Save the Earth Sacrifice Your Returns?
Sunday, May 13, 2007
Architect Kendall Wilson believes in protecting the environment. When he designs a house or office building, he makes a point of using energy-efficient designs and sustainable materials, such as bamboo instead of oak.
So when Wilson, 50, had his company on its feet and was ready to start building up his retirement savings a few years ago, he wanted his holdings to support his environmentally friendly values. The Alexandria resident and his financial adviser settled on Winslow Green Growth, a mutual fund that owns stock in small companies in the wind power, solar energy and other "green" industries.
"It only made sense for me to invest in some of these things," Wilson said. "It's the right thing to do, and it's at a point where I think these technologies are really going to pan out."
Wilson is one of a growing number of investors seeking balance between the profit motive and hopes of making the world a better place, weighing such issues as the environment and the conflict in Darfur when choosing stocks and mutual funds. The movement involves investors small and large, individuals, foundations, pension funds and other institutions.
Socially responsible investing options have been available for a long time, but their numbers have surged in recent years. Nearly $2.3 trillion was held in socially responsible accounts used by individuals and institutions at the end of 2005, up from $639 billion in 1995 and outpacing growth in total assets invested, according to the Social Investment Forum, a nonprofit organization.
"There is a dramatic increase in the number of investment managers looking at their investments in a different way than they have previously," said Mark Tulay, a director at Institutional Shareholder Services, a proxy advisory firm in Rockville.
But investors often pay a price when they add social considerations to the mix. Socially responsible investing funds, including expenses, generally trail traditional competitors, according to Morningstar data. For the 12 months ended April 30, for example, such funds investing in big-company stocks returned 11.63 percent, compared with 12.28 percent for all big-stock funds. For funds investing in mid-size companies, socially minded versions returned 7.65 percent over the period, compared with 10.24 percent for all funds.
Although individuals and institutions may lose some return to invest according to their principles, many are comfortable with that sacrifice, said Lucy Bernholz, an investing consultant to charitable foundations.
"You may get less of a return, but even if you do, you are putting more into the things you care about," she said.
A Shift in the Climate
Much of the credit for the recent growth in socially responsible investing goes to investors' mounting worry about climate change, according to longtime social-investing advocates.
Peter D. Kinder, president of KLD Research & Analytics, a Boston firm that advises institutions on social investing, said his client list has doubled over the past year.
"We see a very strong interest . . . driven by a deepening awareness of global warming," he said.