Insider trading, depletion of natural resources, exploitation of workers, these types of corporate scandals make headlines. For nearly 20 years economists and the news media have told us we are living in a global economy. When egregious corporate violations happen the news is heard around the world and Wall Street responds.

There is a movement well underway to affect change through the power of the financial marketplace. In 2006 the United Nations Environment Programme Finance Initiative (UNEP FI) and the UN Global Compact developed the Principals of Responsible Investing (PRI) and have sought to get signatures from leading financial institutes committed to adopting these Principals. One year later, over 230 institutions worldwide are signatories to the Principals.

The UN initiative identifies three classes of concern: environmental, social responsibility and corporate governance issues (ESG). At the heart of the initiative is the belief that ESG issues affect a corporation's financial strength. Furthermore, it is the fiduciary duty of institutional investors to consider ESG issues when selecting investments. The Principals are meant to provide a framework for ESG considerations. The concepts of Responsible Investing are also often referred to as Socially Responsible Investing (SRI), Corporate Social Responsibility (CSR), Sustainable Investing, and Green Investing.

Socially Responsible Investing has been around since the sixties. As a concept it has probably been practiced in some fashion for much, much longer. However, now it is bubbling to the surface of the financial marketplace and once the sea change has made its wave throughout the industry, it's this author's belief that considering ESG issues before investing will become the standard mode of operation in the investing future. ESG issues will be a product and the investor will be a consumer. Corporations are in business to make money and that is not evil, in fact it's the point. Corporations that recognize that sustainable business practices are yet another commodity to be sold will benefit. Green offerings will be commercialized, over promised and under delivered but the net gain will be a change for the better.

It is easy to recall negative corporate ESG examples. Mentioning the word Enron proves the point that ESG blunders have negative financial effects. What is more difficult to measure is how sound ESG practices lead to positive financial wins. However, evidence is mounting. The UNEP FI published a 2006 report titled, "Show Me the Money; Linking Environmental, Social and Governance Issues to Company Value." The report's objective was to "unequivocally link ESG issues to financial value in such a manner that the mainstream value-driven investor can no longer disregard or dismiss them as irrelevant to investment performance." The report found that:

1. "ESG issues are material - there is robust evidence that ESG issues affect shareholder value in both the short and long term.




2. The impact of ESG issues on share price can be valued and quantified..."

While good news may never get the air time bad news enjoys, here is an example of one corporation's commitment to the environment:

InterfaceFLOR is the largest modular carpet manufacture in the world and has made great strides toward "Mission Zero™" the company's promise to eliminate any negative impact it has on the environment by the year 2020. In 2007, InterfaceFLOR announced that all of their commercial carpet tiles manufactured in its North American mills are certified as carbon neutral. Since 1996 the company has reduced its total greenhouse gas emissions in worldwide operations by 56 percent. In an interview with CNBC, Dan Hendrix, Interface's CEO reported that the company's sustainability efforts have saved Interface $335 million since 1995. Furthermore, the company's founder Ray Anderson, while speaking in Kansas City about his book Mid-Course Correction shared that he felt that Interface's environmental practices gave them a competitive edge that helped them weather the 2001 market downturn.

A common concern for investors is whether the growth of their portfolios will suffer from applying principals of responsible investing. After all, we invest to preserve and increase wealth. Considering that the common methodology applied to responsible investing is to first identify companies that are sound investments for financial reasons and then to evaluate their ESG performance, companies that withstand this scrutiny and standout among their peers are better situated to succeed in a global economy.

The next steps for investors contemplating applying ESG principals to their investments are to:

1. Define the issues that matter to you in a personal responsible investment policy;




2. Investigate your current portfolio holdings;




3. Enlist the help of a professional. If your current investments do not meet your personal ESG standards you will need to think about making some changes. Unfortunately, many financial advisors are not prepared for this conversation.

Look for upcoming articles for tips on how to make your personal responsible investment policy, how to investigate corporations, and how to discuss ESG issues with investment professionals.