DEFINITION of 'Green Fund'

A green fund is a  mutual fund or other investment vehicle that will only invest in companies that are deemed socially conscious in their business dealings or directly promote environmental responsibility. A green fund can come in the form of a focused investment vehicle for companies engaged in environmentally supportive businesses, such as alternative energy, green transport, water and waste management, and sustainable living.

BREAKING DOWN 'Green Fund'

A green fund's strategy can be based on some of the following characteristics: avoiding negative company criteria (businesses such as guns, alcohol, gambling, pornography, animal testing, etc.); choosing positive company criteria (environmental programs, energy conservation, fair trade, etc.); or a combination of both strategies. Based on performance, it is not yet clear whether green funds and socially responsible investing (SRI) can consistently create better returns for investors, but they do represent a proactive step toward environmental consciousness, which many investors see as valuable. 

The Beginning of 'Green Funds'

Some have cited green investing as having begun in earnest during the 1990s, a period where investors were more seriously taking into account the harm businesses or the pressure entire industries were putting on the environment. In the wake of headline-grabbing events like the Exxon Valdez oil spill, and large and protracted fights over logging rights in the Pacific Northwest, a set of investors began to view businesses that were better at managing their environmental impact as more valuable than those who couldn't. These types of businesses, in some investors eyes, were not only operating in a more ethical manner, but had a competitive advantage over companies who were ill equipped to reduce their impact on the environment. Still other investors saw an ethical obligation in investing in technologies and businesses that were looking to build a sustainable society through renewable energy sources.

'Green Fund' Sectors

Some of the sectors where this investment has been taking place include the renewable energy, and buildings and efficiency sector. The renewable energy sector is a broad one, including solar energy, wind, battery and energy storage technologies, as well as the materials that help make those technologies possible. The buildings sector includes builders who use energy-efficient materials, making each building's carbon footprint smaller – whether they're being used for commercial, residential, or office use.

Socially conscious investing has continued to gain popularity, which is due largely to increased worldwide exposure to the issue of climate change, as well as increased federal funding for alternative energy and other programs. Since 2007, the Green Transition Scoreboard, a project run by Ethical Markets Media and The Climate Prosperity Alliance, has tracked $8.1 trillion invested in the green economy through the end of 2016, more than halfway to the goal of $10 trillion invested by 2020.

Some of the green mutual funds that are available include: the TIAA-CREF Social Choice Equity Fund (TICRX); Portfolio 21 Global Equity Fund Class R (PORTX) 21; and the Green Century balanced (GCBLX).

Performance of Green Funds

Money has poured into green funds as investors seek both socially responsible investments and returns from the uptick in green technologies such as wind and solar power. Inflows into socially conscious funds quadrupled to more than $4.3 trillion from 2012 to 2014, with the number of funds growing by 28%. Despite sometimes high fees, the funds have also garnered relatively solid performance. Socially responsible funds returned 8.1% versus 8.4% for non-socially responsible funds over the three years ended March 31, 2018. For the 10 years ended on March 31, 2018, the funds turned in 8.91% versus 9.1% for their non-socially responsible peers.  

RELATED TERMS
  1. Green Investing

    Investment activities that focus on companies or projects that ...
  2. Green Tech

    Green tech is technology that is considered environmentally friendly ...
  3. Green Marketing

    Green marketing consists of marketing products and services based ...
  4. Green collar

    A green collar worker is one who is employed in an industry in ...
  5. Green Economics

    Green economic theories encompass a wide range of ideas all dealing ...
  6. Green Field Investment

    A green field investment is a type of foreign direct investment ...
Related Articles
  1. Investing

    Building Green For Your House And Wallet

    The earth-smart money is on these environmentally friendly housing projects.
  2. Insights

    What Does It Mean To Be Green?

    Green investing is the new buzzword for companies and investors. Find out what it means.
  3. Financial Advisor

    Opportunities and Risks of Green Bond Investing

    Green bonds have grown in popularity in line with a surge in globally-minded investors, but a lack of liquidity and moderate returns require consideration.
  4. Investing

    Green Bonds: Fixed Returns to Fix The Planet

    Fixed-income investors are no longer left out of the green investing revolution.
  5. Investing

    How to invest in Green Bonds

    If you want to invest in a socially responsible way, green bonds may be for you. And as the market grows, retail investment opportunities will grow too.
  6. Investing

    Shades of Green Fixed Income

    While the green bond market continues to grow, it still lacks transparency and a formal compliance process.
  7. Investing

    TSBRX, CGAFX, MIIAX: Alternative Energy Bond Mutual Funds

    Discover mutual funds that enable investors to focus their investments in alternative energy bonds. With these funds, investors can "do well and do good."
  8. Personal Finance

    9 Green Careers With High Pay

    Being environmentally conscious doesn't mean you have to give up the comforts of life. Find out which jobs provide for both.
  9. Insights

    Five Companies Leading The Green Charge

    Corporations that reduce their environmental footprint anticipate large long-term gains.
  10. Small Business

    The 10 Fastest Growing Green Startups in 2018

    These social entrepreneurs adopt triple bottom lines that champion urgent environmental problems while generating returns for shareholders.
RELATED FAQS
  1. Green Field vs. Acquisition to Enter New Country?

    A business considering new international operations must decide whether to create a new site via a green field investment, ... Read Answer >>
  2. Why is social responsibility important in marketing?

    Social responsibility in marketing can drive consumers toward products and services, enhancing company's brand as well as ... Read Answer >>
Trading Center