Ethical Investing: Environmentally-Conscious Investing
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.
A financial singularity is the point at which investment decisions ...
Revenue-based financing, also known as royalty based financing, ...
A valuation method in which the prices paid for similar companies ...
A closed-form option pricing model used to calculate the price ...
A group of individuals or businesses that conspire to affect ...
A dubious business practice that involves supplying a typically ...
Learn what the utility function is in microeconomic theory and how it is calculated based on a functional form that represents ...
Learn why ethical investors have many options in the retail sector, and discover which retail companies are most popular ...
Learn how to use linear regression to calculate the correlation between stock prices and interest rates by taking the square ...
Learn how to calculate a modified duration in Matlab with various inputs including bond yield or price, settlement date and ...