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BOSTON — Green Century Balanced Fund has a carbon footprint that is two-thirds lower than the Standard & Poor’s 500 stock-index. But that’s not the mutual fund’s only low score.
It also gets a below-average star rating from investment research firm Morningstar Inc., ranks below-average for consistent return and preservation of capital from fund-tracker Lipper Inc., and has expenses that are about average for a stock fund.
If you’re an investor with a concern for the environment, the real question is which of those statistics stands out to you.
Green Century Balanced (GCBLX: undefined, undefined, undefined%) became the first fund to release its own carbon footprint this week, announcing results of a study by Trucost, an environmental analysis firm that measured the tons of carbon emissions per million dollars of revenue of the companies held.
The fund’s carbon footprint of 126 tons of carbon per $1million of revenue for the fund’s holdings was about one-third the level of the S&P 500 (SPX: undefined, undefined, undefined%) , and about 100 tons lower than 16 other social investment and sustainability funds measured in a different Trucost study.
Unclear choices
It’s not a huge surprise. Green Century avoids utilities, oil and gas companies and the basic resources sector, all of which are a big part of the S&P index. If you are an investor in social funds and your agenda is environmental protection, that’s good.
But it’s not likely to sway many investors to buy the fund, nor should it. Even the fund’s sponsors say as much, for now.
“We believe carbon intensity indicates financial risk, and we’d like to see more comprehensive carbon accounting and more disclosure,” said Erin Gray, spokesperson for Green Century. “But we realize that there is not enough data to make an apples-to-apples comparison right now, to see how Green Century Balanced stands up to any other balanced fund.”
Gray added: “So the results make us proud, but we understand that people will need more to go on when they decide which fund to buy.”
Social investment funds, like Green Century, invest with more than a profit motive. Some have an environmental bent; others are based on religious tenets. There are anti-war funds, “anti-terror” funds, and many more. (I do not use the more common “socially responsible funds” label because it implies that all other funds are socially irresponsible.)
These funds use screening processes to weed out stocks that don’t adhere to management’s value system in the belief that the “wrong” kinds of stocks have negative issues that ultimately trickle down to the bottom line.
On the environmental front, there’s no question that climate-change regulation will add a new layer of costs — what some observers call “the carbon tax” even though it’s not an actual tariff — to companies with a heavy carbon footprint.
Social standing
Avoiding those potential performance problems is important, because the screening process frequently pushes expense levels to average or above. If a social fund can’t overcome that nut, it’s harder to “do well while doing good,” which is the underlying motive for a social investor.
Ultimately, a social investor’s key decision is whether to fish in the broad pond of funds, without regard to their personal value system (perhaps donating some of their gains to their causes), or to invest in line with their beliefs. It doesn’t make much sense to be “a little bit social,” where a portfolio has, say, traditional large-cap and international funds, but a social small-cap fund. That investor might be profiting in the traditional funds from the very activities they avoid in the social fund.
Carbon-footprint reporting is probably not enough to make a traditional investor go social. If it ever becomes a standard among social funds, it might allow an investor to choose between so-called green funds with more certainty that their beliefs will be upheld.
Until then, Gregg Brewer, executive director of research for Value Line, noted that an investor who is truly concerned with carbon footprints might “just want to buy stock in companies that work to reduce carbon emissions.”
“This seems like they went data fishing to come up with something they coulduse to market the fund to carbon-concerned folks,” Brewer added.
And while Green Century gets credit for pushing the issue — which may lead other social funds to make similar disclosure — that doesn’t mean it should get your money, even if you are a social investor.
Mark Salzinger, editor of the No-Load Fund Investor newsletter, noted that Green Century Balanced has been in the top 20% of his ranking of “hybrid funds” over the past year, but lands in the bottom 20% of its peer group over five years.
The fund, he said, “looks like a garden-variety, plain-vanilla growth portfolio … Most standard growth portfolios lack significant exposure to utilities, materials and natural-resources stocks, so the fact that Green Century Balanced lacks them too is not surprising. … In sum, there’s nothing special about the fund. It’s just a mediocre product the providers are trying to dress up with a trendy social marketing appeal.”
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