Choose eco-friendly mutual funds
Whether you're new to financial planning or a seasoned investor, why not add eco-friendly mutual funds to the mix for a truly well-rounded investment or retirement portfolio? These socially responsible investments help you prepare for the future while supporting green technologies and environmentally conscious companies.
How to choose green mutual funds
Buying stocks in companies that focus on new technologies—such as alternative energy—can be risky and time-consuming if you're not an expert in the field. (Remember the dot.com bust?) Instead, why not invest in green mutual funds? A mutual fund gives you the advantage of pooling your money with other investors and letting a financial expert manage it for you. You may also pay lower fees than you would if you were investing in stocks.
If you have an investment account with one of the major brokerage firms—such as Schwab or Fidelity—they all offer green mutual funds, although they may not be searchable as such. The following links can help you locate some good green candidates for your portfolio. As with researching any mutual fund, evaluate a fund's past returns, Morningstar ratings, fund style, and associated fees (load or no-load, for example) before making your decision. As with all mutual funds, performance varies.
There are an increasing number of green mutual funds available for socially responsible investors (SRI). To explore your options, try:
- Go for the green: Get green investment advice from those who specialize in the sector. Here are a number of good organizations working to bring you the latest, most accurate information about the greenest investment opportunities around:
- SocialFunds.com: Get easy-to-understand summaries for the major socially responsible mutual funds out there with Social Funds’ Mutual Fund Center. Try searching for “Social Issues” on the “SRI Fund Charts” and then sort the resulting list by “Environment” to see the mutual funds doing the most for the earth.
- Social Investment Forum: Another easy way to compare the social responsibility of various stocks and funds at a glance is the Social Investment Forum’s Mutual Fund Charts which is a sortable list of funds screened on issues like the environment, animal testing, and human rights.
- Social Investment Organization: Canadians can access this online resource that provides reports on mutual fund performance and social responsibility.
- Toxics Release Inventory: Dig deeper with the US Environmental Protection Agency (EPA)’s Toxics Release Inventory (TRI) database that allows you (or your money manager) to compare companies to their industry average to see who’s polluting the most.
- Co-op America: Use their National Green Pages to search for mutual funds. You’ll get a mixed list of green fund managers as well as mutual funds.
- Follow the trends: Stay current by reading up on the latest socially responsible investor trends:
- Green Money Journal: Get investment tips and news from this quarterly publication that’s been around for 15 years.
- Environmental Finance: This monthly magazine addresses investment- and environment-related issues.
- Winslow Management Company: A respected eco-friendly investing firm, Winslow Management publishes the Winslow Environmental News online, covering a variety of investing topics.
Find it! Green mutual funds
Claiming to have the widest range of socially responsible mutual funds, Calvert has been operating for over 30 years. They boast the largest number of socially responsible funds in the nation, including the Global Alternative Energy Fund.
Domini an investment firm specializing exclusively in socially responsible investing. Among the focuses of their funds are global climate change, eliminating sweatshop labor, and product safety.
Green Century—founded and owned by nonprofit environmental advocacy organizations—offers no-load mutual funds focused primarily on environmentally responsible investing. Green Century invests in companies they perceive as leaders in a greener future, avoids companies that do not meet strict environmental criteria, and uses shareholder advocacy to influence corporate behavior.
A new alternative energy fund that’s a little riskier than others because its a non-diversified sector fund, GAAEX invests in the equity securities of domestic and international alternative energy and energy technology companies. Alternative energy includes solar, wind, hydroelectric, tidal wave, geothermal, biomass, or biofuels. Energy technology includes technologies that enable the use, storage, transportation, and development of alternative energy.
This fund seeks long-term capital growth stocks and screens companies on based on their record on environmental, diversity, workplace, and community issues and avoids those that support tobacco, gambling, alcohol, weapons, and nuclear.
A fund that buys foreign and domestic alternative energy stocks, especially those of solar-panel companies. New Alternatives Fund distinguishes itself from other green mutual funds by investing only in companies with a positive environmental impact, rather than just avoiding companies that have a negative impact.
The first to establish a socially responsible mutual fund (1971), Pax World puts companies through a rigorous screening process before selecting them. Pax World offers a variety of mutual funds, such as balanced funds and high yield bond funds.
The Sierra Club uses 20 separate environmental and social screens to evaluate companies, choosing companies for both their financial performance and environmental and social records, based on the guidelines of the Sierra Club.
Winslow has over 20 years experience investing in small- and medium-sized “green and clean” companies, and offers two green no-load mutual funds. The Winslow Green Solutions Fund invests both domestically and internationally in green market sector companies, such as those companies focusing on clean energy, natural products, and recycling.
Choosing eco-friendly mutual funds helps you go green because…
- You’re cuing the market that you won’t support dirty industries like oil and coal.
- You’re providing capital that can be used to advance green products and services.
Socially responsible mutual funds have been around since the early 1970s, numbering over 60 today. Currently, 9 percent of the money market is taken up by socially responsible investments, including mutual funds which are valued at close to $150 billion. Though at this point, most companies take more resources than they replace, green funds are generally composed of carefully screened companies that work hard to have a smaller eco-footprint.
Some have lodged serious criticisms against SR investments, claiming that green options often invest in environmentally unsound industries such as oil and gas and that they rarely include progressive companies such as organic food producers or alternative energy firms. Individual investors should be aware that stocks, funds, and money managers will vary in their depth of environmental commitment, being careful to investigate individual investment options to find the one that best fits their moral values and financial goals.
- Ceres Works to network investors with environmental organizations and public interest groups to cooperatively work on environmental challenges.
- Co-op America’s Social Investing information A nonprofit member organization working to use economic power (consumer, investor, business, marketplace) to stimulate a just and sustainable world.
- Environmental Finance A monthly periodical addressing investment-related environment issues.
- Green Money Journal A quarterly publication that gives tips and current events in the investing world.
- Investor Network on Climate Risk A $4 trillion network of investors promoting understanding of climate change’s risks and opportunities.
- Investing with Your Values - A books that covers most investment options and how to get into the money making game without compromising your values.
- Social Funds.com Publishes news, daily market trends, and investment research, and gives performance information for 75 socially responsible mutual funds.
- Social Investment Forum Encourages responsible investing by evaluating various mutual funds against a variety of indices.
- Social Investment Organization A Canadian member organization working to promote socially responsible investing.
- SRI Studies A project affiliated with the Haas School of Business at the University of California, Berkeley, this site contains some intriguing socially responsible investment studies.
- Sustainable Business.com Publishes a monthly newsletter read by many green money managers, and reviews company financial and environmental performances.
- TerraChoice An environmental marketing firm with an EcoBuyer Database that might be useful in investment research.