I’m a bit of a treehugger.  I even have the pictures to prove it.  *wink*  But, how do I translate that interest in green causes and sustainable development into my less than altruistic motivation in investing my savings?  After all, I want to ensure that I actually make some money while investing.

If you invest, let’s talk investment strategy.  How do you decide where your money goes?  Do you have an articulated investment philosophy? Does that philosophy seek to maximize your profits while at the same time maximizing social good?

You might be scratching your head right now.  What do investments have to do with ethics?  Many people are increasingly engaging in socially responsible investing, or SRI.

SRI favors investments in corporations that promote some social good, be it environmental stewardship, human rights, or diversity.  Others, who choose to invest in a socially responsible manner, do so because of religious beliefs, and stay away from alcohol, tobacco, gambling, or abortion.  SRI’s tenets are broad but recognize three general areas:  (1) environment, (2) social justice, and (3) corporate governance.

In the past, SRI has influenced global situations.  For example, did you know that socially responsible investors pressured companies, such as General Motors, to divest their interest in South Africa during its apartheid era in the 1980s?  Or, that in the 1990s, investor pressure similarly lead companies such as Tiffany’s to refuse to buy conflict diamonds and for the diamond industry to create country-of-origin certification?  That same pressure in the 2000s, lead companies such as Tiffany’s to take on government regulators to  encourage sustainable mining standards for metals such as gold, silver, and copper.

Knowledge@Wharton recently reported that Wharton finance professors Robert F. Stambaugh, Christopher C. Geczy, and graduate  student David Levin recently published a study entitled, Investing in Socially Responsible Mutual Funds. The study found that when returns on investment are “adjusted for risk, index-style investors give up very little by using socially responsible funds, while investors who choose actively managed funds can pay a heavy price – losing more than 3.5 percentage points of return a year.”

But, as an investor and a consumer, how can I possibly learn which companies are genuinely interested in promoting social consciousness and which ones just greenwash their corporate image?  Quite easily, it turns out.

All publicly traded companies are required to file yearly annual reports , also called Form 10-K Reports, with the U.S. Securities and Exchange Commission (“SEC”).  The more recent of these annual reports are available online via the SEC’s Edgar Online database.  Prior to 2010, companies were required to include environmental liability disclosures and the potential such liability had for impacting the companies’ operations and financials.

In January 2010, the ability of an SRI investor to determine a company’s eco-friendliness expanded when the SEC passed new climate change disclosure standards, which were intended to inform investors of business risks derived from the increasingly complex climate change regulations and other environmental protection laws.

As Bloomberg reported on January 27th, the guidelines – approved by the SEC Commissioners in a 3-2 vote – require companies to “weigh the impact of climate-change laws and regulations when assessing what information to include in corporate filings.”

If you invest, how do you do it?  Do you chose funds?  Or, do you weed through company profiles to select your best bets?  Will these new disclosure standards aid you in your decision-making process?  What are some of your favorite SRI funds or companies?

Posted by Krystyna on February 9, 2010 at 12:15pm.