Environmental Concerns Play Growing Role in Investments

Environment-minded investors are thinking green in more ways than one as Wednesday’s Earth Day approaches.

Increasingly, Americans are putting their money where their environmental consciences are.

Investing in “clean and green” companies, part of the broader category of so-called social investing, is hardly the rage of Wall Street. More than 99% of all investments are still based on the bottom line.

But evidence abounds that the ozone layer and alternative energy are playing more of a role in money matters.

“The environment has become the No. 1 concern of people who are interested in socially aware investing,” said Joan Kanavich, executive director of the Social Investment Forum in Minneapolis.

“It used to be just South Africa, South Africa, South Africa. But with all the publicity surrounding the 20th anniversary of Earth Day two years ago, the issue absolutely exploded and has not abated,” said Kanavich, whose nonprofit group disseminates information on socially responsible investing.

Another catalyst was America’s worst environmental disaster--the Exxon Valdez oil spill off the coast of Alaska in 1989.

Several “green funds” have sprung up in recent years although most simply invest in environmental-sector companies without screening them for social responsibility.

Two mutual funds--New Alternatives and Calvert Ariel Appreciation Fund--invest exclusively in environmental firms whose business and ethical practices it deems admirable.

More than $600 billion is now invested according to some type of social criteria, according to the Council on Economic Priorities, a nonprofit research group based in New York.

“We’re always been very interested in the environment and felt we should invest our money where it could do some good,” said Eleanor (Arny) Powers of Fair Haven, N.J., an investor in New Alternatives. “We feel very strongly that we’ve all got to do what we can in this area or we’re all going to go down the tubes.”

Do green mutual funds fare as well as traditional ones?

The jury is still out although some experts would have investors think otherwise.

Norman Fosback, editor of the investment advisory letter Market Logic in Fort Lauderdale, Fla., said funds that screen for the environment and other social factors have been “dramatic under-performers.” He studied the results of three social-conscience mutual funds--Calvert Social Managed Growth, Dreyfus Third Century and Pax World--and found each had outperformed the Standard & Poor’s 500 in only two of the last eight years.

“I feel investors should go for the highest possible returns, then donate all the excess profits they want to causes they think are socially responsible,” Fosback said.

However--surprise--the average mutual fund has managed to beat the S&P; 500 only once in the same eight-year period, according to Morningstar Mutual Funds, a Chicago company that tracks fund performance. And Pax World, which has environmental and other screens, made Business Week magazine’s recent list of top fund performers.

“People who are looking ahead five or 10 years are going to be rewarded by avoiding companies with environmental problems,” said Peter Kinder, whose Boston money management firm consults on socially responsible investing. “Companies that are trying to avoid environmental problems are usually run by farsighted, prudent business people.”

Kinder co-authored a book on ethical investing in 1984 with his wife, Amy Domini, whose Domini Social Index of 400 socially responsible firms is an ethical counterpart to the S&P; 500.

Another approach: Invest in companies you want to change and organize shareholder resolutions.

The Interfaith Center on Corporate Responsibility, a coalition of religious groups and other organizations, this year has sponsored more than 70 such resolutions urging companies to eliminate ozone-depleting chemicals, improve automotive fuel efficiency, reduce carbon dioxide emissions, oppose food irradiation or simply disclose certain actions.

“We don’t advise people to take money out of companies that aren’t sound but to keep it there and put pressure on them to change,” said Ariane van Buren, the coalition’s director of environmental programs.

“What is at stake is not only the companies’ financial bottom line and their liability for environmental damage,” she said, “but the bottom line for the public and the Earth in the environmental costs they have to bear.”