In August 2006 the Sierra Club partnered with Forward Funds to continue to provide a financial product to its environmental focused membership. The Sierra Club established environmental and social guidelines that companies must meet in order for the Forward Fund investment managers to invest in them. Forward Fund operates two mutual funds under the Sierra Club name. The Sierra Club Equity Income (SCFLX) fund is in the moderate allocation category. The index that it is measured against is the Dow Jones Moderate Portfolio. The Sierra Club Stock (SCFSX) fund is a large-capital growth fund that is measured against the S&P 500.

The Seattle Times ran an article Friday, May 25 on “green” investing that screams for scrutiny. Their claims in the article are simplistic and unsubstantiated. This quote sums up the piece:

But while ‘green’ investing may be good for the conscience, it’s not always good for the wallet. Nor does socially conscious investing necessarily lead to changes in corporate behavior the way consumer-product boycotts might.

Investing in stocks and mutual funds is not a financial vehicle that guarantees a return and “green” investing is no different. The fact that there is a possibility that an investment will decline in value is inherent in the system. To pull “green” investing out of the universe of investment models and claim that an individual could lose money is misleading and vague.

Great article in the Herald Tribune about investor activism becoming more effective.

The May Eugene Water & Electric Board (EWEB) bill arrived today. Just in time for me to answer a couple of questions that R. left in Comments the other day at the post regarding CFL Bulbs. This bill is of interest because it reflects our first GreenPower Premium charge.

Susan and I have been in this Eugene area home since March 2005. We haven't utilized EWEB’s residential energy management programs, yet, and we average KWH use per month is 933.34. We were just about average last month; we used 964 KWH and were charged an extra $9.64 to support GreenPower. We used 1114 KWH the month before. Our bill is only $3.00 lower this month because of the premium charge and an increase in the cost of water. I haven't figured out why our KWH use one year ago was only 587. I am going to attribute our increase this year to keeping Susan warmer. Since we have now turned off the heat, next month's bill will provide a new measurement to help confirm or deny this hypothesis.

Using less energy is good. Switching to CFL Bulbs that use less electricity is one way to accomplish that goal. We bought 10 CFL Bulbs of varying watts this month to reduce our carbon footprint. This step was easy and it only cost us $31.00. Though the bulbs take time to warm up to produce their maximum light, I am willing to accept this as the price I pay for conservation. I have looked at other ways to save energy and money since this step was completed.

According to Consumer Reports, 45% of our energy bill is allocated to heating and cooling our house. We don’t have an air conditioner or other appliance that cools the house, so no money is going to cooling. The radiant floor heating for our 1000 square foot house certainly bumps our energy bill. Our goal is to keep the house no higher than 70 degrees and no lower than 65 degrees. This is mostly a late fall, through the winter and early spring heating principle. We accept lower inside temperatures and survive higher temperatures during the warmer months here in Eugene, Oregon.

I need to confirm the level of insulation for the house. The attic has fluffy, lose insulation that looks to be at least a foot deep. I am unsure about the walls however. I will have to do more research to find out about the insulation in there. Our house sits on a concrete slab, so we are set in that location. The other research I need to do is to find out if we can install a programmable thermostat for our heater. We constantly and manually change our thermostat based on the reading of a digital, wall-mounted temperature gauge. A programmable thermostat would allow us to reduce the heat at night and while we are away from the house. It had better be able to get the house up to temperature by the time we get up or come home.

Hot water is reported to take up 11% of the energy bill. The hot water heater is a mystery to me. Do we wrap it or not? The pipes are insulated, but it sits naked in the corner. References to wrapping the hot water heater state that you should consult the owner’s manual to determine whether wrapping is good or an act that will void the warranty. I will check to see that we have the temperature turned down to 120 degrees. That temperature appears to be a standard.

There are two options regarding the hot water heater that I would like to pursue if I had more money to spend on this project. One idea that I am toying with is to install an on-demand, instantaneous water heater. In my international travel I have used this type of shower heaters and have been satisfied, though I would have to get used to wires and switches being so close to the water. The other idea is the solar water heater. I keep reading about the subsidies and tax breaks available for solar water heating installation. I need to research this to find out if it is financially feasible.

Washers and dryers account for 10% of the bill. We air-dry our clothes as much as possible to reduce energy use and cost. Our washer and dryer have a scratch-n-sniff sticker of approval from the EPA. We spent more money to get the front loader washer that uses less water and energy. We use only warm water on light colored clothes and cold water on the rest to reduce energy.

With lighting making up 7% of the energy bill, our recent switch to CFL bulbs was a good step. However, we would have a greater impact on our bill and energy consumption by making changes to the heating and water heater appliances.

We need a smaller refrigerator. 6% of our bill goes to this appliance. We have what appears to be 1000 square foot refrigerator. We use 13 sq. ft of that space for the food we make each week. Anybody want to swap a newer model refrigerator that is about 5 feet high for our newer model 13-foot tall fridge?

Consumer Reports lists Household Electronics (4%), Dishwashers (2%) and Miscellaneous (15%) as making up the rest of the energy bill for a household. Our computer, modem and speaker system is our big household electronics energy sucker. We should look carefully at all of the little “things” that are plugged in and decide if there is a more efficient way to handle our usage in this area.

My mutual fund and stock trading practice is not generally affected by short-term changes in the Dow, NASDAQ, or S&P 500. I do, however, watch these markets daily. By watching the markets I feel I have a better view of the environment when I do buy or sell at a particular time. This last week was relatively bumpy and this coincided with a recent sale and purchase of two mutual funds.

On Tuesday, May 7 I sold a large percentage of my stake in the mutual fund FBR Small Cap. (FBRVX). This sale was initiated by the weak performance of FBRVX. It has been lagging its index, the S&P 500, when compared to 1-month and 3-month benchmarks. This has been a strong fund for me, however. I bought my initial stake on January 9, 2004 at $33.31. Since then I have balanced my portfolio a couple of times. The first rebalancing required a sale of a portion of my FBRVX holding at $40.94 on March 21, 2005. Since then I have increased my stake twice purchasing more shares at $44.54 on August 2, 2005 and on February 17, 2006 I purchased additional shares at $45.32

Value increase from the dates of purchases of FBRVX:
January 9, 2004 to present: 69.6%
August 2, 2005 to present: 26.9%
February 17, 2006 to present: 24.7%

Compared to the increase in the S&P 500:
January 9, 2004 to present: 33.0%
August 2, 2005 to present: 21.8%
February 17, 2006 to present: 16.8%

FBRVX is a no-load, no commission purchase for me through Charles Schwab. My net returns are not as high as the increase in the Net Asset Value, but the relatively high expense ratio of 1.38% still allowed me to beat the index. This performance is not as strong as the performance of Alpine International Real Estate (EGLRX). This no-load, no-commission mutual fund has done much better than FBRVX and the S&P 500 this year-to-date. EGLRX’s return for the year is up10.24% while FBRVX is up 3.83% the S&P is up 5.14%. I couldn’t pass up this performance by EGLRX that has a total expense ratio of 1.17%. I moved a large portion of my stake in FBRVX into the smaller stake I had in EGLRX.

This wasn’t done because of rebalancing. It was done because I want my savings to grow faster. It was primarily done without utilizing my trading principles, though the year-to-date returns support my move. This was a risky decision. I feel protected from the current bumps in the major indices because of the size of the mutual funds. I will be watching the change closely so as to determine if this practice comes back to haunt me.

The NYT has a great article about the monetary value of a tree. The bottom line: for every dollar spent on trees, New York City receives $5.60 in benefits (impact on local property values, absorptions of carbon dioxide, reduction in energy consumption as a result of additional shade cover, etc).

Shareholder Push Results in Apple Inc.'s Aggressive Computer 'Take Back' Program - Its nice to see shareholder pressure in action. Apple's web page about it provides a nice overview, as well as another page about how they've adopted some metrics from Dell. HP and Dell have similar initiatives.

Why Warren Buffet can't stop the Darfur genocide - Interesting take on shareholder activism.

Carbon trading overhaul increases green incentives - The stakes are higher for EU firms looking to trade carbon credits.

KLD ANNOUNCES US GLOBAL CLIMATE INVESTMENT - A new index of top 100 companies, "...whose activities demonstrate the greatest potential for mitigating immediate and long-term causes of climate change."

After my recent post about subscribing to Greenpower, my partner Susan received a thoughtful response from Mat Northway this week regarding the questions we had about how the $0.01 premium on each kWh of electricity we use would be managed. Mat is the Energy Management Services Department Manager with the Eugene Water & Electric Board (EWEB) and he provided a few more details than EWEB’s Greenpower FAQ.

Regarding the question of how the extra funds would be managed, Mat reports that the EWEB board has established a reserve account for the Greenpower program. Mat states, “This reserve account keeps Greenpower revenues separate from the remainder of the utility revenues and under the direction of the Board.” This is a sound decision in my opinion and will certainly allow EWEB to better measure the popularity and costs of the program.

Susan also asked about the cost of the administration and marketing costs. The initial marketing expense was at least $40,000. This amount is based on the 80,000 flyers that were mailed to EWEB customers. This was the flyer that caught my eye. Mat indicated that he felt that keeping administration and marketing cost to 10% - 15% of revenue would be “responsible and appropriate.” He says that EWEB doesn’t have advertising or promotional costs for “regular” power. This could be problematic, without a comparison with other departments at EWEB how will the public know if they are being responsible with their spending?

Mat noted that after one month the Greenpower program sign ups and sales earned $2,000. At this rate the program will have revenue of $24,000 after 12 months and will have started with expenses of at least $40,000. Those figures do not take into account the administration and marketing costs that Mat indicates EWEB will incur. I do not believe that this assumes that the Greenpower program is going to fail due to these very basic financial figures. Mat appears realistic about the revenue possibilities and encouraged by what a strong response by the community could bring to them:

What we actually spend the money on will depend greatly on how much we actually collect. The types of investments we are considering range from additional investments in more renewable energy such as additional windmills installed at an existing wind farm, to funds for research in to new forms of renewable energy such as the work currently being conducted by OSU on wave energy off the Oregon coast, to support of local education to improve understanding of sustainability and the impacts of energy generation on our environment. If we only collect a few thousand dollars by years end we might only be able to proved some financial support for a local sustainability conference and workshops; at $50,000 to $100,000 we could also add investments in research into new technologies and additional investment in photovoltaic generation in Eugene, with over $100,000 we could also consider expanding further the ongoing investments that EWEB already makes in new windpower in Oregon.

Susan and I appreciated Mat’s quick, thoughtful and full response to our questions. He invited us to review the program’s progress in order to have EWEB prove their ability to build and expand this new program. Though he suggested that we hold off until they had proven themselves, I feel that we need to provide early support for this program in order for a critical mass of participants to be established.

Social Conscious Investing is of interest to many people, but is a complicated and there are many perspectives to consider. This post was initiated by a thought provoking comment from yesterday’s post, Does Investing in Stock or Mutual Funds Matter?

I grant that an individual purchase of a company’s stock is not going to change the profits, losses, debt or amount of cash on hand for that company. But this is not the direct intention of Socially Conscious Investors or any investors for that matter. SCI is a means to put dollars behind companies that are doing the “right thing.” Those dollars are going to investment companies, not to the companies in which the S.C. Investor is purchasing stock. The value of the stock in a company is affected in part by the demand of investors.

Companies that roll out a sustainable business plan are looking out for their bottom line. Socially conscious investors care about the company’s bottom line and the business plan also. I believe that companies that see that sustainable business practices help their bottom line will increase their efforts to expand those types of practices. An increase in these business practices creates expanded demand for the socially conscious investments.

Managers that watch their net worth increase based on the increase in their company’s stock value will stand behind pro-social and pro-environmental business decisions. If their socially conscious plans meet with financial failure, then they will abandon that path. SCI principles are going to prosper or decline based on these business decisions. These investment principles will be affected by how a company reacts to its stock value. I believe that the four tenets supporting that a company cares about its stock price are sound.

In the end, this is not about partial ownership of a company through stocks, mutual funds or ETFs for socially conscious investors. S.C. Investors want to be able to have their “voice” heard. They are given the possibility for a stronger voice when they buy into SCI mutual funds. S.C. Investors are given a voice when they describe their investing principles to other people. S.C. Investors provide themselves a solid inner voice by acting on their principles. The strengths mention here are factors outside of how a stock affects the immediate bottom line of a company.

The question of whether S.C. Investors should put their collective voice behind companies that continue unsustainable business practices in order to get them to change is an interesting contrarian argument. I will ruminate on that and try to develop a response to that idea in the future.