Environmentally Responsible Investing

TOP CONTRIBUTORS

Adam Cherson

ENVIRONMENTALLY RESPONSIBLE INVESTING

Environmentally responsible investing (ERI) means investing in companies whose products, services, or operational practices further the environmental health of the Earth. Simply put these are companies whose activities are expected to contribute in some way to cleaner air, cleaner water, cleaner soil, safer food, healthier wildlife, and the continuing availability of natural resources and services, not only for us but also for future generations. The contributions may be either deeply ecological (i.e., beneficial to life on Earth as a whole over time) or a shallowly ecological (i.e., beneficial to humans today ) (for more about deep versus shallow ecology see: [1]). ERI analysis is intended to provide useful information for investors who want to put a fraction of their capital to work for the benefit of the environment.

The prescription for all subsequent analysis and consists of two primary principles: 1) environmental sustainability, and 2) the precautionary principle. Environmental sustainability is most simply the ability of the natural environment to maintain its processes and functions, biological diversity, and productivity over time. According to the precautionary principle, when reasonable scientific evidence of any kind gives us good reason to believe that an activity, technology or substance may be harmful to environmental sustainability, we should act to prevent or avoid that harm. The application of these broad principles to investing requires a knowledge of environmental science, technology, engineering, policy, finance, law, and psychology.

While the ERI mission is to recommend companies whose products and services positively reinforce environmental sustainability and precaution, due to the complexity of business organizations, it is sometimes difficult to entirely decouple environmentally responsible products and services from irresponsible practices: some companies are pursuing both. In such cases, the threshold is no more than 25% of the company’s gross revenue directly related to irresponsible practices. An exception is made for companies that may exceed this 25% but are leaders within their business sector in the move towards sustainability and precaution (e.g., oil company with the largest renewable energy portfolio).

The following list is a working set of the prescriptive and the proscriptive criteria applied to ERI analysis:

1. Companies whose primary products or services (greater than 75% of gross revenues) represent a positive step forward towards greater environmental sustainability or environmental precaution;
2. Additional weight is given to companies whose operational policies evince a significant commitment to Corporate Social Responsibility, Triple Bottom Line Accounting, and Life Cycle Analysis;
3. No company shall be considered sustainable if that company receives more than 25% of gross revenues from any of the following activities or any combination of the following activities:
a) energy generation from fossil fuel burning (except for efficiency, sustainability, and transitional leaders)
b) virgin paper/board products unless Forest Stewardship Council certified
c) virgin lumber unless Forest Stewardship Council certified
d) petrochemical production and petrochemically based products (except for efficiency, sustainability, and transitional leaders)
e) waste landfilling (except for efficiency, sustainability, and transitional leaders)
f) fossil fuel exploration and extraction
g) intensive confined animal feeding operations (except responsible poultry and herbivorous aquaculture)
h) food crop based ethanol
i) energy generation from nuclear fission (unless nuclear waste issue resolved sustainably)
j) the construction of major dams
k) sale of goods that are otherwise banned in developing countries (e.g. pesticides such as methyl bromide)
l) garbage incineration, including energy recovery
m) inorganic fertilizers
n) Genetically Modified Organisms (unless proven safe for human consumption and, for living organisms and seeds, unless sterile; no pesticide resistant seeds unless bio-pesticides used, drought resistant seeds are acceptable; special attention to be paid to Corporate Social Responsibility with regard to small farmers)
o) products or services not directly related to environmental sustainability or the precautionary principle (except for efficiency, sustainability, and transitional leaders)
p) direct military or combat activities or defense contracts related to these activities
q) addictive substances and activities (tobacco, alcohol, gambling)

ERI analysis is not intended to serve as a moral compass on the relative value or importance of these other proscripted activities. ERI analysis is simply a screen of the universe of investment securities strictly according to environmental principles. Finally, ERI analysis exists independently from all types of financial analysis and is not a substitute for diligent financial analysis of these companies.

This article is meant to serve as a clearing-house and discussion forum for specific company suggestions. New suggestions are welcomed, especially when accompanied by a brief justification.