Magazine article Management Review

Environmental Investing: Let the Buyer Beware

Magazine article Management Review

Environmental Investing: Let the Buyer Beware

Article excerpt

All smart investment brokers understand the importance of playing to the times. So when Exxon spilled oil in Alaska, and the nation reacted with a collective., angry howl, the folks at Merrill Lynch (E.F. Hutton being no longer available) listened. The firm set up the Environmental Technology Trust, a unit investment trust with special emphasis on the environment. Environmentally conscious investors, many of whom were eager to blend '60s-style activism with'80s style earnings, responded by investing over $128 million in less than two weeks, forcing Merrill Lynch to close the trust early. Even at that, "we still had $9 million worth of unfilled orders," says Stan Craig, the trust's sales manager.

Merrill Lynch's phenomenal success spurred other firms to start environmentally conscious funds of their own. The John Hancock Freedom Fund and Fidelity Select Environmental Fund were the first two to follow suit. Both funds were launched in the summer of 1989. At press time, investments in the two funds come to $52.5 and $82.6 million, respectively.

Of the two, Hancock's Freedom Fund markets itself most aggressively as an environmental fund. The cover of its prospectus features a lovely waterfall. A promotional brochure Pictures blue skies, pine trees and an ocean view and advertises the fund as a form of "socially responsible investing."

Some environmentalists charge, however, that Fidelity's brochure is patently misleading. Their opinion, at least on the surface, appears to be based on fact. Mr's comparison of the funds' investment portfolio with case dockets from Environmental Protection Agency (EPA) data show that the Freedom Fund, Fidelity and Merrill Lynch all invest heavily in some of the nation's worst polluters. -Mere is Potentially a big difference between a company that is in an 'environmental industry' such as hazardous waste cleanup and a company with a strong environmental performance record," says John Lickerman, research analyst at Working Assets, a socially responsible money market fund based in San Francisco. "Companies can be in an environmental industry and still have EPA performance problems."

Public confusion makes this issue even more dicey. "Consumers aren't educated enough about the environment to ask the right questions," Lickerman says. Proponents of the funds, on the other hand, argue that the funds are clean and that the issue is more a question of semantics. Who defines the word "environmental"? Is the public being duped? BIG BUCKS AHEAD

There's no question that the 90s will be the Cleanup Decade. One reason is that legislation passed years ago, and scheduled to be phased in gradually, is finally starting to kick in. The Resource Conservation and Recovery Act (RCRA), for example, cost industry roughly $5.8 billion in 1987. When its many provisions come into full effect in the mid90s that figure will quadruple to more than $20 billion. Costs will mount considerably higher after Congress settles on a final version of the Clean Air Act.

Is the public serious about environmental improvements? You bet. According to Alice Tepper Marlin, executive director and founder of the Council on Economic Priorities, "Most people will take an issue seriously when it starts to affect their lifestyle. People are worried about global warming, about medical waste washing up on beaches. Parents are beginning to worry about sending their kids outdoors because holes in the ozone may cause skin cancer. These new fears make people believe that they must start to do something."

This combination of activism and mandated federal spending could make environmental cleanup one of the most lucrative fields in the coming years. -Me environmental waste services area is one of the fastest growing sectors of the economy," says Kidder Peabody analyst Marc Sulam. "Heightened public concern has led to increased spending in this area. This is clearly going to be one of the major investment themes in the first several years of the 1990s. …

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