Socially Responsible Investing
Union of Concerned Scientists
Many
people do their part for the environment by driving a fuel-efficient
car, buying organic foods, or using energy-efficient appliances. You
can also promote environmental values through socially responsible
investing (SRI), also known as “green” investing. SRI gives
corporations an incentive to improve their environmental stewardship
and can also provide investors with a more secure financial future — a
“double bottom line.”
Though
socially responsible stocks have a reputation for poor performance,
recent data from Lipper, a fund tracking and research firm, show that
returns from SRI funds are now competitive with — and, in some cases,
have even outperformed — the overall stock market.
Here are a few things to keep in mind when you’re preparing to become a socially responsible investor:
Mutual Funds
Mutual
funds pool the money of multiple shareholders and invest it in the
stocks of corporations that meet certain criteria; investors then share
the fund’s gains and losses. In the case of green investing, the
companies chosen to make up the fund have been screened according to
environmental, social, and/or political criteria.
The
success of mutual funds is measured against an index — a collection of
stocks meant to represent the overall stock market or a specific
segment of the market (SRI in this case). Mutual funds known as index
funds simply attempt to duplicate the performance of a particular
index; the Calvert Social Index, for example, is a socially responsible
index fund.
Screening Criteria
When
selecting a socially responsible mutual fund, it is important to know
the business sectors in which the fund invests and the method it uses
to screen corporations. Negative screens, for example, exclude
companies that behave in an unacceptable manner or develop products
that investors do not wish to support, such as tobacco, casinos,
alcohol, weapons, or nuclear energy. Positive screens give recognition
to companies that engage in issues such as conservation, civil rights,
labor relations, or animal rights.
One fund
might choose to invest in renewable energy corporations exclusively,
while another might invest in any company except those that produce
weapons. The Pax World Balanced Fund uses both positive and negative
screens to invest in businesses that provide life-supporting goods and
services such as health care, pollution control, and education.
Comparing Funds
Several
websites can help you compare mutual funds and choose which ones are
right for you. Calvert’s “Know What You Own” service lets you run the
holdings of various funds through the screens used by its Calvert
Social Index. The nonprofit Social Investment Forum lets you compare
the screens used by different funds and presents the distinctions in an
easy-to-follow chart.
Please note: The
fund names and services mentioned in this article are used for
identification purposes only and do not imply endorsement. UCS is not
responsible for any investments made as a result of the information
provided in this article.
(For further information on socially-responsible investing, click here.)
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