Green investing, also known as environmentally responsible investing, describes individuals and organizations who invest in a manner that supports specific environmental and/or social goals.

Green investing is not an act of charity. It is using one's power as an investor to promote positive environmental and social change. By focusing a portfolio on companies and investment opportunities that have environmentally and socially responsible practices, green investing generally attempts to target the firms that are best positioned for success.

This investment strategy may be regarded as investing today for a sustainable tomorrow.

Green investing is part of a larger trend called socially responsible investing ('SRI').

The fundamental premise of SRI is that the investor can help change the world by leveraging investing power. SRI measures success through a triple bottom-line: economic, social and environmental. Investments that make a positive impact on all three bottom-lines are typically deemed acceptable for SRI.

According to the Social Investment Forum's 2003 Report on Socially Responsible Investment Trends in the United States it is estimated that over 10% of all investment capital in the nation is now invested in a socially and environmentally responsible manner.

Outlined below is a three-step process to help investors create their own unique environmentally responsible investment strategy. Each investor, whether an individual, family or organization, needs to first determine what environmental goals are important; second, review the best investing options; and third, revise their investments to reflect this new strategy if necessary. By following this process in a thorough and methodical manner, environmentally responsible investors suggests can become a positive force for environmental and social change and meet their financial goals.

Step 1 – Determine Environmental and Investing Goals

Investors can create their own environmentally responsible investment strategies through screening. Screening is a process whereby the investor, working closely with a financial advisor, determines which environmental and social causes they wish to support and which practices they want to avoid. The combination of these factors will help determine how one judges various investment opportunities.

Sample environmental criteria for screening purposes might include:
• Greater emphasis of alternative energy
• Sustainable land use policies
• Environmentally friendly work places

As with any investment strategy, an environmentally responsible investment strategy must also include rigorous financial analysis along with screens. With the growth of green investments, there are more financial analysis tools available to help judge the "green"-ness of different investments. Examples includes:

• Environmental Principles for Organizations to Follow – Groups such as CERES and Global Reporting Initiative (GRI) create environmentally sustainable guidelines that corporations and investment firms can voluntarily adhere to in order to help them meet certain goals. CERES uses a Principle Statement to help guide compliance while GRI has developed a reporting methodology for companies to state their Triple Bottomline.

• Awards for Specific Environmental Causes – Many organizations create annual lists of the best performing corporation in regards to specific environmental causes. These include animal rights, sustainable natural resources as well as a myriad of other focuses. Such awards are very helpful for investors when setting their investment criteria.

Most investors when creating their environmentally responsible investment strategy combine both personal screens and information from outside sources. This can allow a more effective personalized strategy without having to do enormous amount of research.

Once the investor has created their unique strategy, it is important to document thoroughly the goals and objectives of that strategy. This will be a blueprint for all future investment activities.

Step 2 – Review Investment Options

After the investor has created their strategy, it is time to review the investment options available in order to determine which ones have the best potential to help them meet their environmental and investment goals. Below are broad categories of investment options that represent an overview of the different types typically available to investors.

Mutual Funds – As the popularity of socially and environmentally responsible investments has grown, more and more funds have become available. Many funds support a broad array of social and environmental goals. Other funds are more targeted to specific goals such as renewable energy, humane animal treatment and sustainable natural resource practices. Either way, this can be a good method to help support broad environmental goals while having the assurance of professional investment management.

Stocks and Bonds – Investors may also invest directly with companies and governmental organizations that are supporting environmental goals that mirror those of the investor. This allows an investor to more proactively monitor individual corporate and government behavior through shareholder and bondholder activism.

Tax Credits – Many states now provide State Income Tax Credits for investments in conservation easements. By investing in such tax credits the investor is helping landowners keep agricultural land and open space from development. Many small family farms are being preserved through partnership with investors in tax credits. Investors need to check with qualified tax professional to see how this may apply to their individual situation.

Partnerships – Some environmental investment opportunities are direct investments in specific conservation partnerships. Conservation partnerships include ownership in conservation properties, sustainable managed timberland, and organic agribusinesses. By being a partner, all economic risks and benefits and tax implications of ownership flow through to the investor. As with tax credits, investors need to check with qualified tax professional to see how this may apply to their individual situation.

Non-Financial Investments – A frequently overlooked option is to participate in programs that support environmental causes while saving money for the investor. These include consumer-buying co-ops that purchase in bulk organic produce from local farmers for its members, or alternative energy sources such as wind that a consumer may choose to pay for through their local power company. These small items can save a sizable amount of money over the long run while helping to promote the desired changes the investor is looking to make.

Step 3 – Creating the New Investment Portfolio

Now that the investor has created their environmentally responsible investment strategy and reviewed the available options, it is time to create the new investment portfolio. This process may be implemented immediately or done gradually over a period of time. Either way there are some fundamental steps that should be followed.

First, the investor needs to determine how much of their overall investment portfolio they wish to include in this investment strategy. Their overall financial goals and specific circumstance will help determine the amount.

Secondly, the investor should determine who will help them execute and manage the investments. By documenting the environmentally responsible investment strategy (see step 1), the investor typically has a choice. They may continue to use their pre-existing investment professional relationship to help them create and manage the new portfolio based on the blueprint, or they can choose a specific advisor for this investment portfolio who specializes in green investing. Either way the investor should also consider who they think is most comfortable for them.

Finally, even if the investor creates the investment portfolio in one step, it is very important to review its progress in meeting all the goals outlined in the strategy at least once a quarter. This will help them track whether or not both the environmental and financial goals are on track.

In order to begin the process described above a financial advisor dedicated to green investing may be helpful. They are constantly looking for new opportunities, and tracking these and other investment vehicles to see if they are performing well and supporting environmental causes.

My practice at Legg Mason strives to help clients preserve our natural heritage through environmentally responsible financial advice and investments. I strongly believe that investors can create a better world by joining the inherent strength of the financial marketplace with a long-term vision dedicated to preserving our planet's treasures.

John Campagna is an investment advisor with the Washington, D.C. branch of Legg Mason.