Socially responsible investing is often ahead of the rest of the investment industry
Okay, time for a quiz: (1) What industry sector has grown 20% to 24% per year since 1990, and, more importantly, continues to do so? (2) What industry is the fastest-growing source of energy in the world?
The answers may surprise you. Believe it or not, the answer to the first question is the organic food industry. Pegged at $1 billion in 1990, retail sales of organic foods in the U.S. are expected to surpass $11 billion by the end of the year, says Barbara Haumann of the Organic Trade Association. The fastest-growing source of energy on the planet? Wind power. Wind farms in the U.S. now generate enough energy to power one million average American households, according to the American Wind Energy Association. Annual sales of wind-generated power totaled $7 billion in 2001.
Along with fuel cells and hybrid cars, “these are tremendous growth opportunities,” says Arturo Tabuenca. “They’re industries that are transforming everything from how you travel, to what you eat, to how you entertain yourself. And [they're] here to stay. Ten years from now, these things will become mainstream to us just as the Internet has become mainstream in the last 10 years.” Indeed, Honda, Toyota, Chrysler, and Ford are among those currently producing or developing gasoline-electric hybrid vehicles, and Kraft, Kellogg’s, Heinz, and Dean Foods, among others, are buying up organic food producers or launching their own organic product lines.
Tabuenca admits you can’t build a whole portfolio on fuel-cell makers and solar panel manufacturers, but he says it’s still pretty exciting to be invested, at least to some extent, in such cutting-edge ideas. Some of his clients invest in these industries through SRI funds with positive screens as well as negative screens (the funds not only toss out offending companies, but also seek out companies that embody their social ideals). As an alternative, some clients also choose to invest a small portion of their portfolios in specific, green-oriented companies, but “we emphasize that it’s a very small portion,” says Tabuenca, who otherwise sticks with diversified portfolios of SRI mutual funds.
Socially responsible investors have long had their eye on green and/or organic industries that are just now garnering attention, says Tabuenca, and they’ve also been ahead of the curve on something else: corporate governance. “The issue of corporate governance is something that mainstream investing is just now waking up to,” he says. “[Vanguard chairman] John Bogle just recently said [Vanguard's] going to start looking at corporate governance as a criteria when it comes to selecting stocks for their mutual funds, but that’s old news for socially responsible investors. It’s interesting to hear some of these things being presented as something new, when it’s been [a screening criteria] for socially responsible investors for 15 years.”–Karen Hansen Weese