There are three categories of ‘green’ currently used to describe attitudes to investment by fund managers. These are:
Light green funds - Light green funds follow the best of sector approach by investing in the top 200 UK (and EEC) companies and similar sized ones in Europe and in North America.There is very limited exposure to the Far East and emerging markets. Funds can include investments in oil, pharmaceuticals and banks, but not tobacco, environmental exploitation, armaments, animal testing nor companies with poor human rights records. Light green funds aim to mirror the weightings in the conventional investment market.
Medium green funds - Medium green funds apply stricter criteria than light green, but still allow some exposure to oil, banks and pharmaceuticals. Investments are drawn from the UK (and EEC) All Share Index with some exposure to the FTSE 100, and the bulk of investments come from the Mid 250 and the Smaller Company Index. Again similar sized companies are selected mainly from Europe and North America, with a little exposure in other markets.
Dark green funds - Dark green funds apply strict ethical criteria. Investment in tobacco, environmental exploitation, armaments, animal testing and companies with poor human rights records are generally excluded, and exposure to oil, pharmaceuticals and banking is severely limited. The higher risk profile gives greater freedom to choose companies, which conform to the ethical criteria adopted.
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Inevitably dark green investors narrow their investment choice because of the strictness of their ethical criteria. Light green investors tend to be less concerned about avoiding investments, preferring to take a more balanced 'best of sector' approach.
So, for instance, a traditional dark green investment would exclude oil and gas companies from an ethical portfolio. Light greens would say that complete avoidance of these areas misses both environmental and financial opportunities and that a strategy of investing in and encouraging best practice is in the interest of consumers, companies and the environment.
Some global companies provide stark illustrations of these contradictions due to the scale of their operations. BP, for instance, has been heavily criticised for some of its human rights and environmental activities but it now lists among its divisions the world's largest solar energy company.