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The Planet
Sierra Club Funds:
Investing Well While Doing Good

By Tom Valtin

"Who says you can’t invest responsibly and still beat the S&P 500?"

So reads a recent flyer advertising the 15-month-old Sierra Club Mutual Funds, which focuses on environmentally and socially conscious investing. And in fact, in 2003 the Sierra Club Stock Fund outperformed the S&P 500 by more than 4 percent.

Garvin Jabusch
Fund representatives are quick to point out that Sierra Club Funds (SCF) is still in its relative infancy. But the early numbers are encouraging, and SCF staff anticipates a continuation of the trend.

"We believe in a concept called the virtuous cycle," says Garvin Jabusch, SCF’s product manager and director of research. "We think green, socially responsible companies will do better and outperform others in the long run."

The Sierra Club Mutual Funds—which include both a Stock Fund and a Balanced Fund which invests in both stocks and bonds—operate under the umbrella of Forward Management, LLC, a privately-owned investment company that was chosen after an exhaustive search of some 30 financial services institutions in 2002.

The Club has had a life member fund for decades, but it invested primarily in bonds and investors wanted higher returns, so in the 1990s it started investing in stocks. As the Club’s board of directors scrutinized the companies the fund invested in, it built up a list of criteria for green and socially-responsible investing. Finding that no existing funds were focused on the environment as strongly as they’d like led to the idea of starting the Club’s own mutual fund, and in January 2003, SCF opened up shop.

"Socially conscious funds are the fastest-growing segment of the investment industry," says Jabusch, "representing about 12 percent of total assets under management in the U.S. mutual fund industry. In a poll conducted in 2001, half of all U.S. investors said they considered social criteria when they make investment decisions.

Jabusch says Sierra Club Funds is intent on exploding the myth that mutual funds with social and environmental guidelines perform more poorly than conventional funds because they have a narrower range of companies to choose from. In fact, he says, screening helps identify liabilities like potential lawsuits on environmental or workplace issues, and can help identify companies with visionary management, strong labor relations, and better adherence to environmental principles, all of which may help a company’s prospects in the long run.

"All the companies we invest in are reviewed three times," explains SCF Senior Analyst Maria Potapov. The Sierra Club’s Investment Advisory Committee has established a strict set of criteria that address issues such as the production of non-renewable energy, destruction of natural habitats and resources, waste management, agricultural practices, genetically modified products, and the manufacture or distribution of military weaponry.

One example of a company that meets the criteria is Dell Computers. Studies have found Dell to be the most environmentally-friendly computer manufacturer, based on a survey of various companies’ recycling programs for outdated products, the energy efficiency of the computers, and the pollution caused by manufacturing plants. Dell has also established strict criteria for its recycling vendors, and is incorporating a recycling option into its Dell exchange program. A list of the top 25 companies that both the Stock Fund and Balanced Fund invest in can be viewed on SCF’s Website.

Once SCF invests in a company, it can exert pressure to improve performance. "As shareholders we can attend company meetings, talk with company leaders, and make specific proposals," Potapov says. "We can also file shareholder resolutions, although we has yet to do so. Some funds buy shares in dirty companies for the purpose of trying to improve them through shareholder resolutions, but we choose not to invest in companies that don’t share our concerns and values." (For more on the Sierra Club’s shareholder resolution work, see sierraclub.org/planet/200401.)

What if a company has been cited for environmental violations? "That would be a strong concern for us," says Potapov, "but in cases when such a company proactively remediates its liabilities by paying for cleanup, or undertakes effective measures to prevent reoccurrence, it may still be considered as a candidate for investment."

Jabusch says green companies are a good investment because they’re more efficient and use fewer resources. "They’ve come up with measures that improve their bottom line and shrink their ecological footprint," he says.

So far the numbers are bearing him out. "We’ve only been at this for 14 months," he enthuses, "but we’ve been smoking the S&P 500!"

For more information about the Sierra Club Mutual Funds, write to Sierra Club Funds, 433 California Street, San Francisco, California 94104; call (866) 897-5982; or go to www.sierraclubfunds.com.

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