Green thy Fund

The Industrial Revolution reinvented the wheels of progress. It began in the United Kingdom in the 18th century and slowly spread to other parts of the world. The world’s per capita income in the next two centuries went up by 10 times and the global population by six times. Nobel laureate Robert E. Lucas, Jr. had remarked “For the first time in history, the living standards of the masses of ordinary people have begun to undergo sustained growth.”

The production of goods through machines made goods more affordable. It killed manual production, but raised human productivity. Consequently, the consumption of energy too went up. Even in those heydays of the revolution, English poet and painter William Blake had cautioned through his poem dark satanic mills that the fumes coming out of the machines would destroy the environment. Blake’s observation is prophetic. 

The progress initiated by the Industrial Revolution has completed its circle. The threat on the earth is real. But throwing the baby with the bathwater is not a solution. Thankfully, the human mind too has evolved with fresh thinking and new impetus. One of the finest developments has been the reward to pollute less. Emitting toxins less into the air is an incentive, a revenue stream, to improve the overall profitability of the venture. It has challenged the mind to develop new technologies that are more efficient than those existed before.

Saving the environment too is no longer a fad, but a serious business. As the lifeline of any business is funds, a number of funds have come up that support companies which are reducing their emissions that causes global warming. The arrival of Green Mutual Funds (GMF) is a reflection of the maturity of the financial markets.  Like a conventional mutual fund, the GMF is a managed collective investment scheme, which pools money from many investors to invest in short-term and long-term instruments in various environmental markets—carbon, markets, renewable energy, market and energy efficiency markets.

Boston-based Winslow Green Mutual Funds are excellent global examples of green mutual funds. The Winslow Green Growth Fund is a growth equity fund. Though it invests in companies of any size capitalisation, the fund’s focus is to invest a significant portion of its assets in domestic small capitalisation companies with a market capitalisation of below $2 billion. It targets companies with clean and efficient business practices that seek to minimise their environmental impact and those enterprises, whose products or services offer solutions to environmental problems. Though the fund is industry agnostic, it prefers sectors such as clean energy, water management, resource efficiency, sustainable living, environmental services, green transportation and green building products.

GMF engage integration of financial and environmental analysis in existing and emerging markets’ trends and policies and, identify the prospects for development of a comprehensive investment portfolio. Investing in green funds, however, does not necessarily bring higher or lower returns than the average mutual fund. In fact, these funds may not be suitable for short-term returns, as they are prone to price fluctuations throughout the trading period. The inherent volatility in the carbon prices makes these funds unsuitable for buy and hold strategy. “For risk-averse investors, GMF would prove beneficial under long-term investment objective,” says a report from an energy consulting firm.

Since the investments required are large, the GMF may be suitable for high net worth clients like large corporations, industries, foundations, endowments, and insurance and pension funds. The retail customers may find it difficult to invest in GMF, at least in the short to mid-term, owing to the large investment needs of the GMF and tertiary role of individuals in the green or carbon markets. But the good thing is, a journey has been made. The interests of business and environment have converged. It augurs well for the society.