Green funds can ease your conscience, fill
your wallet
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"Most of the big, diversified social funds do
have environmental screens," Hickey adds. "There are other funds
that just emphasize one area, like gay issues or some of the religious
funds that have their own emphasis, but most of the big funds like
the Domini Social Equity Fund and the Citizens Funds do have an
environmental screen."
The Domini Social Equity Fund (Nasdaq: DSEFX)
is sort of the 500-pound gorilla of social responsibility. This
index fund holds stock in the 400 socially responsible firms that
make up the Domini 400 Social Index. Since the fund's inception
in 1991, it has an average 13.63 percent annual rate of return,
compared with 14.16 percent for the S&P 500 in the same period.
In four of its nine years, the Domini fund outperformed the S&P
500.
SRI funds began to emerge in earnest as a result
of the divestiture movement against apartheid, South Africa's former
policy of racial segregation, Larsen says. The movement sought to
end corporate investment in South Africa as long as that country
practiced apartheid.
"When that movement -- along with everything
else that was going on to encourage democracy in South Africa --
was successful, social investors then started working on other issues
where you could use your money to put your values forward into the
world," Larsen says.
"A lot of the growth of socially responsible
investing during the late '80s and early '90s was driven by the
sentiment to pull (investments) out of things that were harmful,
like tobacco, gambling, alcohol and guns. And then that grew into
more and more screens that became more and more sophisticated."
The top five social investment issues that fund
managers base screens upon are: tobacco (96 percent of SRI portfolios
include a screen for tobacco); gambling (86 percent); alcohol (83
percent); weapons (81 percent); and the environment (79 percent).
Other screens focus on human rights, labor issues, birth control/abortion
and animal welfare.
"Environmental screening has grown in prominence
over the last 10 years," Larsen says. "More and more funds are including
the environmental screens."
Recognizing environmental
efforts
However, not all screens are the same. Each fund manager has a different
philosophy on how to advance an environmental or social cause.
"Those environmental screens vary from shop
to shop," Hickey says. "I think it's important to look at what your
fund owns to see if it jibes with your beliefs. There are socially
responsible funds that totally avoid the energy sector, energy and
utilities and some of the industrial companies, the Alcoas of the
world.
"But some of them use a 'best in class' kind
of an approach."
The "best in class" concept seeks to reward
companies in traditionally dirty industries such as big oil that
are "trying to be as clean as they possibly can in their operations."
Hickey points to the differences between the
Green Century Balanced and New Alternatives portfolios. "The Green
Century fund tries to buy the greenest companies that it can, so
it doesn't own any utilities, any energy," she says.
"It owns a lot of tech, like software companies,
pharmaceutical companies and the like, and it owns some of these
alternative fuel cells, whereas New Alternatives is
all that alternative fuel stuff. It is 30 percent in utilities,
13 percent in energy, fairly heavy in industrials, no health care,
and its top holdings are fuel cells (and) big independent power
producers."
So you need to decide just what green means
to you and then put your green behind the funds that reflect that.
Your conscience will thank you, and so might your wallet.
Salvatore Caputo is a freelance
writer based in Arizona.
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