Investing in mutual funds can be difficult if you don’t know what you’re doing. Even if you know about the diversification they offer and are updated on the fees and management style of a fund, you could still be stuck with some non eco-friendly investments in a mutual fund that you might not want to be a part of.
If you don’t want to own stock in a company that causes global warming, for example, you should avoid mutual funds with oil companies as part of their investments.
Some funds incorporate environmental and social factors into their decision making, following the Principles for Responsible Investment set up by the United Nations. Others can make finding green, eco-friendly mutual funds more difficult.
Here are some things to look for when researching eco-friendly mutual funds:
Don’t expect purity
Finding companies in a mutual fund that aligns with your social interests is possible, but know going in that some mutual funds that say they’re green may not be as green as they claim.
Energy mutual funds, for example, may hold companies such as Apple and Google that aren’t normally thought of as energy companies.
Green mutual funds that focus on alternative forms of energy are available, but even those may include stocks in companies that sell other services.
Google has invested in clean, sustainable electric supplies, so investing in this company that you may just think of as an Internet company can provide eco-friendly, green services also and could make it an investment worth having in a green portfolio.
How much green do you want?
Before buying a green mutual fund, know how environmentally friendly you want a company to be.
Do you want to invest in companies that develop alternative energy and waste reduction solutions? Or is it OK if the companies have a strong energy conservation and recycling program, or financially support environmental causes?
What’s off limits?
Are certain industries off limits? What if a company pollutes but then plants trees to try to make up for it?
Do you want to give companies leeway in how much they pollute? Is a little pollution OK?
Know your risk tolerance
Green investments can be volatile if green companies make all or most of their profits from green products. You might get less volatility from companies that do business in other areas also.
Don’t forget performance
Even if a mutual fund or company is as green as it says it is, you still want to make money from your investment. Learn about its past financial performance and look for a mutual fund that reflects your values but can also grow your money.
Compare it with a common benchmark, such as the Dow Jones Industrial Average.
President Obama vetoed the Keystone pipeline. You can do the same with a “green” mutual fund that doesn’t do the job you want it to do.