The Green Advisor: A Triad of Values

In this space last month we wrote that while green investing and socially responsible investing (SRI) have much in common, they are not always the same thing. Many green funds, such as Gabelli SRI Green Fund (SRIAX), Green Century Balanced Fund (GCBLX), and the Winslow Green Growth Fund (WGGFX), among others, do operate from an SRI perspective as evidenced by their membership in the Social Investment Forum. For that reason, in this column I’d like to take a look at some of what’s going on in the SRI movement.

In early April, in conjunction with her being named to the IA 25 (see cover story), I was able to talk with Barbara Krumsiek, CEO and president of Calvert Group, an investment company with three decades of SRI experience and some 30 mutual funds, including the Calvert Global Alternative Energy Fund (CGAEX), in its stable.

The growth in assets committed to SRI principles has been dramatic over the last few years, but in Krumsiek’s estimation, the best is yet to come. “The growth that we’ve seen to this point will not hold a candle to the growth we’re going to see going forward,” she says. Although the SRI-specific data so far has only been collected through 2007 by the Social Investment Forum (SIF), meaning the tumultuous period since then is not represented, “if we figure that all boats went down the same amount, some of the statistics will hold up,” Krumsiek posits. “According to the Social Investment Forum, SRI assets increased 18% a year for the three years 2005-2007, while according to an SIF trend study, the universe of professionally managed assets increased less than 3%. It’s off a relatively smaller base, but we grew to $2.71 trillion from $639 billion vs. SIF’s estimate that the total universe of professionally managed assets grew from $7 trillion to $25 trillion during that time.”

The aspects of SRI to which Krumsiek attributes the recent growth spurt–trust, transparency, and responsibility–are virtues that are becoming increasingly important to the rest of the investing population. “I think a guidepost for sustainable investors and what we call social investing has been transparency, in terms of what we expect from corporations in their conduct in business. The trust factor certainly has been very high because we look at companies according to an array of factors…[and] the way we do that is very comprehensive. Corporate social responsibility has been part of our mission and vision at Calvert since its founding, but now these are words that matter to every advisor, every client, and every investor.”

In the wake of the numerous scandals in recent years, starting with the Enron fiasco and on through the subprime mortgage mess and the rest of the current meltdown, there’s certainly going to be a renewed emphasis on good corporate governance. There are also environmental liabilities to consider, not to mention under the stimulus program a fresh focus on renewable and sustainable energy. “All of these are going to be factors that I think a growing number of advisors are going to find their clients asking them about,” Krumsiek notes.

But What About Performance?

With any type of investment, performance is always a factor, and the obvious question is how did SRI funds fare compared to the rest of the investing universe when it comes to returns. Krumsiek can only speak for her own funds, but the results do offer a sliver of sunlight in a bleak and dreary landscape. The Calvert Social Investment Fund (CSIFX), the firm’s largest equity portfolio, had $843 million in assets at the end of 2008 and was down 35.5%, versus the S&P 500 which was down about 37%, according to Krumsiek. “Maybe 1.5% outperformance in one year, when you’re down that far, isn’t going to resonate, but that’s an outperformance advantage. This year so far, the social equity fund is up 1.57% vs. the S&P, down 4.37%,” she says. (The figures cited are through the market close on April 9, 2009).

“Generally, looking at these short time periods is not always accurate,” Krumsiek cautions. “We certainly think in our Calvert signature portfolios, where we exclude companies that we think are really not up to par in environmental, social, and governance metrics, that over the long run we expect to achieve at or above broad benchmark averages. However, in different periods of time we might outperform or underperform. We’re not making any implicit promises, but we do think in the long run the companies we’re investing in should do at least as well, because the managements and the boards are focused on not just the short-term drivers of stock price change, but the long-term drivers of sustainability. And that means survival of the company and thriving of the company over long time periods.”