Taking a broad view of 'environmentally friendly'

There are many ideas about what makes an investment 'green'

Aug 4, 2008 @ 12:01 am

By Deborah Nason

Demand for "green" investing is growing, studies show, but opinions vary widely on what makes an investment green.

Of the 15 largest environmentally oriented mutual funds offered in the United States, nine focus on either alternative energy or water (InvestmentNews, June 2). However, a growing number of investment venues are employing a broader approach to green.

"Green is more than energy or water. There are apples and oranges out there," said Rafael Coven, managing partner of Cleantech Group LLC of Baltimore.

"Which 'clean' do you go to? The average consumer and stockbroker have no idea," Mr. Coven said.

"Many brokers want a 30-second pitch, like clean water, for example," he said. "[It's] quick, easy themes that attract money."

And while the term "cleantech" is commonly applied to any type of alternative-energy technology, Mr. Coven's company uses a very different definition, describing the concept as a range of products, services and processes that lower costs, reduce negative ecological effects and improve the use of natural resources.

"[Others are] following an industry; we're following a trend across multiple industries," he said.

Mr. Coven's company's Cleantech Index United States comprises 47 cleantech-focused companies, is tracked by the PowerShares Cleantech Portfolio ETF and it is offered by PowerShares Capital Management LLC in Wheaton, Ill.

NUMBER OF CATEGORIES

"We don't use the term 'cleantech.' We describe what we do as environmental investing," said Liz Levy, senior environmental analyst for Boston-based Winslow Management Co. LLC.

The Winslow funds also span multiple industries and include such categories as sustainable living, Internet/software and pharmaceuticals.

"We created our own sectors [to show] the major environmental challenges that we think are the most important," Ms. Levy said. "At least 75% of our holdings are related to climate change."

The Winslow Green Solutions Fund (WGSLX) focuses on companies which develop environmental solutions, while the Winslow Green Growth Fund (WBBFX) focuses on small companies that run their businesses in an environmentally friendly way, Ms. Levy said.

"These [broader-based portfolios] are high-leverage ways to create marketplace change," said Shane Johnston, an adviser with La Mesa, Calif.-based Blue Summit Financial Group Inc., which specializes in socially conscious investing and manages $80 million in assets.

"People are coming to us for this — they're demanding it. We have to counsel them not to overweight," Mr. Johnston said.

"Investors find the performance attractive, and they believe this is the technology of the future," he said.

Mr. Johnston and his firm work with subadvisory firms such as Oro Valley, Ariz.-based High Impact Investments to create portfolios for separately managed accounts.

Tom Moser, portfolio manager at High Impact Investments, manages $30 million in assets. He categorizes the holdings into five so-called high-impact areas: clean energy, clean water, healthy food, proactive health care and sustainable building.

"These five areas all interplay with each other, asking: What does a healthy planet look like?" Mr. Moser said.

"The cutting-edge companies going forward will have good products and treat employees well," he said.

"In the next five to 10 years, we're going to see social rating companies to help look at companies' social practices, workplaces, [chief executives]," Mr. Moser said.

His securities are offered through two platforms: Portfolio Resources Group Inc. of Lewisburg, Pa., and First Affirmative Financial Network LLC of Colorado Springs, Colo.

While Portland, Ore.-based Portfolio 21 Investments' Portfolio 21 (PORTX), which has assets of $300 million, doesn't create its own sectors, it rigorously screens companies based on the environmental effects of their business models, products and services, investments, leadership and environmental management. The result is a portfolio of more than 70% international companies that span 10 industry sectors.

Alternative energy is minimally represented.

"It's too risky, too volatile, right now. Our holdings integrate ecological risk strategies in their business models and have a higher probability of adaptation to ecological constraints," said chairman Carsten Henningsen. "

"A lot of people try to [invest green] themselves, and this is an area where, if financial advisers do some homework, they can clearly be able to differentiate themselves from others," said Andy Loving, a certified financial planner at Just Money Advisors in Louisville, Ky., which manages $40 million in assets. "[Furthermore], it makes sense to help clients diversify within the green arena — just as within an overall portfolio."

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