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.

The Seattle Times attempts to demonstrate that “green” mutual funds are poor performers compared to Vanguard’s 500 Index Fund. First, they suggest that this index fund is a perfect proxy for the S&P 500. In my opinion it is uncommon for mutual funds to be compared to an index of an index. Though the difference in the performance of the Vanguard 500 Index Fund and S&P 500 is only 0.05% points Year-to-Date (YTD), the Time’s authors do not identify the reason for the unique use of the index. Secondly the Time’s authors use one index to compare mutual funds from different categories. The statement that half the “green” mutual funds have not beaten the S&P 500, using the Vanguard 500 Index fund as a proxy measurement, is irrelevant to some of the funds.

Mutual funds in the World Stocks category use the widely accepted benchmark MSCI Eafe Ndtr_D. New Alternatives Fund (NALFX) has outperformed this index by 8.18% points YTD, while Portfolio 21 Fund (PORTX) has outperformed it by 1.88% points YTD.

The Large-cap growth Spectra Green Fund (SPEGX) has a Morningstar Return Rating of Above Average and that the fund has outperformed the S&P 500 by 3.23% points YTD. The Vanguard FTSE Social Index Fund (VFTSX) underperformed the S&P 500 by 0.32% points YTD. However, the Sierra Club Stock Fund (SCFSX) outperformed the index by 4.24% points YTD. The S&P 500 is the industry standard for this category of mutual funds.

The Neuberger & Berman Socially Responsible Fund (NBSRX) went heat-to-head with the Vanguard 500 Index Fund (VFNIX) in the Seattle Times mutual fund performance comparison chart. Both were categorized as Large-cap blended funds. NBSRX outperformed the S&P 500 Index by 0.62% points YTD, while VFNIX ironically has underperformed the index by 0.05% points YTD.

The big loser in Seattle Times comparison was the Winslow Green Growth Fund (WGGFX). This fund has underperformed the S&P 500 by 4.95% points YTD. This fund certainly supports their claim that “green” investing has a downside. By my count 5 “green” mutual funds beat their appropriate indices, while 3 funds did not fair well compared to their index. It should be noted that one of the losers was the Vanguard 500 Index Fund, which is not a “green” fund.

Under closer scrutiny the Seattle Times is inaccurate in its claims that “green” investing tends to be a poor performer for investors. The funds chosen by the authors have accomplished what investors are typically looking for in their investments, they have appreciated in value at or better than the rate of the appropriate index benchmark.

The statement by the Seattle Times that “green” investment in mutual funds is not changing the corporate landscape in the same way that consumer boycotts are is unsubstantiated. Individual investors have the choice to invest in funds in which the fund managers hold corporations accountable during share-holder meetings. However, not all “green” mutual funds share this principle. Many funds simply screen investment holdings to match the social consciousness of investors. These fund managers do not attend share-holder meetings with the intention of pursuing a specific social or environmental agenda. These managers monitor corporate behavior in order to keep abreast of changes so that their mutual fund investments continue to reflect the principles of the fund. The motives of socially conscious investing are as broad as the people who invest in this universe of stocks and mutual funds. The Seattle Times does a disservice to its readers by claiming that “green” investing is not an agent of change in the corporate world.

Rob just posted an article on the increasing effectiveness of "green" investing. Social Investment Forum News provides an index of reports trumpeting the advances that socially conscious investing is having on corporation's behavior.