On his eighth birthday, Carsten Henningsen's parents gave him two shares of Mattel Toys. For years, Henningsen watched the fortunes of the toymaker, and his own, rise and fall. "I used to ride my bike over to the brokerage house to see how my shares were doing," he said. "I just loved investing."

Today, however, Mattel would have a hard time passing muster for inclusion into the mutual fund that Henningsen's firm, Progressive Investment Management, runs. That's because the fund, called Portfolio 21, applies rigorous environmental screens to find the most ecologically sound companies; Mattel "hasn't reported on their environmental policies since 2004," Henningsen says.

It's so tough to get into the Portfolio 21 fund that out of 2,000 names the portfolio managers and analysts have been sifting through, only 90 have made the cut. Those companies not only conduct their business in an environmentally responsible manner, but also see environmental stewardship as central to growing their businesses.

With $212 million in assets, Portfolio 21 (ticker: PORTX) is riding the growing wave of interest in green investing. At the end of 2005, there were more than 200 funds with $179 billion in assets that were using some type of social screens, including environmental, according to the Social Investment Forum, a Washington, D.C.-based investment trade group. Observers believe that the recent spotlight on climate change is largely responsible for this move. But even within this noble group, Portfolio 21 stands out.

"You find companies in this fund that are taking responsibility for who they are in the world and what their impact on the environment is," says Paul Hawken, founder of the Natural Capital Institute, a research group located in Sausalito, California, and a long-time fan of Portfolio 21. "You won't find greenwashers here."

Most social funds employ "negative screens" that weed out the worst polluters, toxic dumpers, and energy wasters. But Henningsen and Hawken say that this approach doesn't point an investor toward companies that embrace sound eco-principles. "If your screen is simply looking at environmental fines and penalties (and avoiding those companies), that doesn't tell you anything about what a company is doing in implementing environmental strategies and gaining a competitive advantage," says Henningsen.

Not surprisingly, Portfolio 21's holdings look somewhat different. For one, the stocks run the gamut from mega-titans like Dell (ticker: DELL), to small outfits such as Plug Power (ticker: PLUG), an American firm working on fuel cell technology. Secondly, about 70 percent of assets are invested internationally.

"There's a real sustainability gap and that starts with political leadership," Henningsen says about the foreign bias. "We see more political leadership in Northern Europe, which drives regulation, which drives corporate policies." 

Take the giant Swiss insurance company Swiss Re, for instance. The firm has been hammered by weather-related insurance payouts. To staunch future losses, it's offering clients a discount on insurance policies if they're able to reduce their own carbon footprint, in the belief that even small contribution can reduce the global impact.

Another European firm, Swedish real estate developer JM, was the first company in its industry to adopt an environmental policy and in 1999, it replaced toxic polyvinyl chloride, commonly used in flooring and walls, with natural alternatives. The firm also tracks the lifecycle of its building materials for environmental impact.

As for the companies whose stocks haven't earned inclusion, Portfolio 21 is quick to give names. For example, Apple Computer (ticker: APPL) was rejected because the iPod maker still lags behind its competitors on product take-back and electronic waste and continues to lobby against stronger recycling laws. Dell, Henningsen points out, has far better policies in place. After implementing electronic recycling programs, Dell is now designing computers for maximum energy efficiency with reused and recycled materials.

Dell also adopted a climate change strategy and is trying to reduce energy consumption.

"What's important to us is to see a firm taking sustainability to a level where it's changing the DNA of the company," Henningsen says.

By investing in companies along the sustainability path, Portfolio 21 is sending a message to businesses that those efforts will be rewarded.

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Posted on Apr 19, 2007 at 2:00 PM
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