David Kuo: No, it's not easy being green, but don't be too strict with your shares

Investment Insider

Kermit the Frog once said: "It's not easy being green."

But times have changed considerably since Jim Henson's amphibious Muppet friend's lamentation.

Being environmentally friendly today is not only simple but vital, some say, if we want to play our part in being socially responsible. At the simplest level, ethical investing means looking at companies and deciding whether or not we want to invest in them, based on our beliefs. But if we are too strict with our investing criteria, then we could come away really disappointed, because the number of companies that we can realistically invest in will be very restricted, and this can be unacceptably risky.

There are a number of ways to invest ethically. According to Eiris, which specialises in providing information about companies' social responsibilities, more than £11bn is currently invested in ethical funds. However, when we invest in ethical funds we are effectively delegating responsibility to managers who will either screen out or screen in suitable companies. There is also the issue of management fees, which will eat into returns.

One way to assume greater control of our money and our ethical ideals is to choose our own shares. A good starting point is to examine the main holdings of ethical funds that have presumably done some careful selecting already.

It doesn't take too much effort to arrive at a list of companies, and 10 ethical FTSE 250 companies are listed in the table above. This is by no means a definitive list of mid-cap, ethically focused businesses, but a good starting point for further investigation. The table also includes share prices at the start of 2011 and the closing share prices on 31 September this year.

DS Smith, which manufacturers packaging products, is interesting because it highlights the need for flexibility. It can be argued that the UK, if anything, is suffering from a surfeit of packaging. According to the Department for Environment, Food and Rural Affairs, we generated almost 11 million tonnes of packaging waste in 2009. That said, between 1999 and 2009, there has been a near doubling in recycling to over 60 per cent, and DS Smith has been at the forefront in recycling waste paper.

Cranswick is another company that underlines the need for compromise. It manufactures fresh pork, sausages, bacon and charcuterie, which vegetarians may find unacceptable. It is also hard to imagine that a food producer can be anything but a major contributor to landfill problems. That said, Cranswick has been active in reducing the environmental impact of its business through cutting carbon usage, reducing packaging and cutting the use of processed water by 20 per cent across the board.

One of the things that is wonderful about ethical investing, but confusing at the same time, is that it means different things to different people. That said, a cursory inspection of the 10 companies reveals that a portfolio comprising of one share in each company would have been virtually flat over the nine months. By comparison, the FTSE 250 index fell 14 per cent over the same period.

It is not easy to draw any firm conclusions from this. But what we can say is that making sacrifices about the kind of companies we are prepared to invest in does not necessarily mean sacrificing returns.

David Kuo is director of advice website fool.co.uk