How To Put Some Green Into Your Portfolio

You bring your own grocery bags to the store. You made the switch to energy-efficient light bulbs. You may even own a hybrid car.


But does your investment portfolio reflect your growing sense of environmental awareness?

Indeed, earth-friendly investments are riding a wave of popularity as issues surrounding climate change permeate public discourse.


From mutual funds that use shareholder advocacy to influence corporate behavior to exchange traded funds that focus on clean energy, it’s easier than ever for average investors to “go green” -- without sacrificing returns.

Determining how well one’s existing portfolio stacks up, however, requires a bit more legwork.

“It’s hard for individuals who don’t have the time to perform due diligence or keep up with the latest information on major corporations to assess which companies may be performing badly on issues of sustainability,” says Fran Teplitz, managing director for Social Investment Forum in Washington.

Bite-size pieces

That said, there are ways to perform an independent analysis of your own holdings, which can help you weed out repeat environmental offenders and reward companies focused on both performance and pollution control.

Many investors, of course, hold multiple stocks and mutual funds in their portfolio, making it difficult to see the, uh, forest for the trees.

While it may not be possible to screen every stock you own, you can focus on the top five holdings in your largest funds, says Michael Herbst, an analyst following alternative energy for Chicago-based mutual fund tracker Morningstar.

Compare those stocks against one or more of the environmental corporate scorecards that exist, he suggests.

ClimateCounts, for example, a nonprofit consumer group focused on global warming, scores 56 companies in eight sectors based on whether they’ve measured their climate “footprint,” reduced their impact on global warming, supported progressive climate legislation and publicly disclosed their climate actions.

In its “Guide to Greener Electronics”, Greenpeace International also ranks the 14 top manufacturers of personal computers and mobile phones according to their policies on toxic chemicals and recycling.


The Dow Jones Sustainability Index, which tracks the performance of the leading sustainability-driven companies worldwide, may also prove useful, notes Herbst.

“I’d be skeptical of some of the other rankings [that exist on the Web],” he says, noting and are particularly “good at cutting through some of the green spin we see too much of.”

At the same time, however, Teplitz cautions environmental scorecards, while useful for research, can be difficult yardsticks for investing.

“Companies may be performing badly one year and then take measures to address that problem and then perform badly again later on,” she said. “It’s a dynamic situation making it hard to just go off a list in any given year to understand the current state of that company.”

Look To The Leaders

For that reason, said Herbst, fund companies that adhere to a socially responsible investment philosophy often provide a more comprehensive research tool for investors. Calvert Funds , Winslow Green Funds and Portfolio 21 are good examples.

“If people are interested in investing heavily along these lines, they need to take a close look at what some of the environmentally friendly fund managers use as their definition for green,” he says. “These companies are an excellence source for investors who are trying to get a sense for what some of the main issues are that investors are thinking about, and what some of the best practice companies might be. Their Web sites are rich sources of information.”

Indeed, Calvert Funds features a “Know What You Own” tool on its site, allowing investors to enter the name of any US. mutual fund, choose an issue important to them and see which companies held in the fund fail to meet Calvert’s standards for that issue.

Some fund managers, notes Herbst, take a proactive approach investing only in companies that produce goods and services related to alternative energy and energy efficiency, including Winslow Green Growth fund and Calvert Global Alternative Energy Fund.

Others, including Portfolio 21, compare direct competitors to determine which have the best or worst environmental impact.

“We look at those as using the “best in breed’ approach, where a fund manager would compare Toyota to General Motors or Wal-Mart to Best Buy, for example,” says Herbst, adding both strategies can help independent investors determine how well their own top holdings compare.

Increasingly, too, the vast majority of Fortune 500 companies, and many other corporations, also produce their own annual environmental reports for investors – readily available on their Web sites.

“Someone looking to size up an individual company could flip through those and that would give them a sense of how well that company is doing in terms of sustainability,” says Herbst, noting Hewlett-Packard,Nikeand Goldman Sachsput out “some of the most solid reporting.”

A Little Help, Please

If you’re committed to earth-friendly investing for the long haul, however, you might consider hiring a financial advisor who specializes in green portfolio planning to do the work for you.

“These are the people who are at the forefront of understanding which companies are taking sustainability issues seriously,” says Teplitz. “They understand the complete environmental impact of [publicly held companies], including their supply chain overseas.”

The Social Investment Forum maintains a directory of financial service providers including financial advisors, banks and mutual fund companies, that specialize in both social and environmental investments

Says Teplitz, “Individual investors can get to a certain point on their own, but if they really want to make their intention known they can hire someone who lives and breathes this stuff to help.”