THE BUY SIDE - Inconvenient Investing

Two European managers bring green investing to the land of the drive-through.

CAN THE U.S., THE NATION that invented the everything-is-disposable consumer culture, learn to invest in companies based on their commitment to addressing environmental concerns? Two big European managers are betting that it can.

Zurich-based Sustainable Asset Management and the U.K.'s Henderson Global Investors are each targeting the U.S. with so-called sustainable investment strategies that focus on such issues as clean water, climate change, smart energy, healthy living and fuel-efficient transportation. “In Europe sustainability is accepted business practice. The U.S. is just beginning to wake up to these issues,” says Reto Ringger, CEO of $12 billion-in-assets SAM, which is 64 percent owned by Netherlands-based Robeco Group.

The U.S. has a long record of socially responsible investing, which uses ethical criteria to screen out companies that produce, for example, military equipment, tobacco or pornography. But sustainable investing, which focuses on the market advantages that companies investing in alternative energy or clean-water technology may reap over the long term, is new.

“Even without political pressure in the U.S., businesses are driving investment in this direction,” Ringger says. “It’s a realization that issues such as the melting of the polar ice cap faster than expected will change the business prospects of whole countries.”

Ringger says his firm will target U.S. foundations and endowments, pension funds and other institutions. The strategies will be sold through Robeco Investment Management, Robeco’s U.S. asset management arm. SAM will also offer sustainable-water, sustainable-climate and global-sustainability mutual funds for individual investors by the end of the year.

Henderson has been managing what it calls sustainable and responsible funds since 1977 in Europe. Currently, $2 billion of its $123.5 billion in assets are in these strategies. Tim Dieppe, director of Henderson’s sustainable investments, says the fund manager has started marketing to U.S. institutional investors. Henderson’s Industries of the Future Fund invests in companies that fit within ten themes, including cleaner energy, water management and quality of life. It outperformed the MSCI world index by a cumulative 15.72 percentage points from October 1, 2004, to July 31, 2007. “Sustainability is creating a new generation of investment themes; climate change is moving markets,” Dieppe says.

He believes Henderson has a huge opportunity in the U.S., because so few managers have any history in sustainable investing. But regardless of the societal value, it’s about performance. “We’re selling a growth fund here. It just happens that the drivers are environmental and social,” he says.

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