Investing with a Good Conscience

From Standard & Poor's Equity Research

With the Apr. 22 observation of Earth Day fresh in investors' minds, socially responsible "green" investing remains in the spotlight. According to the 2005 Report on Socially Responsible Investing in the U.S. from the Social Investment Forum, a national trade association, $2.29 trillion was invested in assets with that designation in the U.S. at the end of 2004, the latest available figure. "Socially responsible" is defined as assets that are managed using three strategies: screening, shareholder advocacy, and community investing.

Tim Smith, president of the Social Investment Forum and senior vice-president at Walden Asset Management, says socially and environmentally screened mutual funds have experienced substantial growth in their number and diversity of products as well as the social issues they consider. Mainstream money managers are increasingly incorporating social, environmental, and governance factors into their investing, he adds.

One way to invest in this trend is through the Winslow Green Growth fund, with an impressive record of an annualized return of 41% in the last three years. Winslow Green Growth is in the top 1% of its small-cap growth peers.


  Winslow Management's annual Green2 awards recognize companies that contribute to both shareholders and the environment. The 2005 winners were Green Mountain Coffee Roasters, Timberland, and Trex. Green Mountain (GMCR; not ranked by S&P) supports the Rainforest Alliance and has the CAFE (Community Action For Employees) program enabling employees to take paid time off for volunteer work. The company also recycles, and sells mostly organic or Fair Trade coffee.

In addition to using environmentally responsible manufacturing, apparel and footwear maker Timberland (TBL; S&P investment rank 2 STARS, sell) sponsors City Year, a Boston group that organizes a year of full-time community service for young people. Timberland also pays its employees for 40 hours of community service.

Trex (TWP; not ranked) makes residential and commercial decking. It turns millions of pounds of recycled and reclaimed plastic and waste wood each year into Trex decking and railing, a weather-resistant, splinter-free, low-maintenance option for decks. Each year, Trex buys about 300 million pounds of recycled or reclaimed polyethylene and the same amount of hardwood sawdust that would otherwise go into landfills.


  The 2006 Corporate Governance and Climate Change: Making the Connection report by Ceres, a U.S.-based coalition of environmental groups and investment funds, named companies in the electric power, auto, chemical, industrial equipment, mining/metals, coal, food products, air transport, and forest products industries that made the most progress in finding lasting solutions to climate change.

Leaders in the survey were BP (BP; 4 STARS, buy), DuPont (DD; 3 STARS, hold), Alcan (AL; 3 STARS), Alcoa (AA; 3 STARS), AEP Industries (AEPI; not ranked), and Toyota (TM; 3 STARS).

Another green-focused roster, the Fortune Global 100 Accountability List, names companies that excel in managing and reporting their environmental and social impact. BP, Royal Dutch Shell (RDS; 3 STARS), Vodafone (VOD; 2 STARS), HSBC Holdings (HBC; 3 STARS), and Carrefour ranked in the top five in the 2005 Fortune list of the most accountable companies. Companies may be eager to find their names on such "green lists" as investors zero in on the environmental policies of the outfits they own.

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