For money manager Green Alpha Advisors, it's the "E" in ESG that makes the difference.
ESG criteria-that is environmental, social and corporate governance criteria-are what many "socially responsible" or "sustainable" or "green" investors evaluate as part of the analysis on where to put their money.
Green Alpha, a Boulder, Colo.-based registered investment advisory, was cofounded by Garvin Jabusch, Maria Potapov and Jeremy Deems. It calls what it does "ecoefficient investing" and doesn't screen based on social or governance concerns, Jabusch explains.
Why? "While social concerns are important, they are a little more morally relativistic," Jabusch says. "They can vary more from person to person." That said, it's not that the three partners would ignore a company's egregious social practice brought to their attention, say children being forced to work 12 hours a day sewing clothing, because practices like that could result in substandard investment performance. But they don't routinely look at social concerns in analyzing investments for their portfolios.
It's difficult to say how many money managers focus primarily on environmental issues compared with those who look closely at just social and governance ones or at all three. But more mutual funds, private equity firms and public companies than ever do seem to be focusing on solving clean energy, climate change and water problems.
Green Alpha believes good environmental practices have a positive effect on a company's bottom line. Investors "are clamoring for solutions to climate change and water problems, and that is very clearly going to drive growth," Jabusch says.
The three developed their investment view while working for the Forward Funds, an offshoot of the Getty Family Office, Jabusch says. Jabusch had been the director of Forward Sustainable Investments, a business unit of Forward Management LLC. There his duties included managing the Sierra Club Stock Fund and the Sierra Club Equity-Income Fund. Deems was CFO of Forward Management and co-managed the Sierra Club Stock Fund. Potapov was director of research at Forward Progressive Investments, a division of Forward Management.
A couple of years ago the Forward Funds decided to narrowed its focus and eliminated its Sierra Club funds, Jabusch says. Meanwhile, Potapov, Deems and Jabusch wanted to continue focusing on ecoefficient investing, and decided to start Green Alpha. The Sierra Club wanted to continue working with the team because it felt the threesome had a true commitment to sustainability and protecting the environment, says Louis Barnes, Sierra Club's chief financial executive.
The result? The Sierra Club hired Green Alpha to manage part of its $20 million investment portfolio and became a 10% owner in the firm, says Jabusch, who is based in San Francisco.
"The Sierra Club is very strident in terms of its perspective with regard to environmental protection and conservation, and there's little margin for error," Barnes says. The club wants its portfolio managers to use negative screens-that is to screen out companies with environmental problems-rather than a "best-in-class" philosophy, in which a company that does well relative to its sector peers becomes a potential investment, even if its environmental performance compared with all firms isn't that great.