Letters to the Editor
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not exactly
A check on the claims of green investing, and the concerns of investors: buying stock (or doing so indirectly via a fund), except in the case of an IPO, does not give that company any money. You're buying shares from some other shmo who's selling, that's all.
(When companies need extra money, they usually go to a bank for a loan. Stocks are just a way of dividing up ownership of the economy with very, very fine granularity.)
There's an argument to be made that a high valuation gives a company some leverage, but that's limited. A high share price is more likely to follow from a company's strength than the other way around. Likewise, a high valuation in itself guarantees a company (and it's "investors") nothing.
Bonds are somewhat different, since they represent loans to companies. Though bond trading also takes place after the bond's terms are set, green investing has a more realistic claim to make there. To be more direct still, there are community development banks which use investor deposits to make loans screened for community needs and green principles.
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You Can Do Better
This article reads more like an advertisement for one particular firm. You can do better to provide a clear picture of the world of green investing--including the pitfalls of investing in small, unproven companies in the green energy field.
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A sound long-term investment strategy
My superannuation is invested with a "green" fund manager here in Australia. It's not just a chance to put my money where my mouth is: I think it's highly likely that the greener companies will make excellent long term investments. As oil becomes more scarce, alternative modes of energy production become more viable. As concern about pesticides and genetically engineered food grows, organic food producers will prosper. And so on.
The future is green, folks!
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Investing "Green" doesn't affect the environment
The reason is that the money you invest in the stock market doesn't go to the companies - it goes to the person who sold the stock. It has no effect on the company in question.
Ultimately the price of the stock does have some effect on the company's behavior, but not usually a tremendous amount. However, your choice of investments does not really affect the stock price at all.
Here's why. Suppose you think WalMart is so evil you won't invest in it. It won't matter a bit, because so many others don't care and will buy the stock. But suppose enough people did care, enough so that the stock started to dip just for that reason (the underlying business reasons for the stock were not affected). Somebody, somewhere would see this as a buying opportunity and purchase the stock, keeping it from going too low, and you'd have given that person a shot at making a good deal.
At the very least you'd expect the executives and board members of the company to buy the stock so the main effect you'd have on them by boycotting the stock is to make the officers and board members richer.
I'm not saying you won't get good returns on your money investing in a green fund (I haven't done enough research to have an opinion) but you won't affect the environment.
Better to do anything you can (legally) to get rich in the stock market, then give your money to help elect people to run the government in a way that will help the environment.
Next best might be to invest in environmental start-ups, where your investment does go right to the company - however that's like charity. It's almost a sure way not to get rich yourself. Don't ask me how I know this [grin].
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@John Seiffer
I think green investing is more effective than you're letting on.
A good green fund doesn't just buy the stocks; the fund uses its stocks as leverage to promote environmentally wise decisions and good governance. They push for greater transparency and better environmental information (from both current and prospective investments). They help elect board members who will keep the company on the right path.
I guess if you look at stocks merely as entitlements to a share of corporate profits, and strip away other aspects of ownership, then your analysis makes sense. But stock owners benefit when demand is high. If there are enough green investment dollars out there to be courted (read: if enough people invest in "green" funds), stockholders of all stripes will insist that their companies start courting them.
Lastly, I'm inclined to believe the green fund argument that environmentally responsible companies are better managed in a variety of other ways as well.
Of course, I could simply be rationalizing my decision to cut Winslow's Green Growth Fund a check last month.
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IF? It will
So called socially responsible funds don't generally outperform the market and usually slightly underperform. That might be good enough for you, you have to decide.
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greenvesting
As has been pointed out, the investment itself doesn't enrich the company although it might drive the stock price up and enrich the insiders. Good or bad? Dunno. I've seen visionary insiders get rich and cash out before (ex. Craig Venter). The smart ones cash out because it ensures their financial future. After cashing out they usually move off within a year or two.
As was also pointed out, shareholder leverage can help keep the company on a green path. It does require a touch of shareholder activism though. In this case, the investment isn't a vote of approval, it is more of a stewardship commitment.
To me, the greenest fund would be one that is dedicated green reform by acquiring a decent percentage of a non green company. A large enough fund has a chance of getting green directors elected and green ballot resolutions approved. If, as the story claims, being green increases profitability then it is more profitable to reform a polluter than to keep a green company on track.
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So what happens when hippie.com gets bought by GE?
In other words is there an audit cycle to go back and evaluate the continued greenie-ness of investments after the fact? Or do they just scoop up their filthy lucre and feel noble?
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not much there either
I think it's also easy to overstate the effect of shareholder stewardship. Management makes all the day to day decisions for companies, while shareholders wield tools that are extremely weak and blunt by comparison. Even with a substantial stake in a company (a high-risk move), green funds have to contend with other shareholders over the investment/corporate imperative: maximize return. Shareholder activism can do some good in an advisory and watchdog capacity, but don't expect more than that.