(Continued)

Even so-called green funds differ in their approaches. In response to Hawken's charge that the Sierra Club fund isn't green enough, vice president Garvin Jabusch says its investment approach precludes it from making speculative investments in wind- or solar-energy startups. "We're not able to take flyers on little microcaps," he says. At Pax World, Anita Green, vice president of social research, defends her fund's oil-and-gas holdings by saying that the industry's environmental practices have improved.

Individual companies also provoke debate inside the industry. Hawken faults SRI funds that hold McDonald's because of the fast-food chain's "atrocious labor record" and its marketing of unhealthy food to kids. But SRI fund managers praise McDonald's for its exemplary environmental practices, willingness to offer healthy food choices, and workplace diversity.

Funds like Calvert and Domini also make a difference as shareholder advocates, pushing big companies to deal with issues ranging from recycling and climate change to boardroom diversity and HIV/

AIDS. Last year SRI funds helped persuade Procter & Gamble to sell fair-trade coffee in supermarkets under its Millstone brand. "That's an amazing benefit to poverty-stricken farmers around the world," says Amy Domini, the founder of Domini Social Investments.

The lesson for social investors is to dig into the mutual funds' practices when they can. Most funds list their holdings on their websites. More of them should offer specific explanations about why companies are included in their portfolios. A good source of information on SRI funds is the Social Investment Forum (www.socialinvest.org).

The environmentally minded investor might want to look at Portfolio 21, a small, much admired fund with about $60 million in assets. The five-year-old fund holds shares in about 65 companies that it says "have shown exceptional leadership in sustainable business practices," including Vestas, a Danish wind-turbine manufacturer, and fuel-cell companies Plug Power and Ballard Power Systems. A global fund, Portfolio 21 has also outperformed its benchmark, the MSCI World Equity Index, over the past three and five years. So it's green in more ways than one.

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