Making Money Greener

By ZP Heller, AlterNet. Posted December 1, 2005.

If you own stocks, especially shares of a mutual fund, it's time to take a closer look at your investments.

For example, shareholders in Fidelity Magellan -- one of the largest stock funds in the world -- own shares of General Electric, Citigroup, Exxon Mobil, and a slew of other companies that have appalling stances on human rights, labor, and the environment, not to mention ties with terrorism. It's hardly the place for progressives to sock away money for retirement.

But that's the bind with mutual funds: they make it easy to own stock, but harder to invest wisely.

Fortunately, a viable investment alternative already exists. Socially responsible investing (SRI) offers progressives the opportunity to harmonize financial interests with their own personal values. SRI firms like Calvert and Domini act on shareholders' behalf to advocate responsible corporate practices. And the budding Bay Area firm Invested Interests recently took that idea a step further by launching a free screening tool that allows potential investors to pick and choose which social and ethical values to look for. Now, for the first time, individuals can set their own social and environmentally-conscious criteria for investments.

The public demand for SRI is at an all-time high. By Invested Interests' estimates, over $2 trillion (roughly one out of every nine dollars invested) in investments are already screened, as compared to only eight years ago, when screened investments totaled $529 billion. This recent rise in screened investments is all the more remarkable, considering the SRI movement began forty years ago based on religious principles.

In the 18th century, John Wesley, a founder of the Methodist Church, preached the fundamental tenets of SRI in a sermon called "The Use of Money." Wesley believed businesses should avoid practices that harm their neighbors, including what we would now deem environmentally-destructive practices. Convictions like these are shared among many other religious groups, including Quakers.

It was not until the Vietnam War era, however, that modern SRI really began. When it was revealed that Dow Chemical was profiting from the war by manufacturing napalm, public outrage surged. Later disasters like Union Carbide's Bhopal explosion and the Exxon Valdez oil spill, as well as social and political concerns about apartheid, spurred further interest in SRI. In the case of apartheid, public indignation compelled U.S. businesses to divest investments from companies operating in South Africa, which helped spur the end of racial segregation there.

SRI Across the Spectrum

Since SRI got its start as a religious doctrine, it should come as no surprise that just as there are liberal, ethical SRI funds like Calvert and Domini, more conservative funds -- such as Aquinas and Lutheran Brotherhood -- focus on religious criteria for investing. Julie Fox Gorte, Vice President and Chief Social Investment Strategist at Calvert, said, "SRI comes in many flavors, just as investing as a whole does. All of them appeal to some investor, and the variety is all good for investors, who are all better off if they have more choices."

According to Social Investment Forum, there are currently over 100 SRI funds. Of those, only a small portion follow religion-based investment principles. Since there is no single SRI standard, SRI funds vary widely on socially-conscious agendas. For example, Aquinas Funds consider abortion a key investment issue.

To that end, this religious fund family has principal holdings in Freddie Mac, Sara Lee, and Sunoco -- corporations that have either taken a stance against abortion or are publicly neutral on that issue. Other religious funds have made tobacco, alcohol, gambling, and adult entertainment key criteria for investing. Conversely, a more progressive set of funds like Sierra Club puts a greater emphasis on issues like environmental pollution and weapons manufacturing.

The chief problem with SRI, however, is its lack of a broad-sweeping standard of responsibility. Paul Hawken, the director of the Natural Capital Institute, recently pointed out that an SRI fund like Pax can call itself progressive, because none of its top ten holdings have poor environmental practices. But the Pax World Balanced Fund owns a smaller amount of shares of companies like Johnson & Johnson and Gillette, which have spottier environmental records.

Likewise, a fund can claim to be socially responsible because its holdings are good on human rights -- even if they're horrible when it comes to defense contracting. The trick for socially-concerned investors, then, is to research all of a fund's holdings and gain a better understanding of their corporate practices before deciding which criteria matter most.

Zack Pelta-Heller is a graduate student at The New School and a regular contributor to AlterNet.

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