What are Green Investment Funds?

So, what exactly is a green fund or otherwise referred to as socially responsible investing? Investopedia.com defines a green fund as a “mutual fund or another investment vehicle that will only invest in companies that are deemed socially conscious in their business dealings or directly promote environmental responsibility.” That’s what Investopedia defines a green fund as.

Basically, you’re investing your money into companies that are considered to care about the environment and to do right business-wise by their employees, by the community, by their investors. They’re actually doing what’s right by the people in the communities that support their business. And I think that’s really a great place to try to invest in. Because if you have some morals, if you have some ideas, and beliefs and you want to invest in companies that share those same beliefs you have that opportunity to.

Many times I like to talk about Vanguard’s total stock market fund VTSAX, or Fidelity’s FSKAX. And many times, you know those funds have about 4,000 companies, and it’s really hard to understand what those companies do. Are they environmentally conscious companies? Are they trying to do what’s right by their employees and all these other things? So what’s starting to become really popular are these green funds that give you that peace of mind.

If you’re somebody who’s compelled to really be careful about what kind of companies you’re investing your money into, well, you can definitely look into these green funds. And I have no problem if you want to invest in these kinds of funds or these kinds of companies.

If it were me, I would just be very careful, because these funds and these companies are starting to get popular. Many of these companies have been around for so long, there is a growing population of people who are saying, “I just want to invest in a green fund. I just want to invest in a green company.” And as this kind of investing is starting to become more popular you have to be careful. Many times what you see in the investing world is whenever something becomes popular or catchy a lot of attention goes that way and a lot of money goes that way. And what ends up happening is the value of those funds end up getting almost inflated, right?

Like Bitcoin, remember we saw what happened with Bitcoin where it was valued at around $20,000 at a certain point. That was because of the wave of all the people trying to get into Bitcoin. And then what happened just two months later, it dropped down to $7,000 or so.

And sadly people took their retirement out or took lump sums, huge month amounts of money and threw it at Bitcoin hoping to see it continue to grow. What ended up happening was Bitcoin fell and a lot of the other cryptocurrencies found its way the down the same path. And I just want to say when you’re investing in green funds, when you’re investing in any kind of new investment or asset class or a new in investment product, always be careful and just test the waters. There’s nothing wrong with testing the waters. That’s the one piece of advice that I would give if you are interested in investing in a green fund.

Next, you’ll want to stay diverse with green funds. You have some green funds that invest in 30 to 40 to 50 different companies, and then you have some that actually invest in 400 to 500 different companies and more. If it were me, I would be interested in one of those mutual funds, green funds that invests in 400 to 500 different companies essentially. That’s like your S&P 500 index fund, except this time it’s a green fund.

What Does it Mean to Be a Green Company?

Companies within these green funds are very focused on three principles: ESG. And what does ESG stand for? ESG stands for environmental, social, and governance. Typically, green funds are going to have these three aspects that they are focused on: the environmental aspect, the social aspect, and then the governance aspect.

Environmental Aspect of Green Funds

With the environmental aspect there’s going to be a conservation and protection of the natural environment. That’s really important to so many people in the world. Companies that are protecting the environment, taking care of the environment and air emissions. These companies focus on their impact on air quality, energy use and conservation, and hazardous material use. These companies really think about how they they are handling their hazardous materials ? And that is something that is clear and very important. This really should be important to all of people, right? And some companies don’t have good policies for that. And I understand if somebody wants to say, “Hey, I really don’t want to invest in this kind of company.”

So my opinion, my advice, which is totally not professional investment advice, is watch those companies closely. If you’re interested in investing in these kinds of companies, I would caution you to be careful when you’re starting out, especially if you’re a beginner investor. Having a fund, a mutual fund which is invested into many, many, many companies is a great way for you to stay diverse.

Social Aspect of Green Funds

The second aspect of green funds is the social aspect. Comapnies who care about their relationships with its employees, relationships with its clients, and the communities they’re in. So with this social aspect comes labor standards, employee relations, product quality and safety. These companies are dedicated to taking care of their employees and making a positive impact in the community.

And all of that is public information. So many S&P 500 companies, which are in some of these green funds take care of their employees. They are very dedicated to providing good health care coverage for their employees. They’re very dedicated to education and housing services for their employees. And so this social aspect of a lot of these green funds is a top priority for the individual companies in these funds. Those are great companies to invest in. There’s no doubt about that. When you have a company that’s taking care of its employees and the communities they exist in those are really great companies to be behind and just really great companies to support.

Governance Aspect of Green Funds

Now, the last aspect of these green funds is the governance aspect. And this comes down to the standards for company leadership, risk controls, and shareholder rights. So, basically you want to have good business practices and ethical business practices.

Are they doing what’s right and ethical? Is everything transparent? Are the finances and operations of those companies transparent? Specifically, the profits and losses, and is that information clear to the investors. Is it clear to the public? Are they being honest? Companies in green fund are intent on being open with how they’re handling their money and leadership within those companies. These are the companies that are going to do business the right way and will be found in your green fund.

Vanguard’s Green Fund VFTAX

Now, I want to discuss one green fund with my favorite investing company, Vanguard. Obviously they have some green funds that you can go invest in.

The one that I want to look at is the VFTAX. This is a mutual fund that has approximately 500 different stocks, and some of these stocks are companies are Apple, Microsoft, Facebook, Alphabet, Proctor and Gamble, Walt Disney, Adobe, McDonald’s, Netflix, Lowe’s, CVS, and Starbucks. I was surprised to see Starbucks on this list!

As you dive deeper into VFTAX and the companies in that fund you start to understand a lot of these companies are in the S&P 500 index. A lot of these green companies or these companies that are considered in that ESG category qualified to be a green fund are companies are some companies you’re already investing in with your S&P 500 index fund or your total stock market fund.

When it comes down to it, I think if you are someone who is really critical or really believes in investing in these kinds of companies where they’re all about the environment, the social part, and the governance part of just being transparent, then I think that’s commendable and I respect you for that.

I really want y’all to understand the idea of being diverse with your investment and if you want to have an investment like that, I think you’ll be very happy. You’ll be satisfied especially if that’s something you believe in, knowing that your money’s going into a green fund, going into companies that are doing right by the environment, by their employees and their finances.

If you want more information definitely check with your local financial advisor. Again, I’m not a professional advisor, but check with one of your local professional advisors who should have some information and can educate you further on these green funds.

If you’re interested in doing a green fund, look at Vanguard’s VFTAX. Once you start looking at all of that, you’ll, you’ll kind of see, like I’m seeing, green funds like this are actually pretty diverse and very well managed, especially when you’re going to do it at Vanguard, Charles Schwab, or Fidelity. These big brokerage companies are not going to offer green funds and not actually include in companies that are abiding by the ESG standards.

So let me know what you guys think. Are you going to be someone who’s going to move your money from the S&P 500 or the total stock market to a green fund?

Or are you just going to leave your money there and maybe put some future investments into a green fund? It’s definitely an interesting and challenging topic to talk about, especially with the concerns of climate change, especially with the concerns of fair wages, and especially with the concerns of companies not practicing ethically in their finances. And what I really want to know is what do you think about green funds?