Even bonds are turning green.

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These type of debt instruments raise capital in order to finance those projects that are definitively environmentally friendly. Overall they are a small portion of the bond market but are growing and have representation in investment and non-investment grade sectors. There are a number of indexes as Bank of America and S&P both have created them and no doubt this will increase investor participation as fund managers are able to manage around a defined set of criteria.

To illustrate, we have selected a fund from Calvert Investments who specializes in SRI investment themes.

Calvert Green Bond Fund (CGAFX)

“The Fund seeks to invest primarily in “green” investments. The Fund defines “green” investments to include securities of companies that develop or provide products or services that address environmental solutions and/or support efforts to reduce their own environmental footprint; bonds that support environmental projects; structured securities that are collateralized by assets supporting environmental themes; and securities that, in the opinion of the Fund’s Advisor, have no more than a negligible direct environmental impact, which may include securities issued by the U.S. government or its agencies, and U.S. government-sponsored entities.”

They may invest up to 35% in below investment grade debt and currently it is much lower than that although BBB’s make up 23%. Right on the cusp of investment grade. The yield of 1.38% is decent for a short term government/credit fund although this is categorized as an intermediate fund by Morningstar and rightly so as the duration is 4.79.

We would pass on this fund for now and in the meantime, continue exploration within this interesting segment of the debt markets.


Tom Koehler-CIO

“Socially Responsible Investments represent a complex asset class and while we covered a small amount, there is a lot more information needed prior to making an investment decision. Let us know if we can provide more information to help in that process.”


Triple Bottom Line?

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There simply used to be the bottom line but in the case of SRI/ESG investing there are potentially three main bottom lines.




“The phrase “the triple bottom line” was first coined in 1994 by John Elkington, the founder of a British consultancy called SustainAbility. His argument was that companies should be preparing three different (and quite separate) bottom lines. One is the traditional measure of corporate profit—the “bottom line” of the profit and loss account. The second is the bottom line of a company’s “people account”—a measure in some shape or form of how socially responsible an organization has been throughout its operations. The third is the bottom line of the company’s “planet” account—a measure of how environmentally responsible it has been. The triple bottom line (TBL) thus consists of three Ps: profit, people and planet. It aims to measure the financial, social and environmental performance of the corporation over a period of time. Only a company that produces a Triple Bottom Line is taking account of the full cost involved in doing business.” *Taken from the Indiana Business Review

The problem is measurement especially within the people and planet areas. How are they measured and what is the common unit of measurement across all three aspects? It could be helpful to measure across a common index and at the end determine a score that is monetized so that the profitability portion can be increased or decreased depending on the people and planet portion.

“Echoing the growth in corporate social responsibility reporting, a growing number of mostly small- and medium-sized companies are taking environmental and social stewardship further and becoming benefit corporations — companies that are legally bound to have a positive effect on society —according to a report by Worldwatch Institute.

There are currently about 200 benefit corporations  — none of which are publicly traded companies at this point — in the US, according to More Businesses Pursue Triple Bottom Line for a Sustainable Economy. The total gross revenues for all certified benefit corporations are about $6 billion annually, and together these businesses employ about 30,000 people, the report says.

Signs indicate that interest in becoming a benefit corporation is growing. The number of companies annually using benefit corporation nonprofit advocate B Lab’s online assessment tool, which is a marker for broader interest in eventual certification, grew from 280 in 2007 to 2,406 in 2012. By the end of the first quarter of 2013, some 8,000 individual companies had used the tool, according to the report.

Most benefit corporations to date are either small or medium-sized businesses. But they include a few larger companies that are privately held, such as the outdoor apparel and accessory firm Patagonia, which became a benefit corporation in early 2012 and posted annual sales of about $540 million for the fiscal year ending April 2012.

King Arthur Flour is another large benefit corporation. The employee-owned, 223-year-old company reported sales of about $84 million in 2010, the report says.

Proponents of this new corporate form say it “bakes a triple bottom line into a company’s DNA” that frees companies from the fear of shareholder lawsuits if their decisions fail to maximize shareholder value because of some competing interest of other stakeholders, such as workers.

Benefit corporation status is intended to establish the directors’ fiduciary responsibility to consider the interests of all stakeholders.”  *Taken from the Environmental Leader-May 2013

This summation is only intended to introduce the reader to a different analytical framework so that they are able to potentially judge companies on their merit beyond the traditional financial metrics.

In a way, this opens up many possibilities for holding companies accountable truer to ones ethos and to their view on how a corporate society can evolve.


Tom Koehler-CIO

“Socially Responsible Investments represent a complex asset class and while we covered a small amount, there is a lot more information needed prior to making an investment decision. Let us know if we can provide more information to help in that process.”

Clean, alternative or renewable?

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The energy complex beyond the traditional fossil fuel infrastructure has expanded over the last few years to include clean , alternative and renewable energy.

Solid investment decisions in these areas can become difficult as the very definitions are not easily deciphered among the various energy classifications.

Clean technology has been described by Clean Edge, a clean technology research firm, as “a diverse range of products, services, and processes that harness renewable materials and energy sources, dramatically reduce the use of natural resources, and cut or eliminate emissions and wastes.” It notes that “Clean technologies are competitive with, if not superior to, their conventional counterparts. Many also offer significant additional benefits, notably their ability to improve the lives of those in both developed and developing countries”.

Alternative energy can be loosely described as that which is not fossil fuel and includes; wind, sun, biomass and other non-traditional energy sources. This definition is also similar to renewable energy and many times they are used interchangeably.

While the assets continue to grow in what can arguably described as an energy revolution, it is helpful to examine the overall landscape to help shape your firm’s asset allocation decisions in this area.  In this piece we will only touch upon a few general themes as there are many avenues in which to pursue to this portion of “ethos” investing.

It may be helpful to describe two or three Exchange Traded Funds in this space to illustrate the difficulty inherent in constructing a dedicated alternative energy strategy.

Powershares Clean Tech ETF-PZD

This ETF invests according to the Clean Tech LLC Index that focuses on clean tech which “considers a company to be a clean-tech company when it derives at least 50% of its revenues or operating profits from clean-tech businesses”.   Some of the industries that are represented include: application software, auto parts and equipment as well as industrial companies.

The inherent appeal with this approach is the industry diversification that may suit your firm’s risk profile compared to the Guggenheim Solar ETF (TAN) for instance. PZD holds 57% industrial companies and 21% IT while TAN holds over 70% in IT and most of that is within the semi-conductor industry. While it may be a worthy investment, it is very specific and not potentially in line with your overall volatility goal.

Market Vectors Global Alternative Energy ETF-GEX

The Fund normally invests at least 80% of its total assets in stocks of companies primarily engaged in the business of alternative energy. Such companies may include small- and medium-capitalization companies and foreign issuers. Alternative energy refers to the generation of power through environmentally friendly, non traditional sources. It includes power derived principally from bio-fuels (such as ethanol), bio mass, wind, solar, hydro and geothermal sources and also includes the various technologies that support the production, use and storage of these sources.

Semiconductors continue to dominate the IT sector within this fund but we begin to see “pure plays” within the alternative energy complex as renewable electric and independent electric producers are represented.

Market Vectors Environmental Services-EVX

The Fund normally invests at least 80% of its total assets in common stocks and American depositary receipts (“ADRs”) of companies involved in the environmental services industry. The Environmental Services Index is comprised of companies that engage in business activities that may benefit from the global increase in demand for consumer waste disposal, removal and storage of industrial by-products, and the management of associated resources and includes securities of companies that are involved in management, removal and storage of consumer waste and industrial by-products and related environmental services, including waste collection, transfer and disposal services, recycling services, soil remediation, waste-water management and environmental consulting services.

Industrial names are most prevalent here and Waste Management makes up a little over 10% of the portfolio. While we like the concept, a lot of this portfolio is dedicated to trash and basic waste pick-up and disposal.

After taking a brief look at a few of the offerings within the clean tech, alternative energy and environmental services space, it becomes clear that a well defined strategy is necessary to invest in the non-fossil fuel arena as the choices are somewhat diverse in their composition and intent.

It may be the case that ETFs simply do not have the flexibility to invest across these themes where there is value on a consistent basis. There may be great value among these that speak to your client’s beliefs but may need to be managed in a separately managed account to take advantage of the opportunities in all the energy revolution areas.

This short list is just the tip of the iceberg as we will continue to help outline and streamline the significant amount of choices as they relate to your environmental and alternative energy investment efforts.


Tom Koehler-CIO


“Socially Responsible Investments represent a complex asset class and while we covered a small amount, there is a lot more information needed prior to making an investment decision. Let us know if we can provide more information to help in that process.”