Ethical/Green Investing

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Ethical/Green Investing

Postby DocHolliday » Wed Jun 27, 2007 5:38 pm

I'm very interested in putting my money to work for good causes, especially ones with a positive environmental impact. However, I'm also aware of my my need to make money off of my investments. I don't want to work forever. I've heard time and again that Index funds will outperform 3/4 of all mutual funds after fees. My question is, is there any good place to put my money that will be environmentally sound and profitable? I'm especially interested in any fund which concentrates on green initiatives that will make a difference in the economy and move us away from destructive practices. Solar, Wind, Thermal, and Wave power are all great, and the way of the future, I hope. I'd love to put my money in that. Green transportation is also something I would support.

I'm a member of the Sierra club, and will probably continue to support them through what contributions I can afford, but their magazines regularly have ads for environmentally friendly funds. This one was from the latest issue, which promises environmental criteria (unspecified)

The Panassus Equity Income Fund Promises a ten year return of 11.19% vs 10.90% for the S&P500. The Gross expense Ratio is 1.07% and the Net Expense Ratio is 0.99%. How does this compare to the S&P 500 in real terms?

Can anyone suggest any other environmental funds that actually make money?


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Postby MossySF » Wed Jun 27, 2007 6:49 pm

I doubt Parnassus will "promise" 11.19% over 10 years. And considering the fund only started in 2001, they don't even have a 10 year track record to compare against so I'm not even sure what return numbers they're presenting. Maybe they estimate based on what they might have done in the past? If you look at the performance record, the 3/5 year performance match nearly perfectly with the S&P500.

* ... b=snapshot

Of course, is the S&P500 even the proper comparison? Let's look at the fund makeup.

* ... =portfolio

50% is in medium/small/micro so a better comparison is 50% S&P500, 50% Extended Market Index. Let's look at the performance for VEXMX (Vanguard Extended Market):

* ... mbol=VEXMX

Take half the difference compared to the S&P500 and then substract out the Parnassus numbers. You end up with Parnassus underperforming the "market" by 2.75% over the last 5 years and 2.1% over the last 3 years. Now if being green is worth losing 2%-3% of performance, that could be a valid choice to make.

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Postby pf101 » Wed Jun 27, 2007 10:45 pm

Meh...ethical investing... IMO, it doesn't exist, especially not in a fund. I know there are things like the Calvert Social Index and that kind of thing but your ethics aren't the same as mine and aren't the same as that fund managers so what he finds ethical you might find abhorant. Also, IMO, there is no such thing as a totally green company. For example, a bank would seem to be a pretty green company. They aren't killing the planet or anything. But what if they make millions (billions) in loans each year to oil companies or mining companies or defense manufacturers or logging companies. Are they still green if they make big money off of the pillage of the planet? What if they're a bank who doesn't loan to companies like that but does do a lot of sub-prime home loans. Are they ethical in lending money to people who probably shouldn't be buying and will probably lose their houses because of bad loans? What if they're bulldozing a park to build a new office complex which will will reduce green space and add to traffic congestion? What about a big pharm company that produces drugs to treat cancer and HIV and all sorts of nasty diseases but also produces birth control or the morning after drug? That would be a big problem for some people. Any socially responsible fund could own any and all of these kinds of companies but unless you investigate every holding, you'll never really know if they're really socially responsible according to your meaning of the word.

Add in higher management fees and a tendancy to underperform and, IMO, you're better off investing for the return and then donating money to the cause of your choice. You'll make a bigger difference that way than through buying a "socially responsible" fund.

Alternatively, if you have enough to invest to diversify properly, you can buy the companies that interest you directly and build your own "socially responsible" fund.

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Postby brad » Thu Jun 28, 2007 7:39 am

There's been other discussion of this topic here on the board, you might want to browse through the topics (I can remember at least one lengthy discussion). The upshot of that discussion was that it's misleading to think that when you invest in an index or other conventional fund you're supporting "bad" companies because once the shares are in the market the companies themselves don't directly benefit from trading. You're not doing harm with your invested money, even if you own shares in cigarette manufacturers or human rights abusers. It's different when you talk about funds that invest in specific types of projects or programs (rather than in the market), but I'm not sure how that works. I could see investing money in funds that support renewable energy projects, though I'm a bit skeptical about the kind of return I'd see.

One alternative to social investing is what I call "social bank accounts," which are offered by some banks. When I lived in Vermont, the Vermont National Bank offered this option for checking, savings, CDs, and money market accounts. The money was used by the bank to invest in environmental and social development projects in the bank's service territory. They funded a lot of worthy projects and there was no penalty in terms of fees or interest so it was a no-brainer. The biggest credit union here in Quebec (Desjardins) offers something similar and I'm thinking of switching my accounts to them.

Actually if I were a billionaire I might consider buying up a lot of shares in "bad" companies and then use my power as a major shareholder to try to make them change their ways. I think Abby Rockefeller did just that sort of thing.

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Postby Ryuns » Fri Jun 29, 2007 9:51 am

Yeah this is pretty rough. I've looked into a few responsible funds and their criteria is often a little arbitrary. Today, none is as simple as a "good" or "bad" company. Most of them don't invest in companies with ties to nuclear, but I personally think we're better off investing in nuclear power to offset fossil fuels. Some oil companies are on the cutting edge of renewable energy, but they're still oil companies.

I think I've decided that I will do my best to support good companies with my consumer dollar, invest my time with groups making a difference, and invest simply, at low cost, THROUGH a good company, in broad markets. If I have extra money to invest, I can imagine buying individual stocks of companies that truly set a great example (Patagonia and Interface Carpet come to mind, though I'm not sure either trades publicly) with no more than 10% of my (presently non-existent) portfolio.

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Postby sdkramer » Fri Jun 29, 2007 1:07 pm

A very sticky wicket that. Take for instance Altria sure they're Philip Morris and Miller beer, but they're also Nabisco and Kraft. Is Pfizer a wonder-drug creator, or a price fixing weasel? Probably depends on how bad you need Viagra. Boeing makes commercial aircraft, but they also make bombers. Is war unethical? Probably depends on the war. And I think I could make a compelling case that Ethanol is unethical because it drives up corn prices which in turn drives up other agricultural prices (limited crop space), consequently livestock prices, and leads to inflationary pressure on the poor.

In my opinion if ethics is your principal worry then you might be better off choosing individual stocks that meet your ethical standards and are placed well.

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