Deep green investing: a closer look

A divestment rally at Harvard
A divestment rally at Harvard

As you’ve no doubt heard, Bill McKibben and his allies at have launched a  a national campaign to persuade colleges, universities, churches, foundations and, yes, people like you and me, to stop investing in the fossil fuel industry. The campaign raises interesting questions as, I’m sure, McKibben hoped it would. Among them:

Does divestment make sense as a strategy to curb climate change?

If those of us who are concerned about climate change want to align out investments with our beliefs, what options are available?

In a column called Deep Green Investing published last week by Ensia, a lively new online magazine about environmental solutions, I argued that, by itself, divestment will probably not accomplish much. Having said that, the campaign could prove useful as one of a number of tactics being deployed by, the Sierra Club and others that are aimed at bringing about political change–namely, taxes or caps on global warming pollutants, EPA rules to curb coal-burning, etc.

In The Nation, Mark Hertsgaard argues that these grass-roots climate efforts have already produced results– galvanized opposition to the Keystone Pipeline, which may have persuaded President Obama to delay a decision after the election, and the Sierra Club’s Beyond Coal campaign has, along with cheap natural gas, helped drive the decline of coal in the US. Hertsgaard writes:

As important as the victories themselves was how they were won. Both the Sierra Club and eschewed the inside-the-Beltway focus and top-down political strategy of big mainstream environmental groups, as exemplified by the cap-and-trade campaign. Instead, they emphasized grassroots organizing at the local level on behalf of far-reaching demands that ordinary people could grasp and support. Their immediate goal was to block a specific pipeline or power plant, but their strategic goal was to build a popular movement and accrue political power.

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?

imagesPortfolio 21 Global Equity Fund (PORTX), which manages about $387 million in assets (as of 12-31-12), 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 12-31-12) 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% since the spill.

“The rationale for not owning these companies is not moralistic,” John Streur, the fund’s president, told me. “The hydrocarbon industry has evolved to the point that the projects that most of these companies are involved in are very large scale and very high risk projects.”

images-1The Green Century Balanced Fund (GCBLX), which is administered by a mutual fund firm that was started in 1991 by environmental groups, also holds no fossil fuel companies. It’s smaller, with assets of about $63 million. Its 10 largest holdings (as of Dec. 31, 2012) were Apple, Minerals Technologies, Nordstrom, IBM, Costco, Baxter, Cisco, Wells Fargo, Aflac and General Mills. This, too, is a solid list, although I’d be scared of Wells Fargo after reading What’s Inside America’s Banks?, the recent Atlantic magazine cover story.

When I asked Leslie Samuelrich, the senior vice president of Green Century Capital Management, why the fund screens out fossil fuels, she replied: “The overarching reason is climate change…We want to make sure we are on the solution side of that problem.”

Not all solutions, though–Portfolio 21 nor Green Century also screen out companies that produce nuclear power which provides more low-carbon electricity, globally and in the US, than solar and wind combined. I don’t see a way that we can solve the climate crisis without nuclear power, but that’s a topic for another day.

To offset the risk of not owning fossil fuel companies, fund managers at Portfolio 21 and Green Century can tailor their portfolios in a variety of ways. They can, for example, buy companies that trade in other commodities which, like oil and gas, tend to be cyclical. They also look for dividend-paying companies since the big oil and gas companies pay dividends.

So how have the funds done? I’d characterize their performance as mixed. During some periods, they slightly outperformed their benchmarks. During others, they trailed. Both impose relatively high management fees — 1.47 percent annually at Portfolio 21, 1.48 percent at Green Century– because they are actively managed funds and they engage in useful, but costly, shareholder advocacy. By contrast, my Vanguard S&P 500 Index Fund (which, of course, is not actively managed and does no advocacy) charges just 0.17 percent annually. Over time, higher fees will erode investment returns.

Still, most  funds in the socially-responsible arena charge similar fees. That’s a price investors have to pay if they want their money to be managed for more than a financial return.

The investment research company Morningstar gives Portfolio 21 a three-star rating, putting in the middle of all funds in its category, after comparing its risk-adjusted performance to its peers. Green Century Fund gets a four-star rating, meaning that it delivered above-average returns when compared to its peers. Last week, an investment management firm called Aperio said that it ran a series of back-tested simulations and found that removing fossil-fuel companies from a well-diversified portfolio has little or no impact on returns.

So it certainly looks as if it’s possible to manage broadly diversified portfolios that exclude fossil fuels without sacrificing financial returns. I’d like to see more socially responsible funds try it. And who knows? If the world moves towards low-carbon energy, as it should–and the big integrated fossil fuel companies fail to adapt–then divesting from oil, gas and coal investments could turn out to be smart business, as well as a good, albeit symbolic, politics.


  1. says

    Nice piece, Marc. I just want to flag one issue about nuclear power that is often overlooked, which is its life cycle carbon intensity. Uranium mining and processing are extremely carbon intensive. Never mind the huge amounts of carbon-intensive concrete to construct power plants, etc. Please see this Nature article on the subject: I also highly recommend Vandana Shiva’s “Soil Not Oil” (, which points out the severe human rights and environmental impacts of uranium mining in the developing world. Nuclear is far from clean in many, many ways.

  2. says

    Yes, most successful social change movements need and use a variety of tactics and strategies. It is a mistake to evaluate one strategy in isolation, without looking at how it contributes to the broader pressure campaign of which it is part. A diversity of strategies spurs greater activism, promotes innovative solutions, and prompts engagement by new constituencies — as we see with the fossil fuel company divestment campaign. Readers may find helpful this new resource page in the Green America website: The page lists financial firms and networks that can help investors with this divestment campaign.

  3. says


    Great article, per usual. But one problem is that the oil companies don’t show any signs of going out of business soon. Even BP, which did have a real chance of going under, seems to have worked itself out of any serious threat.

    Also, the funds you mention are marginal in terms of the Street or the average investor. It’s good to know we have that option and your insight about alcohol is right on target. How do you think that screen compares with screens on weapons, which is probably closer to a world-changing idea than banning drinks companies?

  4. says

    The relatively high cost of green mutual funds does have one bright side- it means that it’s possible to find investment advisors who will give individual service and manage a portfolio of green stocks for a price comparable to (and in some cases occasionally less than) the cost of investing in these mutual funds.

    Advisors with the willingness and ability to manage stock portfolios are rare (most prefer to use mutual funds or ETFs, meaning the client is charged two layers of fees) but I know of three who have contacted me because of my writing on the subject.

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