What is a Green Fund?

So how do we define a green fund?

It is a good question and a very important one as well.

As caring investors, we are inundated with information about all sorts of funds which make it their priority to invest in responsible companies that try to do no social harm.

Indeed, socially responsible investing is a very wide area.

Many funds promote themselves as socially responsible but we certainly don’t always know just what it means. We discuss different terms used to describe responsible investing here.

As part of responsible investing, green investing is often described as investing in companies which work towards actively improving the health of the environment.

In other words, green companies are developing new technological solutions for solving major environmental issues such as pollution and global warming.

japanese garden
Japanese Garden, California © Randy

Therefore, a green fund (also called green mutual fund) is an instrument for making collective investments in these environmentally active companies which introduce new green technologies.

There are many interesting industries in which a genuinely green mutual fund would normally invest:

    • Renewable energy, incl. solar, wind, geothermal, biofuel technologies
    • Energy efficiency solutions
    • Green transport
    • Green building/construction
    • Wastewater management
    • Pollution control
    • Reforestation
    • Recycling

Of course, it is not an exhaustive list, just an indication of where your money would most likely go if you decided to invest in green mutual funds.

There are many types of green investment such as stocks, bonds, etc.

But why invest in a mutual fund rather than, for example, directly in green stocks?

Why a Mutual Fund?

Here is a definition of a mutual fund as provided by the US Securities and Exchange Commission: (1)

A mutual fund is a company that pools money from many investors and invests the money in stocks, bonds, short-term money-market instruments, or other securities.

Probably the most important benefit gained as a result of investing in a mutual fund (as compared to individual stocks) is diversification.

In other words, don’t put all your eggs in one basket – put them in many different ones!

Your green mutual fund manager will select a portfolio of green stocks, bonds and other instruments and thus guarantee that such investments will be much safer for you to hold (though with a smaller expected return) than investing in individual companies.

The only thing you will need to do is buy shares in a mutual fund of your choice, which will entitle you to own a portion of the fund’s holdings.

You will also need to pay your fund manager’s annual fees which can reduce your potential earnings.

But there is no doubt that if you are a risk-averse investor, green mutual funds may be a very good investment option for your needs.

Choosing a Genuinely Green Fund

In one word, if you want to put your money in a truly green fund, there are two things you may want to look out for:

    • The scope of a fund’s investments in environmentally active companies, and
    • The fees the fund will charge for managing your account.
italian landscape
Italian Landscape © Luigi

As we discussed above, it is easy to confuse the funds which are socially responsible (covering a much wider universe of investments) with purely green funds.

So if you want to invest in a purely green mutual fund, you should analyze this fund’s policies and specific industries it is covering, and look carefully at its current holdings to make sure you are satisfied with this fund’s offers.

Another important point to remember is the number of fees charged by a certain fund, and you should obviously shop around for cheaper ones.

But of course, we all need to remember that green funds are, well, still very “green” and this is very much an emerging sector which needs to be approached with a certain degree of caution.

This means that our risks of investing in green funds may generally be higher than those for funds which invest in more established industries, but at the same time, we may well expect higher returns in the future.

So it is important to assess our own financial needs and risks we are comfortable with and make our investments accordingly.

Mutual Funds Which Are Genuinely Green

There are several green funds that we would like to highlight here.

What makes them truly green is the industries they invest in.

The majority of these funds’ investments go into renewable energy industries.

Calvert Global Alternative Energy Fund (US) (2)

Calvert Global Alternative Energy Fund invests in the US and global equity securities.

Its top 5 industries are:

    • Wind
    • Solar
    • Utilities
    • Biomass (biofuels)
    • Fuel cells

It also targets geothermal, energy efficiency and hydro energy industries.

Impax Environmental Leaders Fund (UK) (3)

Impax Environmental Leaders Fund invests in European and global stocks, with the focus on the following industries:

      • Alternative Energy & Energy Efficiency, incl.:
        • Wind turbine manufacturers
        • Solar manufacturers and integrators
        • Renewable energy developers and independent power producers
        • Biofuels
        • Meters and demand side management
        • Industrial, building & transport energy efficiency
    • Waste Treatment & Pollution Control
    • Waste Technologies & Resource Management

Winslow Green Growth Fund (US) (4)

Winslow Green Growth Fund invests in US stocks in the following green industries:

    • Clean Energy
    • Green Building
    • Environmental Services
    • Resource Efficiency
    • Water Management
    • Green Transport

Conclusion

There is no doubt that we are now experiencing a steep rise in demand for not only renewable energy sources but also many other environmentally friendly technologies and services alike.

This means that we will most likely see more green companies and more green stocks and other types of securities appearing on the market in the near future.

If the global green sector really grows as expected, we may expect to see many new green funds offered by financial institutions.

And this should provide green investors with a better choice of truly green funds to put their capital in.

Green Funds List

We provide a list of green funds which offer genuine green investment opportunities for environmentally aware investors.

While discussing just what exactly green funds are, we pointed out that there are many socially responsible funds which may also incorporate investments in green industries.

The following is a list of some green mutual funds which almost exclusively invest in environmentally active industries. In other words, such industries & companies are actively developing solutions to major environmental issues.

By far the most important industry which clean funds invest their money in is renewable energy.

But there are, of course, other ones which draw their attention as well.

Green Fund Name
Target Industries

Acuity Clean Environment Equity Fund (1)

  • Renewable energy & power solutions incl.:
    • Wind
    • Solar
    • Biofuel
    • Energy efficiency
  • Waste management & pollution control
  • Water & waste solutions incl.:
    • Water purification
    • Waste water treatment
    • Desalination
  • Environment Health & Safety incl.:
    • Development of drugs and vaccines
    • Health services
    • Sanitation technologies

Calvert Global Alternative Energy Fund (2)

  • Wind
  • Solar
  • Biomass
  • Geothermal
  • Fuel cells
  • Energy efficiency
  • Utilities

Green Effects Fund (3)

  • Wind
  • Solar
  • Waste Management
  • Energy Efficiency

Guinness Atkinson Alternative Energy Fund (4)

  • Solar
  • Wind
  • Geothermal
  • Hydro
  • Energy Efficiency
  • Biomass & biofuels

Impax Environmental Leaders Fund (5)

  • Renewable Energy & Energy Efficiency, incl.:
    • Wind turbine manufacturers
    • Solar manufacturers and integrators
    • Renewable energy developers and independent power producers
    • Biofuels
    • Meters and demand side management
    • Industrial, building & transport energy efficiency
  • Waste Treatment & Pollution Control
  • Waste Technologies & Resource Management

New Alternatives Fund (6)

  • Wind
  • Solar
  • Geothermal
  • Biomass
  • Hydro
  • Fuel cells
  • Ocean energy
  • Energy conservation

Winslow Green Growth Fund (7)

  • Clean Energy
  • Green Building
  • Environmental Services
  • Resource Efficiency
  • Water Management
  • Green Transport

Pax World Global Green Fund (8)

  • Renewable Energy & Energy Efficiency
  • Pollution Prevention & Control
  • Waste Technology & Resource Management

Allianz RCM Global EcoTrends Fund (9)

  • Renewable Energy & Energy Efficiency
  • Pollution Control
    • Environmental quality
    • Waste management
    • Recycling
  • Clean Water
    • Water Treatment
    • Water supply

Green Funds Article

1. Acuity Funds Limited (2008). Acuity Clean Environment Equity Fund. Retrieved October 21, 2008 from: http://www.acuityfunds.com/sri_ce_intro.html

2. Calvert Group Ltd (2008). Calvert Alternative Energy Fund Factsheet. Retrieved October 20, 2008 from
http://www.calvert.com/pdf/factsheet-971.pdf?litId=1971-20080630

3. Domen Securities Ltd. (2007). Green Effects Fund. The Best of Both Worlds. Retrieved October 22, 2008 from:

http://www.greeneffects.ie/Indo%2020×3%20Ad.pdf

4. Guinness Atkinson Funds (2008). Alternative Energy Fund Facts. Retrieved October 22, 2008 from: http://www.gafunds.com/alt.pdf

5. Impax Group Plc (2008). IFSL Impax Environmental Leaders Fund Factsheet. Retrieved October 20, 2008 from http://www.impax.co.uk/impax/funds/listed_funds/environ_fund/factsheet_sept_08_ifsl.pdf

6. New Alternatives Fund (2006). A Mutual Fund Investing in Alternative Energy. Retrieved October 22, 2008 from: http://www.newalternativesfund.com/

7. Winslow Management Company LLC (2008). Winslow Green Growth Fund Factsheet. Retrieved October 20, 2008 from http://www.winslowgreen.com/admin/documents/General/Green%20Growth%20Fund%20Fact%20Sheet.pdf

8. Pax World Mutual Funds (2009). Pax World Global Green Fund. Retrieved March 17, 2009 from http://www.paxworld.com/funds/pax-world-global-green-fund/

9. Allianz Global Investors (2009). Allianz RCM Global EcoTrends Fund. Retrieved March 17, 2009 from http://www.globalecotrends.co.uk/pdf/Allianz%20RCM%20Global%20EcoTrends%20Fund%20-%20Factsheet.pdf