Editor's Note: Client Case File is a periodic column in FA green in which advisors explain how they approached SRI/sustainable investing issues involving a specific client. Contributions from advisors are welcome. Any advisor interested in participating may contact FA Green Editor Dorothy Hinchcliff.

Michael is an entrepreneur who plans to leave his current position in a few years and take a lower-paying position in another field before retiring in less than 10 years. A well-regarded environmental and animal rights activist, Michael consulted us about retirement planning and wondered if it would be prudent and possible to invest his portfolio in a way that would reflect his social and environmental concerns.

Michael did not want his investments to support companies that have poor environmental and product safety records, or that use live animal subjects to research and test their products. He wanted to invest in companies that operate in a sustainable manner, including those that emphasize resource conservation and promote green technologies and jobs. He particularly favored companies that are signatories and adherents to the CERES and Natural Step environmental principles. (Ceres' principles guide businesses in environmentally sound practices. Businesses are encouraged to formally adopt the principles as signatories. The four Natural Step principles form a foundation of science-based, sustainable behavior. Thousands of communities, businesses and other groups worldwide have adopted these principles.

Finally, Michael was interested in working with investment managers who actively engage in shareholder campaigns that encourage corporations to improve their environmental and animal-research practices.

During our review process, we found that Michael's existing portfolio was aggressively positioned; in fact we thought it was it was too aggressive for someone who plans to retire in less than 10 years. We also clarified the level of screening he desired relative to animals used in product research and testing. Would he wish to include or exclude companies required by law or regulation to use live animals? Michael chose to exclude those companies, and we were able to comply with his request because our custodial platform allows us to screen out individual stock issues.

After several consultations with Michael, we prepared a proposal for him, including an investment policy statement and a manager addendum. In the IPS, we recommended a "balanced growth" mix for his portfolio that is approximately two-thirds stocks and one-third bonds and cash. The mix also includes small allocations to alternative assets such as commodities, real estate and emerging markets. The IPS also outlined the qualitative screens that would be used to construct and maintain his portfolio.

The manager addendum recommended and discussed nine separate account managers. They were chosen from 24 managers on FOLIOfn's platform that are part of First Affirmative Financial Network's "Generation" program.  Michael approved the addendum, and below I've described three of the managers we recommended:

Manager 1 uses a blended selection style to develop a global portfolio that focuses on large-company stocks. Companies are chosen based on their record of environmental sustainability, including their compliance with Natural Step principles.
Manager 2 focuses on a "themed" approach and selects stock of small- and medium-sized companies from around the world. The themes emphasize clean energy and water, healthy foods, proactive health care and sustainable building.
Manager 3 offers core equity and balanced portfolios. In addition to its disciplined financial analysis, the manager also evaluates companies' social and environmental practices and the potential effects of those practices on long-term earnings.

The result for Michael has been a well-diversified portfolio that emphasizes environmental and sustainability screens and includes managers who take positions on shareholder issues. We regularly report to Michael on both the financial and social/environmental performance of his investments. At his request, Michael is also notified about relevant shareholder actions in which he might participate.  

Georgette Frazer, CPA, PFS, CFP, AIF, is owner of Lifetime Financial Services in Marshfield, Wis. Frazer is an advisor with First Affirmative Financial Network, a nationwide network of investment professionals serving socially responsible investors.