Eco*Index Rewards Environmental Leaders

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May 25, 2000

Eco*Index Rewards Environmental Leaders

A new index launched by Light Green Advisors this year benefits from the environmental performance of leading companies.

SocialFunds.com -- The growing number of broad-based socially and environmentally screened indexes demonstrate that social investing is here for the long haul. But a new index based solely on environmental performance stands to reach an even wider audience of more financially conservative investors with environmental concerns.

The Eco*Index was launched in January 2000 by Light Green Advisors (LGA), a Seattle-based investment adviser whose mission is to provide investment vehicles based upon corporate environmental leadership. The index is a broadly diversified, passively managed index based on the Standard & Poors (S&P) 500, comprising 313 companies with above-average environmental performance from all industry groups except tobacco.

"There are no other products now for mainstream environmental investors that exploit the economic benefits of pollution prevention by industrial companies," said Jon Naimon, environmental economist and President of LGA.

"We are committed to providing a product that enables index investors to sleep well at night," added Naimon. "Eco*Index investors know that their retirement investments are channeling capital toward those companies that are progressively reducing the environmental burdens placed on the earth."

The LGA Eco*Index is the product of more than a decade of research and development, beginning when Naimon was with the Investor Responsibility Research Center (IRRC), the Washington-based investor advocacy organization. Research conducted with Vanderbilt University in the early '90s indicated that a quantitative approach to identifying environmental leaders could add significant value to index portfolios.

The Eco*Index uses an environmental performance scoring system, based on third-party data, to evaluate and rank the environmental conduct of all companies in the S&P 500 index. LGA evaluates corporate expenses associated with environmental laws, frequency and cost of chemical and oil spills, and other environment-related costs and liabilities to identify the above-average performers in each industry.

Besides being focused on environmental issues, the Eco*Index's takes a distinctly quantitative approach which goes beyond corporate policy to rate actual environmental performance. It also embraces the "best of class" in every industry, rather than avoiding heavy industries that are an anathema to many environmentalists.

"We don't believe environmental reporting makes one ice cream manufacturer better than the electric company that generates the electricity used to power their operations," said Naimon. "The competitive advantage accruing to companies with better environmental records only applies to their competition with peers."

Competitive advantage is something LGA knows about, having launched the European IBP LGA Global Eco Index Series with the Swedish IBP Group in February 1998. The global index is up over 65 percent since its inception, outperforming the Morgan Stanley Capital International-World Index by about 30 percent and rewarding a growing following among European environmental investors.

LGA plans to launch a mutual fund to track the new Eco*Index, but in the meantime, they handle tax-exempt IRAs and other accounts over $100,000 through both Schwab and Smith Barney. Parametric Portfolio Associates, a PIMCO subsidiary which performs Eco*Index portfolio implementation, can provide tax-managed accounts for both institutional investors and individual accounts over $250,000.

Reflecting on some of the formative experiences that led to his founding of the Eco*Index, Naimon remembers a conversation he heard between corporate leaders considering alternative environmental "codes of conduct." "They were assessing them like ice cream flavors, knowing that none of them would cost much," said Naimon. "What I heard was a belief that corporate stakeholders such as shareholders should be mollified."

The Eco*Index offers a new approach to investors that will broaden the scope of social investments to include environmental performance-based products. Rather than focusing on qualitative screens, corporate environmental policy, and codes of conduct, this index will continually raise the bar on environmental performance in every industry.

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