Deep green investing: A closer look

This is the political context in which the divestment movement makes sense. It won’t shake up the oil industry -- the Ensia story explains why -- but it’s a useful organizing tool.

But what might the campaign mean for investors? Today, I’m taking a closer look at a couple of “deep green” broadly-diversified mutual funds that have decided, unlike most other funds that market themselves as green or socially responsible,” to cleanse their portfolios of companies that extract fossil fuels.

Yes, that’s right -- most “socially responsible” funds screen out companies that sell alcohol, tobacco and firearms, but not big oil and gas companies. [See my November, 2012, story in The Guardian, Where can investors who worry about climate change put their pension?] This doesn’t make a lot of sense: Are wine and beer bigger threats to the planet than oil and gas?

Portfolio 21 Global Equity Fund (PORTX), which manages about $387 million in assets (as of Dec. 31, 2012), is one of the outliers. It aims to invest in “companies designing environmentally superior products, using renewable energy, and developing efficient production methods.” Its top holdings (also, as of Dec. 31) were Google, Novo Nordisk, Roche, Samsung, Novartis, Baxter, IBM, Svenska Cellulosa (SCA), Apple and Novozymes. This is a solid list from a corporate-responsibility perspective.

Portfolio 21 has published a paper called Managing Investment Portfolios Without Fossil Fuel Stocks to explain its thinking about fossil fuels. The focus is risk:

"In our effort to select the best, we also seek to avoid those companies that are resisting the changes that are reshaping the economy; those that are involved in business activities that entail what we believe are unacceptable risks in environmental, social, or governance areas. Our research has found unacceptable risks in the fossil fuel exploration and production industry and therefore we do not invest in companies in the sector."

The paper goes on to cite the political risks facing fossil fuel companies (countries could impose caps or taxes on carbon), the risks of competition from cleaner technologies and the health, safety and environmental risks, citing as an example the BP Deepwater Horizon oil spill. BP’s share price dropped by about 25 percent since the spill.

Next page:  Risk