Environmental investing isn’t a huge trend yet. But it’s growing, writes D. GRANT BLACK
Recent opinion polls show that the environment is the No..1 issue in Canada. But are Canadian investors buying “green” mutual funds to match their environmental zeal?
The short answer is no, or not yet anyway. Canadians may be Kyoto keeners, but when it comes to green investing we haven’t yet caught up to our American neighbours.
“Green funds” are mutual funds that invest in environmentally friendly companies, such as those involved in clean energy (wind, solar, biomass); or in progressive companies that use environmental technology to reduce greenhouse gases in industries such as oil, gas, coal and mining.
Toronto-based Jantzi Research, an independent investment research firm that screens companies for their environmental, social and governance performance, studies U.S. and Canadian investment patterns. According to Jantzi, U.S. mutual funds with green leanings total $2-trillion and account for about 10 per cent of total investments in that country.
Green Century Capital Management, for example, was founded in Boston in 1991 by non-profit environmental advocacy groups. Its Green Century Funds, which invest in companies of all sizes but with an emphasis on large caps, are among a small number of U.S. fund families that focus on green investing.
“Our intention is for the fund to be a balance of really progressive companies and those that are trying to lead their sectors in improving their environmental impact,” says Ethan Berkwits, vice-president of marketing for Green Century Funds.
Even when Canada’s much smaller population is factored in, investments here lag far behind in this area. In all, about $65.5-billion, or three to five per cent of total Canadian investments, are in funds devoted to socially responsible investing (SRI).
Canadian chartered banks do not offer green or ethical funds. Instead, the funds are sold at credit unions, where only 4.9 million Canadians do their financial business, or through a small number of independent SRI investment advisers, meaning that many investors may have limited knowledge about green-fund options.
More importantly, there are only a handful of “purely green” funds in Canada amid a myriad of other SRI and conventional funds.
Canada’s three most prominent SRI companies — Ethical Funds Company, Inhance Investment Management and Meritas Mutual Funds — all offer mutual funds with environmental components, but none are stand-alone green. But green investors can find such options elsewhere to add to their RRSP portfolio.
For example, Desjardins Environmental Fund is the oldest of Canada’s green funds and has assets of $106-million. Companies in its top 10 include Suncor Energy, Teck Cominco, EnCana Corp. and Alcan Inc. Established in 1990, the fund has been a good performer. As of Oct. 31, 2006, it had returned 24 per cent in one year, 20 per cent in the past three years, and 14 per cent over the past five years.
Acuity Investment Management, meanwhile, offers three purely green funds in addition to conventional investing options. Its Clean Environment funds invest in companies involved in wind and solar power, wastewater management, and clean technologies for the Alberta tar sands, for example.
Acuity’s Clean Environment Equity Fund looks for securities that fit the fund’s concept of sustainable environmental development, as well as financial strength and above-average growth potential. Two of its holdings are Suncor Energy and Montreal-based Groupe Laperriere & Verreault, which offers technologies that separate liquids and solids. With assets of $83-million, Clean Environment Equity Fund returned 7.7 per cent in 2006, 11.7 per cent over the past three years, 7 per cent over the past five, and 8.7 per cent since inception in 1991.
Another option is to invest directly in a renewable energy company. Clean Power Income Fund, which was launched in 2001 and trades on the Toronto Stock Exchange, invests solely in renewable energy, such as wind, solar, water, wood waste and landfill gas. Its dollars are at work, for example, in the building of the $186-million Erie Shores Wind Farm in southern Ontario, which stretches 29 kilometres along Lake Erie’s north shore. Clean Power Income Fund generated 4.4 per cent in 2006, 9.8 per cent in 2005, and 8.5 per cent in 2002.
Martin Grosskopf, associate portfolio manager and manager of sustainability research with Acuity Investment Management, says the interest in green mutual funds is on the rise.
“We’re being asked more about these funds in our institutional business from sophisticated investment committees. That’s a good indication that the retail market is likely to follow as well,” says Mr. Grosskopf.
Some investors are already matching their investments to their ethical principles.
Two years ago, Tina Bax, a 37-year-old entrepreneur in London, Ont., switched her entire investment portfolio to SRI mutual funds. So did her husband Michael, a 39-year-old self-employed graphic designer.
Meritas Mutual Funds is the only fund group in Ms. Bax’s portfolio, which saw a 15-per-cent return last year. She notes that Meritas offers six funds, all investing in environmental companies.
Her investments aren’t easily divided into “green” and “ethical” categories, she says. “It’s impossible to separate them,” says Ms. Bax, who operates Culture Works, a private English-as-a-second-language school with 20 employees and an SRI pension plan.
“I think people do this because it’s a lifestyle choice,” she added. “You won’t find socially responsible investors who don’t recycle, who don’t give money to charity or don’t volunteer.”
Brian O’Neill agrees. He’s the senior fund analyst at Morningstar Canada, a leading investment fund research firm that screens and tracks about 50 Canadian SRI funds.
“I think the two tend to come hand-in-hand ..... For most SRI funds, we’ll look at environmental screens as well. It’s very unusual for investors to want a social screen, but not an environmental screen,” he says.
“If the environment continues to be the most important issue for Canadians,” he added, “then we’ll see more [mutual fund] offerings out there and see more money flowing into them.”
Special to The Globe and Mail
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