IS YOUR MONEY WHERE YOUR MOUTH IS?
Investing in Energy

Socially Responsible Investment Strategies with Darron Stover

Through the past six issues, I have discussed in very broad terms the basics of socially-responsible investing. We have talked about the reasons why we invest socially responsible and how. One of the bigger topics has been the idea of screening, which we can use to avoid or filter out certain companies or sectors that we disagree with the social implications of their business. Or, we can use screening to seek companies or industries we want to support and invest in.  Under this framework, this column will be dedicated to ideas about investing in energy.

Is there a more prevalent hot-button topic in this day and age than energy? Under the backdrop of global climate change, deepening conflict in the Middle East, hurricanes in the gulf, and financial pain at the gas pump, it’s not a stretch to say that energy is one of the foremost issues we face in this country and around the world. Challenges abound with the growing demand for energy around the world and with the strained, often unsettled, supply.

Unfortunately, many companies that we may deem as socially irresponsible are companies that harvest, refine and distribute traditional energy sources (oil, natural gas, coal, etc.), while also harvesting vast profits through these turbulent times. They may be doing so while adding to the problems of pollution, regional tension and financial hardship for the less privileged. Investors in these companies (almost certainly including anyone who is invested in large company mutual funds that are not socially conscious) have indeed come along for the ride, sharing in the profits as many of these stocks have continued to rise in value.

As a socially-responsible investor, we may have difficulty, in good conscience, accepting the short-term financial profits of irresponsible energy companies and the long-term negative impacts that fossil fuels contribute to our world. We may choose to avoid these industries altogether; or we may choose to own the most responsible, forward-thinking companies in these bad industries and try to move them forward through shareholder activism. We are also able to look out past the short-term profits and see the potential long-term financial and social rewards that exist with more responsible options.

As consumers, there is certainly much to be nervous about when it comes to issues of energy and global warming. As investors though, out of adversity often arises opportunity. Challenges create needs; and, most often, needs are met by the private sector. With our investments dollars, we can choose to invest in companies that are helping meet these increasing energy needs, both profitably and in ways that we deem responsible. And with the recent attention (finally) being paid to global warming, there is a real movement in the political arena and in the business world towards developing renewable, sustainable sources of energy such as wind, solar, hydro, biomass and fuel cell technologies. So, the question then becomes how to invest in alternative energies.

Certainly, an investor may look for individual stocks of companies that are focused on renewable energy sources. Unfortunately, there are a number of challenges to owning individual alternative energy stocks that can make them very risky, very volatile investments. To ease some of the volatility, an investor may look to diversify by investing in a number of stocks that focus on alternative energy companies. Not only could this method spread out risk across a number of companies, but also across the various types of alternative energy. Regardless, it is very important for investors, including those who are socially responsible, to research all the risks associated with any investment and make sure that it fits within their tolerance for risk. 

Another roundabout idea for investing in energy is to invest in (baskets of) stocks of companies whose products or services are making our world more energy efficient or reducing pollution. There are a number of environmentalists arguing that greater efficiency is the best way to alleviate some of our energy challenges. There are plenty of companies that focus on making sure we get more out of the energy we use, whether in the production and distribution of that energy or just in making the products we use more efficient. This often times has the upshot of pollution reduction in addition to the lessening of demand.

Energy definitely will be one of the greatest challenges for our world for a long time.  For Socially Responsible Investors, it will also present opportunities to reap the long-term financial rewards that will come with cleaning up our precious environment and responsibly meeting the energy needs of a developing world.

Is your money where your mouth is?

For over 12 years, Darron Stover has provided wealth management services to clients. It is his higher purpose to help investors meet their financial objectives through socially responsible investment strategies. Darron is registered to offer securities in NC, FL, GA, CA and NY and to dispense investment advice in NC through FSC Securities Corporation, a Registered Investment Advisor & Registered Broker/Dealer, member NASD & SIPC.  Ask for Darron at (919) 782-0033 or visit www.invest4change.com. 3356 Six Forks Road, Raleigh, NC 27609.

Published in the August/September 2007 issue of Innerchange.