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Green Investments: The Ethical Weapon

by: sahil | last updated: February 16, 2010
Category: Green Savings | Tags: green investments, socially responsible investment, SRI, ethical investment, eco-friendly investments, Investments

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Green investments which are also referred to as socially responsible investing, socially conscious or ethical investing is an investment strategy that helps in maximization of profits as well as social good. Green investment is a broad term and does not restrict to any particular investment. What this means is that such strategies can be from using or investing in alternative energy sources to avoiding dealing in commodities such as alcohol, tobacco, and firearms. However the scope of green investment does not stop at merely physical commodities; social aspects can also be taken into account when investing using such a strategy.

Green investing is generally done by investing funds into common investment tools, such as the stock market or an investment fund, which does business with environmentally conscious companies. For instance, green investments might comprise of acquiring stock in a company that encourages sustainability practices or in a business that is dedicated to developing alternative energy resources. While numerous green investment strategies focus on the renewable energy area, many other green investments are also present. Companies that support energy efficiency, recycling, or water pollution and waste management can all present opportunities for green investments.

Green investing can not only be social or environmentally friendly, it can also be political in nature. In fact modern green investing has its roots in 1960’s when Dr. Martin Luther King started or encouraged socially responsible investing efforts such as the Montgomery Bus Boycott and the Operation Breadbasket Project in Chicago. South Africa was also a country that came under criticism and suffered international political as well as financial alienation due to apartheid.

In the Vietnam War era many people were outraged by the damage caused by napalm which was shown in its naked aggression in award winning photographs. The manufacturers of napalm, Dow chemicals and other companies making a profit out of the war came under criticism and deprivation of funds from investors. Moreover, nowadays environmental damage and destruction is also viewed as financially damaging to any type of business in the long run. Therefore many investors and businesses are turning towards green investments as the long term solution for this environmental depredation which can cause financial losses in the years to come.

Socially responsible investing is a booming market in developed countries such as United States and Europe. Assets in socially screened portfolios ascended to $2.71 trillion in 2007, a raise over the $2.16 trillion counted in 2003 according to the Social Investment Forum’s 2007 Report on Socially Responsible Investing (SRI) Trends in the United States. Many experts predict that this figure will cross the $3 trillion mark in the year 2011 indicating awareness and increase in socially responsible business practices. On the other hand the European SRI market developed from €1 trillion in 2005 to €1.6 trillion in 2007.

Green investment funds frequently have changeable definitions of “green”. A number of green investment funds consider acquiring stock in businesses that have taken up green business models, a green investment. Other funds merely invest in industries that directly promote a low-carbon and resource-efficient economy, such as companies that recycle or expand biomass or geothermal power. Due to this differing definition of green, environmentally aware investors ought to cautiously review a green fund’s prospectus and stock filings before making an investment.

Negative screening is also a process through which environmentally conscious people and investors screen out or filter certain companies. For example a group of investors may screen out tobacco companies or those taking part in making war equipment or nuclear equipment. Divesting is another method where funds invested in “sinful stocks” are removed and channeled to another more ethical business. “Sinful stocks” usually include but are not limited to alcohol, tobacco, and firearms.

Green investments usually include mutual funds, government pension plans (which are increasingly under pressure for investing in green markets), and community investments. Socially responsible mutual funds counted by the 2003 Trends Report improved in number to 200 in 2003, up from 181 in 2001, 168 in 1999, and 139 in 1997. Assets in socially screened mutual funds acknowledged by the Trends Report raised by 19 percent, to $162 billion, up from $136 billion in 2001. In excess of half (51 percent) of this expansion is accredited to both recently identified and recently formed funds, and 49 percent represents increase in open assets.

Positive investing is another method of increasing socially responsible investments through the gauging of social justice and a positive environmental impact of the company. This type of investing may seem like sacrificing the returns on the investment; however some studies have shown that many of these stocks have out-performed those with purely profit-oriented approach. This fact has given further impetus to investors and advocates of ethical business practices to encourage more investors towards this direction.

Socially responsible investing is global in nature since today the markets are open and paradoxically capitalism has paved way for investors to gain access and profit from investments that are ethical and environmentally friendly at the same time. With the global capacity of business itself, social investors often invest in companies with worldwide functions. As international investment goods and opportunities have extended, so have global SRI products. The ranks of social investors are rising all over developed along with developing countries.

The green option is slowly becoming a necessity and is not just the realm of non-profit organizations such as Greenpeace. Many profit and investment savvy people and business entities have found it an ethical option to invest in Eco-friendly businesses. This not only reduces the risk of environmental depredation but also reduces the guilt and burden borne by investors who are seen as pampered fat cats that exploit Mother Nature ruthlessly.