By Tracy Ford

You may have already switched to doing your banking and investing online, eliminating the need for paper statements and other correspondence. Although this small change may reduce your financial carbon footprint by keeping some paper out of landfills, did you know that you can make your financial life even more “green” by reviewing your investment portfolio?

Several years ago, mutual fund companies introduced “socially responsible” funds that allow individuals to link their investment choices to their core values and beliefs. These mutual funds screen companies according to specific values before choosing whether to invest in them. This practice has been labeled “Sustainable Investing,” also referred to as “socially responsible investing (SRI),” “mission-based investing” and “green investing.”

What is Sustainable Investing (SI)?

According to the International Finance Corporation (IFC), Sustainable Investing is “the consideration of environmental sustainability, social responsibility and corporate governance (ESG) into the investment process. Sustainable investing integrates ESG factors into investment analysis, stock selection and active ownership practices in the belief that these factors can improve long-term risk management.”

Many SI funds define themselves in terms of what they choose to invest in, rather than what types of investments they exclude. Their investment strategies may also focus on financial outcomes rather than with values – hence the shift from the focus on social responsibility to sustainability.

Choosing an SI Fund

Although the list of sustainable investing funds makes up only a small portion of the market (approximately 2%), there are still plenty to choose from. Your best bet is to use Morningstar.com or other trusted online sources to research the range of SI or “green” funds, then discuss your options with a financial advisor.

Challenges of SI Investing

Morningstar recommends that investors review the intricacy of funds’ screening process, principles and activities to make sure they’re consistent with your values. Also be aware that you may find it difficult to build a well-diversified portfolio constructed entirely of SI funds.

First and foremost, remember why you’re investing – whether for retirement, college or a new home – and choose funds that will help you meet those goals. Then work with an advisor to see whether any SI funds make sense in your overall strategy.

Sources: Morningstar.com; IFC.com; GreenMoneyJournal.com

Note: This is for informational purposes only and should not be construed as investment advice – talk to a financial advisor before making any investments, etc.

Thursday, January 21st, 2010 | Financial, Green Investing |