Air Date: Week of February 19, 1993

Cy Musiker reports from San Francisco on the proliferation — and the prospects — of a range of green investment funds.

Transcript

NUNLEY : If you want to see your money grow -- plant it in green companies. That's the advice many financial advisors are giving these days, predicting that tougher environmental policies, advocated by members of the Clinton Administration, will generate growth in waste disposal, recycling, pollution control, and alternative energy stocks. But finding a place in the market to put your green is another matter, and so is making sure it turns a healthy profit. Cy Musiker reports.

MUSIKER: So you want to invest in the environmental industry? It sounds like a booming business, what with a new administration in Washington and just about everybody recycling these days. Somebody must be making bundles of money. But it's not so easy.

Out of the 37 hundred mutual funds available in the US, only 9 are environmental sector funds, even stretching the definition. And they fall into two broad categories -- pollution control, and pollution avoidance. Most of the funds, like Kemper, Fidelity, or Oppenheimer, are less than three years old, and buy stock from just a few hundred major companies involved in some form of recycling, pollution control, or waste handling. Common holdings would be Waste Management Incorporated, a waste handler with a controversial environmental history of its own, or the cogeneration company O'Brien Environmental. But the best-performing environmental industry fund of last year was one which takes a broader view of the industry, and avoids companies with questionable environmental records. That's the New Alternatives Fund, which Dave Schoenwald founded in 1982 to invest in the alternative energy business.

SCHOENWALD: The definition of alternative energy is not just a solar-cell company, in our point of view. If a company made insulation which reduced the amount of energy one used in their house, that saved energy, and so we defined or considered alternative energy saving energy.

MUSIKER: It may be stretching the definition of an environmental fund when New Alternatives buys 50 thousand shares of Huffy, the bicycle manufacturer. But then that's non-polluting transportation. A more traditional green industry investment would be Schoenwald's purchase of Zurn Industries, which makes cogeneration equipment. That wide range of investments, though, is one reason Schoenwald's New Alternatives turned in the best performance of any environmental sector fund last year, growing by 4.9 percent.

Mike Silverstein is president of Environmental Economics, a company that tracks environmental stocks and five eco-industry mutual funds. Silverstein says that enviro-stocks took off in anticipation of Earth Day 1990, but then as the recession gripped American business, they plummeted, especially as the amount of hazardous and other waste produced dropped off as well. The average net assets of the five funds fell 7 percent last year.

SILVERSTEIN: There's a shakeout going on right now, a very serious shakeout, because the old notion that this industry had to keep growing infinitely because regulations were getting more and more intense has proven to be somewhat over-optimistic. In fact the industry is susceptible to the same kinds of recessionary pressures as other industries.

MUSIKER: But let's face it, even the best-performing green industry mutual fund didn't do at all well last year, when compared to funds which choose investments from the whole gamut of American business. David Pogran is director of research at the Parnassus Fund in San Francisco.

POGRAN: There is a risk to investing in environmental funds, in that it's really not diversified.

MUSIKER: Parnassus was up 32 percent, easily qualifying it as the most successful socially screened fund in the country and one of the top mutual funds of any kind. Parnassus follows the usual social activist criteria -- avoiding companies with ties to South Africa, the defense industry, tobacco, gambling, and liquor, and the environment. Pogran says that's the issue people ask most about these days. But is that a good way to judge a company?

POGRAN: It makes a lot of business sense. It's very, very, very expensive to pollute the environment.

MUSIKER: Now Parnassus takes its social mission seriously, but just as with most mutual funds, the management fees go to the fund's owners. At nine-month-old Green Century Funds in Boston, the management fees go toward environmental advocacy, because Green Century is owned by Ralph Nader's US-PIRG, the public interest research group. Mindy Lubber is president of the fund.

LUBBER: Sometimes I think about it as the carrot versus the stick approach. We have tried as advocates for the environment to sue companies when they weren't being environmentally responsible. Now we can go to them in a much more collegial fashion and say to them, we need to work together, we are shareholders, we are an owner, so to speak, of your corporation -- and we want to see more corporate environmental programs and we want to make sure they're very real.

MUSIKER: So that's the range of environmental investments, from funds which buy pollution control stocks which may be polluters themselves, to alternative energy funds, to funds which buy a wide range of stocks but insist on what they consider environmentally responsible policies. A number of analysts think 1993 will prove an excellent good year for environmental stocks. They're a good buy, said one analyst, if you're not afraid of financial roller coaster rides. For Living on Earth, I'm Cy Musiker in San Francisco.