News Column

Green Investing, The Color of Money

May 1 2008

Jeff Wuorio

Green Investing

In the financial world, green can beget green--in all sorts of ways. In the past, "going green" meant protecting the planet, but today, it increasingly also means the potential profits reaped from environmental investments.

"We like money," quips Cliff Feigenbaum, founder and editor of The Green Money Journal, based in Santa Fe, New Mexico. "But we put it this way; green investing helps you make money while you make a difference."

"Green investing" focuses on a range of environmental and social concerns. Also called Socially Responsible Investing, or SRI, by analysts, its assets have blown through the roof in the past few years. SRI assets nationwide escalated from $639 billion in 1995 to $2.71 trillion in 2007, an increase of a whopping 324 percent, according to the 2007 Socially Responsible Investment Trends Report. Conventional assets increased 270 percent (to $25.1 trillion), during the same timeframe. From 2005 to 2007 alone, SRI assets jumped 18 percent, while the broader investment universe lagged at less than 3 percent.

"We're entering a peculiar time in history," says Peter Camejo, founder of Progressive Asset Management, in Northern California. "We're using up the world's oil reserves and other resources, and it only makes sense, financially and ecologically, to move toward green lifestyles, especially alternative energy sources. The solar energy market, for example, is going to explode in the U.S. and worldwide. Solar is poised for huge growth. It is where the semiconductor market was in the 1980s."

Latinos Getting Involved

Mr. Camejo, who was Ralph Nader's running mate in the 2004 presidential election, also works with his brother, Antonio Camejo, in the all-Hispanic investment firm Portfolio Research Group, in Miami, Florida. PRG has been instrumental in helping Hispanic investors get involved with the alternative energy markets. "We're seeing more and more Latinos getting interested in green investing," he says.

Although the reasons for that growth are varied, Mr. Feigenbaum suggests that investors, both individual and institutional, are coming to embrace the idea that profit and social responsibility aren't mutually exclusive.

"It's a question of what you want to profit from," he says. "If it's war and toxic products from China, then go right ahead. But, if you don't want to abuse people, SRI lets you invest with your values in mind."

Proponents insist that socially responsible criteria are more than a morally-fueled tilt at financial windmills, citing companies with labor shutdowns or those whose products have drawn litigation-- factors that make them unattractive investment opportunities.

SRI And "The Dark Side" Battle For Profitability

"Look at the trends--regulators are making companies bear the financial brunt of their pollution mistakes," says Brent Kessel, co-founder of the financial planning firm, Abacus Wealth Partners in Pacific Palisades, California and author of It's Not About the Money. "When you look at it in that fashion, SRI is really a very conservative form of investing. We're focusing on companies that will be more profitable."

Nor is the SRI world limited to individual stocks and mutual funds. The New York Mercantile Exchange recently unveiled The Green Exchange, a vehicle through which investors trade credits that off set greenhouse gas emissions linked to global warming.

Still, before you put your money down on green, the question must be asked. Is SRI as profitable as strategies that happily toss polluters, distillers, and weapons manufacturers into their portfolios?

The answers depend on whom you ask. A recent study by Meir Statman of Santa Clara University found that some socially responsible stock indices (such as the Domini 400 Social Index) slightly outperformed conventional counterparts. Additionally, Studies of Socially Responsible Investing, a Web site associated with the Center for Responsible Business and the University of California at Berkeley's Hass School of Business, cites some 17 studies establishing SRI's competitive virtues.

Others, though, disagree. Actively managed SRI funds earned more than 3 percentage points less per year than like traditional funds, according to recent research by Christopher Geczy of the University of Pennsylvania. A glance at two of SRI's better-known funds presents a mixed bag. Over the past five years, the Pax World Balanced Fund slightly outpaces other funds in its moderate allocation category, but trails the Dow Jones Industrial Average. The Calvert Social Investment Equity Fund lags behind both its category and the S&P 500 during the same five-year stint.

Whether or not green investments are inherently better is "an impossible question to answer," according to Michael Herbst, an analyst with the research house, Morningstar. "Th ere are so many different types of funds-- it really depends on the fund."

One criticism aimed at some green funds is their relatively high expenses. In some cases, it bears out--the expense ratio of the Calvert Social fund, for example, is 1.21 percent, according to Morningstar. By comparison, non-SRI Vanguard Growth Index is a gaunt 0.22 percent. Translated: a $10,000 investment in the Calvert Fund would cost $1,871 over a 10-year period; the Vanguard, $280. However, proponents of the green funds say the extra expense is oft en the result of keener scrutiny of the companies in which the funds invest, providing more security for investors.

Mr. Herbst also notes there are a number of cost-effective SRI funds, such as the Pax World Balanced, which has a 0.94 percent expense ratio, in line with other non-SRI moderate allocation funds. Another edge for the greens can be founded in green index funds, which hold expenses down due to limited trading. For example, Vanguard's FTSE Social Index boasts a skinny 0.24 expense ratio.

One option for individual investors is to visit the Web sites of green mutual fund families and other groups that offer SRI funds and check out their portfolios. "Many funds list their 10 top holdings on their Web sites," says Mr. Feigenbaum.

It's important to keep in mind that the universe of SRI continues to evolve. For example, rather than adhering to a "wholly green or nothing" mentality, some funds are beginning to acknowledge shades of green in their investment choices. Abacus Wealth Partners oft en includes British Petroleum in its portfolio recommendations, along with renewable energy companies and funds. Such compromises have sometimes helped profits, while coming under fire by some green supporters, who claim including big oil companies muddies the issue for investors.

Despite these small controversies, it is becoming clear that whether being socially responsible or simply making a profit motivates you, green investing is a growing option.

Source: (c) 2008. All rights reserved.

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