How Green is Green?

We (anybody related to the finance field) have always had the notion that the only benefit out of investing in green energy or socially responsible companies is the moral satisfaction that one obtains. To be a successful banker you have to invest in firms that bend the law a little for their gains. We call this as Conducting ethical business in an unethical environment.

So I guess all of us wanna be "Wall Street bankers" should be ruthless in our investment decisions. That was what i perceived before I heard about Socially Responsible Investing Funds. So what kind of funds come under this category. Basically, SRI funds follow three basic norms: Environmental, Social and Governance (ESG). Any fund that invests in companies involved with green energy, or have good labor practices, or any fund that does not involve in companies involved in liqour or gambling etc. comes under this category.

When I first read about these SRI funds during my internship, I had felt that this would be another passing fad in the investment world. Still i decided to work on it for my project. I classified them on the basis of the class they belonged i.e. A,B,C,Institutional or No load. In the beginning itself, I was told that the returns SRI funds provide are quite lower as compared to the conventional funds. But the results I obtained were startling.

As the graph here shows, SRI funds have outperformed traditional mutual funds in both long term and short term. I have taken only the No Load category here because apart from A class funds this was the only category which had sufficient data. 

Given below is comparitive performance analysis of SRI funds with its peers and indexes.

	Total Returns YTD	Total Returns 3YTD	Total Returns 5YTD
Mutual Funds A	-11.015	8.8	9.935
SRI Funds A	-4.345	5.24	8.175
Mutual Funds No Load	-11.085	6.24	8.905
SRI Funds No Load	-1.3	7.64	9.655
S&P 500	-13.07	3.85	7.05

Now the cynic in all of us might say,"Hey the returns may be a little high but the risk involved with such funds is even higher." Well, here's the answer.

As you can see, the median risk is higher in case of traditional mutual funds rather than SRI funds. I don't say that this result is conclusive but still it is an eye opener to the fact that being ethical in one's investment decisions need not be a financially unsound decision.

So the new financial mantra of the 21st century should be Go Green Go.