from the ground Up

I would just like to add to my piece on climate change investments published in The Sunday Times, August 17 2008.

Due to a lack of space, some advice on investing in such funds weren’t published.

The point I’m trying to make is that investors have to be pretty clear on their own values and ethics before they investigate the various funds they would like to invest in. So here it is:

So you have some money and you are looking to contribute to the climate change fight by parking your dollars in some worthy companies. What should you be looking out for?

1. Understanding the landscape
Basically, the same investing principles apply. It’s important to know the different green industries you are investing in, and have an understanding of their historical performances, trends and outlooks.

2. Investigate green credentials
With the rage on climate change themes, many funds may call themselves green but may not necessarily be.
Funds will also differ in their investing strategy, with some more stringent than others in screening companies.
Look at the specific companies in a fund’s portfolio to ensure these companies’ core activities are indeed tackling cliamte change.

3. Define your ethical boundaries
Some funds will not just invest in green companies. At Schroders, for example, Toyota and Philips are part of the portfolio as they have parts of their businesses that will benefit from climate change, such as Toyota’s Prius car.
But some analysts have pointed out that the returns from such activities are dwarfed by Toyota’s other businesses - like its conventional, polluting cars.
Biofuels and nuclear energy are also examples of a controversial investments.
Biofuels have been partly blamed for causing a global food crisis as farmers swtich to growing more lucrative biofuel crops. But many climate change funds have stakes in such companies.
It is important to know exactly which biofuel firms are being funded and if their feedstock is harvested sustainably.
Nuclear energy’s merits are not clear cut, either, but HSBC’s climate change fund, for example, invests in Alstom, a French energy firm with interests in nuclear energy.
So it’s important to clearly define your own values and decide if you want to be investing in funds which have stakes in controversial firms or activities.
Alternatively, investing directly in one stock which you are highly confident in is also another strategy. But generally, mutual funds are the better bet since they offer exposure in a whole range of stocks which lowers your risk.