Should “green” funds invest in fossil fuels?

Bill McKibben’s groundbreaking Rolling Stone story (Global Warming’s Terrifying New Math) and’s “Do the Math” divestment campaign raise important and difficult questions about fossil fuels. One that is starting to roil the world of socially-responsibly investing is this: How should mutual funds that strive to be “green” or “sustainable” or “socially responsible” deal with the fossil fuel companies in their portfolios? Should they divest, as McKibben argues?

That was the topic of a column I wrote last week for the Guardian Sustainable Business, which generated some noteworthy responses. It’s part of the British newspaper The Guardian, which has one of the most popular English language media websites in the world. Here’s how the column begins:

“We’re going after the fossil fuel industry,” Bill McKibben tells about 1,800 cheering fans in a Washington, DC, theatre. “They’re trying to wreck the future, so we’re going after some of their money.”

Al Gore notwithstanding, McKibben – an author, academic and founder of the grassroots climate group – is America’s leading environmental activist. His 21-city Do The Math tour begins a campaign to persuade colleges, churches, foundations and governments to divest their holdings in coal, oil and natural gas companies.

“It does not make sense,” McKibben tells the Washington audience, “to invest my retirement money in a company whose business plan means that there won’t be an earth to retire on.”

He’s right about that, but the divestment campaign raises a thorny question: where can investors who worry about climate change put their money?

Divest for our Future,’s divestment website, recommends “environmentally and socially responsible funds“. The trouble is, the biggest and best-known mutual funds that call themselves environmentally and socially responsible also invest in fossil fuel companies. They evidently haven’t heard McKibben’s message.

Is this green?

The column–you can read the rest here–goes on to report that the Parnassus Equity Income Fund  holds about 14% of its assets in oil, natural gas companies and electric utilities that burn fossil fuels, that the TIAA-CREF Social Choice Equity Fund owns shares in dozens of oil and gas firms including Hess, Marathon and Sunoco, and a pair of shale gas giants, Devon Energy and Range Resources, that the Calvert Equity Portfolio  has about 10% of its portfolio in fossil fuels, including  Suncor, which says on its website that it was “the first company to develop the oil sands, creating an industry that is now a key contributor to Canada’s prosperity,” and that the Domini Social Equity Fund has, among its top 10 holdings, Apache Corp, an oil and gas exploration and production company.

Are you surprised to learn that these funds invest in oil and gas companies, including those in the Canadian Tar Sands? Perhaps naively, I was. [click to continue…]

How to be a HIP Investor

R. Paul Herman

R. Paul Herman

Make money by making the world a better place.

What’s not to like about that? So appealing is the idea of doing well by doing good that a significant slice of the financial services industry is devoted to persuading people that they can invest with their values without sacrificing returns. That’s what so-called socially responsible mutual funds are all about.

R. Paul Herman, the founder and CEO of an investment advisory firm called HIP Investor, goes a step further:  He argues that companies that are leaders in sustainability and corporate responsibility are likely to outperform their peers. Those companies can be identified by using publicly-available data, he says. So by constructing an index of big companies, and investing more money into the better companies and less into the not-so-good, Herman says he both promote good corporate behavior and make money for his investors.

HIP stands for Human Impact plus Profit, Herman explained today during a talk at the  Kenan Flagler business school at the University of North Carolina. (I’m in Chapel Hill for a couple of days, participating in a conference called Global Innovations in Energy organized by Kenan Flagler’s Center for Sustainable Enterprise.) I interviewed Herman, who gave a talk about HIP investing and his brand-new book, called The HIP Investor: Make Bigger Profits by Building a Better World. He’s a personable, 41-year-old Wharton grad who did a stint at McKinsey and worked at and the Omidyar Network before starting HIP.

The core of his argument, as expressed on the HIP website, goes like this:

Our world of more than six billion people faces many human problems that need solutions, many of which can be served by companies.  By solving these human needs profitably through products and services (from Walmart’s $4 generic drug program to ICICI Bank’s micro-loans to Vestas’s wind turbines), a company can benefit customers, inspire employees, engage suppliers,  and deliver sustainable profitable growth for its investors.

Well, sure. Like many, I believe that Herman’s fundamental investing thesis makes sense.  I wrote it right into my bio: “Companies that make the world a better place—by serving their customers, their workers and their communities—will deliver superior results to their owners in the long run.”

The challenge for an investor comes in identifying those better companies and deciding whether they are fairly priced by the market. [click to continue…]