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INVESTING Through environmentally responsible investing, your money can take an active role in protecting the environment, even when you’re not spending it on eco-friendly products or donating it to support environmental causes. Your investments today determine how companies do business tomorrow.

Background:

WHAT IS "RESPONSIBLE INVESTING"?

Environmentally responsible investing falls under the umbrella of socially responsible investing, or SRI. The Investor Responsibility Research Center defines SRI as, "Investment decisions or activities conducted with the deliberate application of an investor's moral, ethical, social and/or environmental values."

The principles of SRI date back to early Quakers who refused to invest in companies connected to the slave trade. In the 1920s, many American churches kept their investments out of the alcohol and tobacco industries, and in the 1970s and '80s the power of SRI was demonstrated by massive divestment from South Africa during apartheid.

Recently, the humanitarian roots of SRI have expanded rapidly into a range of environmental issues, including sustainable development, environmental justice, conservation and climate change.

SRI provides an incentive for companies to pursue the "triple bottom line" of economic, social and environmental performance. It has become a major force in the U.S. financial market, with assets tied to SRI more than doubling between 1995 and 2003. Today, one out of ever nine dollars under professional management is involved in SRI. That's $2.16 trillion working to promote more benevolent business practices within corporate America.

The growth of SRI shows that today's investors understand that their personal values hold financial value as well. A recent survey by the Calvert Group found that 71 percent of investors believe that companies operating with higher levels of integrity carry lower investment risk, while 68 percent think that such companies will deliver higher investment returns.

SRI is commonly perceived as safe ground amidst the rising tide of corporate scandals, since companies that want to attract responsible investors are obliged to be transparent about how they conduct their business and responsive to their shareholders. Nine out of ten investors want their financial advisors to investigate the ethical as well as financial performance of investments before making recommendations, and two-thirds encourage more shareholder voting on key issues.

According to the Social Investment Forum, SRI incorporates three main strategies:

A. Screening is the practice of including, excluding, or evaluating publicly traded securities from investment portfolios or mutual funds based on social and/or environmental criteria. Social investors seek to own profitable companies that make positive contributions to society and avoid investing in companies whose products and business practices are harmful.

Environmentally responsible investments are not always in companies with spotless environmental records. While they may fund clearly green companies like renewable energy producers, they may also go into companies considered "Best in Class" within not-so-green industries such as office supplies and agriculture, or into environmentally benign companies whose practices have little or no environmental impact.

The Social Investment Forum finds that about 20 percent of all socially screened mutual fund assets in the U.S. are subject to environmental screens ($28.9 billion out of $151 billion). Energy use, pollution prevention, hazardous waste and climate change are just a few examples of environmental criteria accounted for by the screening process.

B. Shareholder Advocacy describes the actions many socially aware investors take in their role as owners of corporations. These efforts include dialoguing with companies on issues of concern, as well as filing, co-filing, and voting on proxy resolutions. Shareholder advocacy often makes use of tactical investments in companies with poor environmental records to force them to change from within. For instance, in 2000, five years after Greenpeace activists boarded an abandoned oil platform owned by Shell in protest of the corporation's plans to scrap the structure in the waters of the North Sea, the Greenpeace purchased $250,000 of Shell shares. Why? Greenpeace wasn't out to profit from Shell's oil money. Instead, as a major shareholder, the group proposed a shareholder resolution calling on the company to build a new solar panel factory.

In 2003, there were more shareholder resolutions which came to a vote that related to the environment (12) than to any other subject. SRI resolutions typically receive a minority vote, but their success is growing. Between 2001 and 2003, their average vote of support increased from 7.2 percent to 11.3 percent. Several of the most popular resolutions of 2003 were focused on emissions reductions and renewable energy investment. Resolutions at ExxonMobil, Southern, ChevronTexaco and General Electric each received over 20 percent support.

Resolutions don't have to receive a majority vote to be effective. Win or lose, they raise awareness that social and environmental issues belong on corporate agendas. Often times, the resolutions that are filed but never voted upon are the most effective, as corporations would sooner accede to the demands of a resolution than subject themselves to the negative publicity that can result from voting on a hot-button environmental issue.

C. Community Investing directs capital to communities that are underserved by traditional financial services. It provides access to credit, equity, capital and basic banking products that those communities would not otherwise have.

Many community investments help develop local, sustainable enterprise. In the Pacific Northwest, community investing provided displaced timber workers with loans to start environmentally friendly businesses.

The three strategies undertaken by SRI have made demonstrated improvements in corporations' social and environmental performance, but investors want to reap the benefits to financial performance as well. Study after study has shown that returns on mutual funds are not harmed by the screening process. One such study found measured stock performance across a 14 year period between 1984 and 1997. In recent years, the global investment research firm Morningstar has consistently awarded its highest four or five star ratings to a greater percentage of SRI funds than of the total market of mutual funds.

On the whole, SRI funds typically fare no worse than the middle of the pack, but of course there are exceptions. Among more than 500 balanced funds monitored Morningstar, the Green Century Balanced Fund had the highest one year returns in the period ending March 31 st, 2004. The fund is administered by Green Century Capital Management, which distributes 100 percent of its profits to environmental organizations.

Should you decide to enter the world of SRI, you'll join millions of individual investors and increasing numbers of universities, nonprofit organizations, foundations, religious institutions, pension funds and corporations themselves whose portfolios promote corporate responsibility.

INVEST RESPONSIBLY

1. Take stock. As with any investment, the first step of making a socially responsible investment is to think about the level of risk that is acceptable to you and to evaluate your "time horizon." Are you investing for retirement or will you need to liquidate your investments in a few years, say, when your kids enroll in college? Answers to these basic questions will steer you towards investment decisions that reflect your needs and dreams. If SRI marks your first foray into investing, take a look at Co-op America's Financial Planning Handbook for would-be socially responsible investors.

2. Consider getting help. Financial advisors and planners can help you through the beginning stages of investing and beyond. The Social Investment Forum provides a directory of financial professionals in your area who specialize in SRI. Co-op America recommends a series of questions to ask prospective financial professionals to determine their level of overall competence and familiarity with SRI. Simply by asking questions about SRI you'll promote its cause by demonstrating to advisors and planners that there is a significant market of values-based clients. If you already use the services of a financial professional, talk with him or her about SRI to make sure that you share a common vision for your investments.

3. Diversify. Whether in ecosystems or your portfolio, diversity is a good thing. Diverse investments protect against natural fluctuations that might otherwise make your savings extinct. In a volatile financial environment, individual stocks may thrive or they may dive. So unless you're already a skilled investor or are willing to accept high risk, diversify your portfolio. Mutual funds present a straightforward path to diversification. Much of the advice below is geared towards helping you choose from among the 200 socially responsible mutual funds in the U.S.

4. Shop around. Survey the mutual fund market, then order prospectuses from funds that capture your interest. The Social Investment Forum's SRI Guide allows you to compare the financial performance of dozens of different mutual funds, view a checklist of screening criteria, see which funds engage in shareholder advocacy, find out their fees and account minimums, and read in-depth fund profiles that include contact information for ordering prospectuses.

SocialFunds.com, another major clearinghouse for information on SRI, supplies brief fund descriptions and a one-click method of ordering multiple prospectuses at the same time.

5. Advocate. The vast majority of socially responsible mutual funds employ just one strategy: screening. The Social Investment Forum notes that only 8 percent employ two strategies, while less than 1 percent employ all three. To maximize the environmental value of your investment, try to make it work for the environment as broadly and effectively as possible by focusing on funds that engage in shareholder advocacy and whose profits support environmental causes.

Shareholder resolutions are at the frontier of corporate environmental reform, not just within the financial world, but throughout the environmental movement. Shareholder resolutions are frequently co-sponsored by coalitions of mutual funds and nonprofit organizations as part of concerted social and environmental campaigns. At each of BP's annual shareholders meetings between 2000 and 2002, a coalition composed of the Green Century Balanced Fund, Walden Asset Management, Trillium Asset Management, the World Wildlife Fund, and the U.S. Public Interest Research Group filed a resolution asking the oil company to take a stand against drilling in the Arctic National Wildlife Refuge.

The Social Investment Forum and Co-op America joined together to create The Advocacy & Public Policy Program, which is home to a wealth of information about shareholder advocacy, including news headlines, a list of pending resolutions, examples of past shareholder victories, instructions on participating in proxy voting and (in case you want to see shareholder advocacy in action) a schedule of upcoming shareholder meetings.

6. Pick a grinner (a green winner). If you crave the challenge of picking individual stocks and the excitement of tracking their financial performance, SustainableBusiness.com lists twenty All-Star Stocks from 2003 along with a longer index of stocks organized by sector. EcoMall also features a list of publicly traded "environmental" companies.

7. Join a club. Social social responsibility is not redundant. Investment clubs are fun, educational and potentially profitable ways to take the do-it-yourself approach to SRI. They are a great opportunity to get your like-minded friends together for business and pleasure. Investment-Clubs.com features several helpful articles on starting and maintaining an investment club, including an article specifically on SRI clubs. The National Association of Investors Corporation has helped its dues-paying members get hundreds of investment clubs get off and running.

8. Support your Alma Mater Earth. It's never too late to be a campus activist. The Responsible Endowments Coalition includes student and alumni members from 22 schools with combined endowments of $56 billion. Founded in April, 2004, the coalition is dedicated to spreading SRI to campus chapters nationwide. Get in touch with the coalition to find out about SRI at your alma mater, and to connect to resources about socially responsible endowments.

9. Retire responsibly. Ask your employer's 401(k) administrator if there is an SRI option for your 401(k) plan. You shouldn't have to work for a progressive nonprofit for SRI options to be available to you. Government bodies like the State of California and the City of New York and corporations like Ford Motor Company offer socially responsible 401(k) plans. If your employer doesn't, rally support among your coworkers by talking to them about the financial and ethical reasons for SRI, and join them in requesting that your employer gratify the interests of its employees. You can facilitate the process by providing your employer with a list of SRI mutual funds.

10. Don't lose sight of the green. Remember that while 80 percent of the assets in socially screened mutual funds in the U.S. are screened for tobacco and 60 percent for alcohol, just 20 percent are environmentally screened. Just 8 percent are involved in environmental shareholder advocacy, and green community investments are even more difficult to account for. If doing well for yourself while doing good for the environment is your main reason for choosing SRI, make sure that when it comes time to pick from among the wide variety of SRI options, you stay focused on investments that employ a at least one strategy of environmental screening, environmental shareholder advocacy and community investing that promotes environmental sustainability.

• Co-op America: "Practical steps for using your consumer and investor power for social change." www.coopamerica.org

• EcoMall: "A place to help save the Earth." www.ecomall.com

• Green Century Capital Management: "An investment for your future." www.greencentury.com

• Investment-Clubs.com: "A comprehensive collection of links, articles, tutorials, and other resources." www.investment-clubs.com

• Investor Responsibility Research Center: "Impartial research for shareholders and corporations worldwide." www.irrc.org

• Morningstar: "A leading provider of independent investment research." www.morningstar.com

• National Association of Investors Corporation: "The NAIC teaches individuals how to become successful strategic long-term investors." www.better-investing.org

• Responsible Endowments Coalition: "Advancing socially and environmentally responsible investing in college and university endowments." www.sriendowment.org

• Social Investment Forum: "A national nonprofit membership organization promoting the concept, practice and growth of socially responsible investing." www.socialinvest.org

• SocialFunds.com: "The largest personal finance site devoted to socially responsible investing." www.socialfunds.com

• SustainableBusiness.com: "Working toward a green economy." www.sustainablebusiness.com

• The Advocacy & Public Policy Program: "Uniting investors for corporate responsibility." www.shareholderaction.org