Ethical investors who care about environmental issues want companies to minimize their negative impact on the environment. When choosing which companies to invest in, they commonly focus on the following aspects of a company's operations: energy, waste and pollution; natural resource conservation and treatment of animals.
Energy, Waste and Pollution
All companies need to use energy, and all companies generate waste products. When we think of energy use and pollution, most of us probably think of manufacturers, but even the smallest operations need electricity to power their lighting and computer systems. Some ethical investors seek out companies that don't pollute much in the first place. Others seek out companies that have purposefully minimized their environmental impact, while still others seek out the worst offenders and plan to change their ways.
One way companies can reduce their energy use is to operate out of green buildings. Green building features, that reduce energy use, include windows that let in enough natural light to make overhead lighting unnecessary; window coverings that reduce heat penetration so air conditioning use can be minimized and solar panels. Companies that transport goods can reduce their use of gasoline by decreasing packaging - lighter loads require less energy to haul. They can also permit workers to telecommute or to commute at off-peak times; options that might not reduce a company's own costs, but might have a positive impact on the environment. What's more, workers who can avoid traffic jams or work from home are likely to be happier and more productive.
Companies can reduce waste through methods such as minimizing packaging materials, using recycled materials, implementing company-wide recycling programs and making products that are designed to last for years that have serviceable and replaceable components.
To avoid polluting, corporations can work with waste management companies to properly dispose of items they aren't sure what to do with, rather than practicing illegal dumping. Instead of discharging toxic wastewater, companies can invest in processes that clean the wastewater before it reenters the natural environment. They can also use nontoxic production processes to minimize the amount of toxic waste they have to process. (To learn more, see Where Can I Find A Company's Stance On The Environment?)
Natural Resource Conservation
Ethical investors concerned with natural resource conservation are focused on preserving what we have by using resources more efficiently or switching from the use of scarce resources to the use of abundant resources.
Companies can conserve resources through everything from company recycling programs to their choice of faucets in the bathrooms (if the company owns the building). They can purchase products that are made from recycled materials and are able to be recycled after use. They can minimize their paper communications and maximize their electronic communications. Some credit card companies, for example, offer customers an incentive, in the form of bonus reward points, for choosing electronic statements over paper. Companies that provide bottled water for employees can, instead, offer reusable water bottles and install water filters to encourage employees to use tap water.
Companies that extract natural resources, including oil and natural gas companies, seafood purveyors, mining companies and forest products companies can choose to extract resources in a responsible manner.
Treatment of Animals
Some investors (vegans) don't think it's ethical to use any animal products whatsoever, and some vegetarians might find companies that are involved in meat production to be unethical. Other investors do consume animal products, but believe they should be produced in a humane and sustainable way.
Any company that is involved with animal testing or expressly prohibits it might attract attention from ethical investors. Some cosmetics companies and household products companies test their products on animals for "skin or eye irritation, skin sensitization (allergy), toxicity (poisoning), mutagenicity (genetic damage), teratogenicity (birth defects), carcinogenicity (causing cancer), embryonic or fetal genetic damage and toxicokinetics (to study the absorption, metabolism, distribution and excretion of the substance)," according to the animal rights advocacy group Go Cruelty Free.
Ethical investors are also interested in food companies that bring nutritious and safe products to the market. These include companies that use organic and natural ingredients, that don't use pesticides, minimize processing, use little to no artificial additives, use seasonal and locally grown ingredients and produce healthy and nutritious foods. Ethical investors may want to avoid companies that practice factory farming and heavily use pesticides, fertilizers, hormones and antibiotics. Instead, they may want to invest in companies that grow organic, produce grass-fed beef and dairy products and raise free-range chickens. Ethical investors may also seek out companies that engage in fair trade practices with international suppliers. (For a lighter look at Wall Street, check out The Wall Street Animal Farm: Getting To Know The Lingo.)
Why Environmental Policies and Practices Matter
Whether you consider yourself an environmentalist or not, there are good reasons to care about the environmental policies of any company you invest in. Companies that pollute may face regulatory fines which will reduce shareholder profits. Many environmentally friendly changes save companies money and increase their bottom lines. And companies that employ environmentally responsible policies may be more likely to have a positive public image and generate consumer loyalty.
In the next section, we'll learn about the social issues that ethical investors grapple with.
InsightsSustainability and reducing environmental impact are hot corporate objectives. Find out why.
InsightsWho says that capitalism and environmentalism have to be mutually exclusive?
InvestingLearn everything there is to know about ethical investing.
InsightsGreen investing is the new buzz word for companies and investors. Find out what it means.
Financial AdvisorThe proper application of ethics to the world of investments is a highly subjective topic.
Managing WealthInnovations in energy and consumption grow as companies adopt them to reduce costs.
InvestingETFs and futures are just some of the various investment options available to natural resource investors.
InvestingLearn how to find stocks that are both eco-friendly and profitable.
InvestingA look at three stocks in the environmental and waste management industry that have outperformed the market for the last five years.
Managing WealthWhen it's time to invest, why not follow your heart along with your head? These four types of investments seek to do good while returning a profit.