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.

Sincerely,

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.”

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