Should ethical investors dip into water stocks?

Brown: Two companies that have met our environmental, social, and governance criteria have been American Water Works [and] Aqua America.... There's always room for dialogue with these companies. Issues do come up and we do have to speak with the company. But as a shareholder, that's a pretty powerful voice to talk ... about issues.

Why is bottled water a target now?

Fernald: That's probably the hottest topic in water right now, certainly in the US and I think now globally. Nestlé, Pepsi, Coca-Cola – all major players in this market. Ironically, right here in Massachusetts there's a big debate about water supplies and the issue of privatization of water, communities getting the right price for their water. And obviously on the waste side, the use of plastics and the plastic bottle and the cost of disposing of them.

Have you sorted that out at Pax?

Brown: We do own PepsiCo, which obviously does have its exposure. Again, this is part of where dialogue comes up on being an ethical investor. We open a dialogue with companies like that to see what they're doing to minimize this type of activity or impact on the environment.

Fernald: I think Pepsi is a good example, actually, where they've had a number of initiatives at the corporate level and – only as a large company like Pepsi can – a global initiative. They partnered recently with the Earth Institute at Columbia University – that's [directed by] Jeffrey Sachs. And they've also partnered with H2O Africa, which focuses on sustainable water in Africa.... I also notice that on their industrial food-processing side, they won some recent [Environmental Protection Agency] awards on improving the use of water within their industrial processes. That's the whole picture you've got to really look at. You've got to balance. They're involved in the bottled-water industry, but what else are they doing to mitigate that or to improve the overall picture of water globally? As a large company, they can really have an influence there.

Another issue is desalination.

Brown: Desalination is probably one of the more exciting areas now, especially here in the United States. You have an aging population moving into areas that are very arid, particularly the southwestern part of the United States. And there's just not enough water. So we have focused on companies like Veolia that actually build the plants. But there are issues. There are issues with the waste.... [Also] how much energy does it require to process this water?

Oil investors have seen big profits. Do water firms have the same potential?

Fernald: Four years ago, if you had invested in a lot of the smaller solar companies, it was hard to go wrong. One would assume that water has some of those opportunities as well. I was asking one of our analysts about a smaller company and she pointed to Lindsay Corporation.... This is a company trying to make more efficient use of water through their irrigation systems. Very exciting technology. Companies like that will be very interesting to explore.

•Watch the entire conversation at csmonitor.com/ethicalinvesting.

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