Obviously when it comes to your accounting and investment statements you want to be in the black. Unfortunately the markets seem to be choosing red as their favorite color as of late. But unless you completely shun all media and human interaction you will have noticed that “green” is all the rage. So before I get into this let me say for the record: Whether you wish the world was covered in toxic waste or your idea of dining out is a handful of dirt and some twigs I am not casting judgment on you. But you can’t deny that “green” has become big business. The following will try to shed some light on how “green” has become part of the investing landscape and how to utilize it in your planning.
When it comes to investing, the term “green” is not used nearly as often as the phrase socially responsible, when referencing funds or companies. That was the simple part. From here on out the rest of this article gets confusing and rather vague. You see, there is no universally agreed upon definition of term such as green or socially responsible, just like there is no government organization to certify or monitor what passes for socially responsible. Each person has their own idea of what being responsible or green means to them. Not just individuals but each mutual fund defines what they consider green to be. So if you want to do some responsible investing it will require some serious homework or a financial advisor well versed in the subject.
A fund is just a collection of the stocks or bonds it invests in. So it is up to the fund to decide which companies to invest in. One of the major difficulties with green funds is that they not only have to find companies that are good investments but companies that are ethical as well. This extra difficulty is why many green funds stipulate that only a certain percentage of stocks they own fit their guidelines of green. So for many green funds, what you are buying is only partially green. Another problem that green funds face is the concentration of green companies in the technology sector. A great many green companies are in the area of developing new technology to make things run more efficiently, cleaner, or anything more eco friendly. This can be a problem when trying to diversify your green holdings because so many of the companies that qualify as green are technology based. This is also a major reason why a lot of investors have steered away from green funds. Not only are they not as diverse, but when technology took a nasty fall in 2000-2001 and now again recently, green funds were hit very hard. When people invest they want to make money, not lose money even if they feel strongly about the merits of the fund they are buying. If that weren’t the case people would just donate more to their favorite cause and get the write off rather than risk their money in the market.
Another issue facing these funds is that there can be a large gap between what is considered green as opposed to socially responsible. The “sr” funds generally do not invest in companies that deal in alcohol, tobacco, firearms, and gambling. These were the original batch of “sr” investing. The new school of “sr” funds obtains information and scrutinizes companies in the areas of: corporate governance and ethics, workplace practices, environmental concerns, product safety and impact, human rights, community relations, and Indigenous peoples’ rights. Let me point out that for a “sr” fund to invest in a company, it does not have to have a spotless record, but must be up to a standard set by the fund, or be the best of a bad lot when you get into some industries. Also, if you look at the list above, only one of the criteria is environmental concerns. So when you are looking to invest, it is important to decide if you want a fund that is greener or more socially responsible.
I have covered some of the more intriguing aspects of green investing, but there are just a few more things I would like to touch on. First, is the hidden socially conscience fund. There are funds out there, some you may already own, put out by both large and small fund families that are quality funds. They have good management, a record of strong returns, and a policy of investing in green or socially responsible companies. Yet, they do not advertise their ethical investing choices; they have just always done it this way, figuring it was good for business, and that socially responsible companies were better long term investments. Many of these funds have been correct and have very good track records. Then there are the green funds that have less than 25% of their holdings in green companies…some of which wouldn’t be considered green by most other funds. But these are the funds that are advertising themselves as green funds. So the ultimate lesson here is buyer beware.
On the flip side of this coin are funds called “Sin” funds or “Vice” funds, that invest in companies whose primary business is alcohol, firearms, tobacco, and gambling. These funds on the whole have done well. Yes they have suffered in the economic downturn as well but still consistently beat the S&P 500. The strange thing is that many of these funds end up having almost the same production numbers as their socially responsible counterparts. So if you want to hedge against green you can buy these funds, or for a conversation starter you can own some. But for the same return why not pick the “good” fund instead of the “bad” fund. There is also another off the beaten path line of funds out there. I refer to them as religious funds. Funds that only invest following strict Muslim laws, or Jewish laws, or Christian laws. There are fewer of these funds than green funds or more mainstream funds. But these funds feel they offer the best of both worlds: a good return, and adherence to a person’s faith.
I suppose no matter what you want to do, there is a fund for you out there. That being said, it just goes to show that more people should be investing. Investing in something you like, that can make you money and allow you to sleep at night. You can have it all, at least most of the time. If you are so inclined I think that green funds or socially responsible funds can be a great choice and compliment your portfolio. But just like any one investment, too much isn’t a good thing. This is merely my practical side urging you to stay diversified and invest on a consistent basis. And remember, if your green funds are pulling your portfolio down, there is probably another green fund out there that is better, and better suited for you. It really is up to you as the investor to make sure your “green” is making you enough green. Until next time, Happy Investing.
