What Is a Green Fund?
A green fund is a mutual fund or another 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.
Understanding the 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.