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Greening Your Portfolio

Socially Responsible Investing (SRI) is a growth industry.

Most of our 401(k)s and IRAs aren’t inspiring confidence we’ll be retiring to the Bahamas anytime soon. Is green investing an unaffordable luxury in these gloomy economic times? Turns out Socially Responsible Investing (SRI) is actually on the rise since the recession hit, growing ~12% annually since 2007, to $3.07 trillion in 2010. That’s because many (but not all) SRI funds have actually outperformed or done just as well as the rest of the market, according to not just green money managers but also award-winning academic publications.

So how can you hop aboard the SRI express? A great place to start is the Forum for Sustainable and Responsible Investment (formerly known as the Social Investment Forum, or SIF), which publishes Bloomberg  performance data for over 100 SRI funds and benchmarks, allowing you to screen investments based on 14 social and environmental criteria.

Of course you could also strike out on your own and buy stock in companies striving to grow a greener world. Though it’s a high-risk (and potentially higher reward) strategy, since your Tesla could turn into a Solyndra overnight, particularly in immature industries navigating rapid developments in both technology and supporting policies. Or you could just avoid investing in specific sectors (like coal and tobacco), an approach taken by many SRI funds. Here are a few more tips to ensure your portfolio yields net good for both you and your planet.

Stay tuned for more tools from Oroeco to help quantify the impacts of your investments. After all, what good is a giant nest egg if the tree is burning down?

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Example of Life Cycle Assessment (LCA) steps for the clothing industry.

You’ll hear us refer to “life cycle assessment” a fair bit here at Oroeco (or LCA, for acronym aficionados). So what exactly is it? In its broadest sense, LCA is the detailed accounting of something you care about related to the existence of a selected product or service. Sometimes also called “life cycle analysis” or ecological “footprinting,” LCA is most frequently applied to environmental indicators, particularly embodied energy, toxic pollution, and greenhouse gas emissions. But LCA can also be applied to indicators without direct environmental links, like labor hours or raw material inputs.

LCA is essentially just accounting, but where traditional accounting deals with relatively well-documented costs and revenues, LCA typically requires substantial additional data collection to convert process input-output data into the metric(s) you’ve selected. Methodology details matter, sometimes immensely.  Just as unaccounted costs and revenue can dramatically alter a corporate balance sheet, what goes into (and gets left out of) any LCA can have profound impacts on LCA results and presumed implications.

Why care about LCA? First off, it’s quite hard to improve what you can’t measure. LCA is a powerful tool to get you information about the true impacts from a pair of Levi’s jeans, a carton of Tropicana orange juice, and all sorts of other consumables, impacts that aren’t otherwise apparent. LCA can be great for producers too, because looking closely at a product’s life cycle highlights where energy, water, and other inputs can be saved at each stage of production, either by upgrading to more efficient techniques, or by switching to more sustainable suppliers. These resource savings often also translate to cost savings, which hopefully get passed on to you. These savings, combined with growing consumer scrutiny of the “green labeling” movement, have pushed retail giants like Tesco and Walmart to start requiring LCA data from their suppliers.

The pic above illustrates the life cycle of a clothing product. If you’re interested in the life cycle carbon dioxide (CO2) emissions linked with owning a T-shirt, for example, you’d start by calculating all the material and energy inputs (and associated CO2) that go with production of raw materials (e.g. cotton, wool, or oil for synthetic fibers), and then include energy used in manufacturing of intermediate products (like yarn and cloth), clothing assembly, and retail sales. You’d also need to add on all the transportation and packaging energy needed to move stuff between each step. In some LCA calculations, known as “cradle-to-gate” LCA, accounting stops there at the checkout counter. But a complete LCA, known as “cradle-to-grave” or “cradle-to-cradle” LCA, will also include all the energy and material inputs linked to using your T-shirt, as well as what goes into disposal.

The results of LCA can be quite informative, and often surprising. For your T-shirt, chances are the use phase of the life cycle will have the largest climate impact, since you wash and dry your shirts many times before they find their way to the landfill (or Goodwill), with each load of laundry requiring a substantial amount of electricity and/or natural gas (as well as embodied energy in laundry detergent, fabric softener, dryer sheets, etc.), though you can reduce your use phase impacts by washing with cold water and hanging your clothes to dry. If you care more about toxics than CO2, it’s the pesticide-laden production of cotton that looks particularly incriminating, though that can also be avoided by buying organic.

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Annual CO2 emissions for an average U.S. household (blue = direct; green = indirect). Reference: Jones & Kammen 2011.

For those of us concerned about climate change and other global issues, the challenges can feel overwhelming. Despite solid scientific consensus that our world is warming from fossil fuels and deforestation, there’s been a lot of talk but very little action to foster sustainable solutions and let cooler heads prevail. The sickly state of the global economy has led many to assume we can’t afford to do anything anyway.

But the good news is we don’t need to wait for politicians and corporations to clean up their acts. We can do it ourselves. The power plants, factory farms, timber mills, and industrial smokestacks are all ultimately producing things that we use. While the Oroeco crew aspires to live by the original Golden Rule, there’s also wisdom in its cynical parody: “(s)he who has the gold makes the rules.” It’s your gold that companies are trying to get, so we think you should also be the one making the rules. The power to change things is ultimately in your hands, and your wallet. It’s both a daunting and an empowering revelation.

Which decisions matter most? Well, the answer depends on where you live, what your lifestyle is like, and what you care about. A great place to start (at least as far as climate is concerned) is a study by Chris Jones and Dan Kammen from the CoolClimate Network (a research team based out of University of California, Berkeley). The graph above shows how greenhouse gas (GHG) emissions (measured in annual metric tons of carbon dioxide equivalent, mtCO2e) look for an average US household. While transportation and housing represent the largest categories of emissions, it may be surprising that food and other goods and services also have substantial GHG footprints.

What makes the CoolClimate study particularly appealing is that it not only shows where there’s room for improvement, it also illustrates (in the graph below) how saving carbon can end up saving you a lot of money. Some savings can come simply from buying less stuff. Additional savings comes from investing in more efficient products, like energy efficient appliances and a low-carbon diet (e.g. more veggies, less meat). Curious where the most carbon and cash can be saved in your life? Take the CoolClimate carbon calculator out for a spin to get a personalized ranking of the actions which maximize your savings based on your lifestyle.

Average $s saved from CO2 reducing actions (green = diet; yellow = transport; gray = home). Reference: Jones & Kammen 2011.

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