Mutual Interests: Finding Your Way to a Greener Retirement

Mutual Interests: Finding Your Way to a Greener Retirement

Canadian RRSPs, or registered retirement savings plans, are similar to American 401(k) plans, pre-tax paycheck deductions which are invested into stocks, bonds or mutual funds depending on the options your plan offers. The main difference between the two is that RRSPs are handled by the Canadian government while American 401(k) plans are handled by your employer. Both however can be invested into mutual funds, and for environmentally and socially conscious investors such as yourself, you can use your retirement savings to support likeminded corporate citizens through socially responsible mutual funds.

Socially responsible mutual funds, also referred to as socially screened mutual funds, are evaluated based on the values of the companies they represent. Some of the more established socially responsible mutual funds are the Domini Social Equity Fund, the Pax World Balanced Fund and the Calvert Social Equity Fund. Because a mutual fund is essentially one investment made into numerous companies, the fund managers, such as Domini and Calvert, screen every individual company included in its funds based on various factors, ranging from a company's animal welfare or human rights policies to whether or not they manufacture tobacco or alcohol products. For instance, the Pax World Balanced fund screens companies based on their policies on animal testing and labor relations, their environmental procedures and whether or not their products "improve quality of life," as noted on Pax World's website. Pax excludes from its funds companies that manufacture alcohol, tobacco or gambling products, those that make weapons and those who earn more than five percent of gross sales from Department of Defense contracts.

A company can also be included in a fund based on its shareholder activism -- voting, for instance, to adopt policies that would reduce a company's greenhouse gas emissions -- or community investments -- capital and financial services for low-income neighborhoods who in turn invest those in affordable housing, child care and health care. Reputable fund managers will provide copies of their proxy voting guidelines and records by request, so if shareholder activism is of concern to you, you should monitor your fund's involvement in elections and shareholder resolutions to ensure that you agree with their policies.

Because not all socially responsible mutual funds focus on the same issues, it's important to do a bit of research on your own to find a fund that reflects your individual values, be they supporting human rights or investing in your local community, and economic ambitions. "It's hard for companies to make every value a priority," says Cliff Feigenbaum, publisher and managing editor of GreenMoney Journal. "Basically, you're looking for a fund that meets both your social and financial goals."

Where to Look

For Canadians, the best place to start is the Social Investment Organization (SIO). The organization's member companies screen mutual funds based on a variety of issues, ranging from workplace equity to ethical business practices. SIO also monitors its member and non-member funds for performance and publishes quarterly reports, available on the SIO web site. Finally, the organization lists, by province, financial planners who can help you organize your RRSP into your chosen mutual funds.

U.S.-based investors have a few more research tools at their disposal, which is fortunate considering that the 2005 Report on Socially Responsible Investing Trends in the United States (PDF) found 201 mutual funds and other pooled investments that were screened on at least one social or environmental factor.

The Social Investment Forum provides evaluations of mutual funds based on both financial performance and advocacy policies.

SocialFunds.com also provides fund descriptions and financial performance statistics. The site is geared toward individual investors and, as such, offers a free guide titled "Investing in Socially Responsible Mutual Funds," which gives a general overview of the issues associated with SRI.

The GreenMoney Journal is a quarterly newsletter focusing on social investments, which also publishes quarterly performance updates on screened mutual funds.

If you're in a position to choose which 401(k) plan your company uses, you may consider a new organization called Social(k), which provides companies and sole proprietors with over 60 socially responsible funds available for 401(k) and profit sharing plans. Employees are able to invest their retirement funds responsibly without the additional burden of researching and monitoring mutual funds or other investments.

Once you've narrowed your choices down to the socially responsible mutual funds in which you're interested in investing, you should contact a financial planner who specializes in socially responsible investing. Both SocialFunds.com and the Social Investment Forum list financial planners by state. However, if you already have a trusted financial planner, don't abandon him or her just because he or she may not specialize in SRI. "If you're using a non-SRI broker, you can take your information in and educate your broker. Your broker works for you and they should meet your social and financial goals," says Feigenbaum. "That's one of the things that allows the market for SRI to expand and grow."

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This column has been reprinted courtesy of The Green Guide. It was first published in April 2006.