In recent years, a new trend has developed in the investing world—Socially Responsible Investing (SRI). SRI investors seek to invest in companies that are positively impacting society for good. These investors tend to stay away from companies and industries that profit by damaging society either morally or, oftentimes, environmentally. Common questions that SRI practitioners like to ask are, “Do you know what companies you are investing in? And do you know what product these companies produce and by what means they produce that product?”
The truth is that few investors know what companies they are invested in, or, better yet, what products these companies produce. The reason is simple—the typical investor is heavily invested in mutual funds. Mutual funds are an investment vehicle that invests in a broad selection of companies in an effort to reduce overall risk exposure. Therefore, an investor may know that she has invested in Mutual Fund ABC, but, in reality, she oftentimes will not be able to list all of the companies that Mutual Fund ABC invests in. Therefore, SRI practitioners aim to invest only in companies that are working to positively impact the environment and humanity.
An extremely popular sub-domain of SRI is Green Investing. Green Investing involves strategically investing in companies that are working to solve environmental issues.
Green Company XYZ has developed a new geothermal heating and cooling system called Earth Air. Earth Air acts to reduce heating and cooling costs by utilizing the planet’s natural geothermal energy. This company is clearly environmentally friendly. The product it has created works to positively impact the environment. A socially responsible investor would be very interested in this type of company. Now, an astute investor is not going to buy stock in a company simply because the product is nice and environmentally friendly. All the traditional criteria that apply to choosing a good stock still apply.
Questions to consider:
- What is the management team’s experience in the industry?
- How do the financials look?
- What is the medium-term and long-term growth prospects of the industry at large?
- How diversified is the company in terms of product creation? Are they dependent on 1 single product, or are there several lines of product that help diversify overall risk exposure?
These are just a few questions to consider when determining whether or not to buy stock in an individual company.
The Solution For Most People
Now, most casual investors are not interested in conducting in-depth analysis in order to determine whether a specific company is a good buy or not. In this case, there is a solution. If you are interested in Green Investing, but you are not interested in researching individual companies, then there are several Mutual Fund options available.
A mutual fund is an investment vehicle that invests in a broad selection of companies in an effort to diversify overall risk exposure. There are several “green” mutual funds that invest solely in companies that are working to solve environmental problems through offering new products or services to the market.
A Few Funds
Some green mutual funds are:
- Winslow Green Growth Fund
- Calvert Global Alternative Energy Fund
- New Alternatives Fund
These are not official fund recommendations. However, they are a few of the popular green mutual funds that an interested investor may choose to explore further.
Future of Green Investing
Environmental consciousness is at an all-time high around the world right now, and it here to stay. Our problems in the environment are very real, and this creates an excellent opportunity for investors interested in green investing.
Jason Hoerr is a market analyst for ForexTraders, an online resource for currency investment and currency market news.