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'Green' funds, in the red, buy not-so-green stocks

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Fund manager Richard Mercado defends these shifts on the grounds that new avenues offer better returns, yet still conform to the fund's investing parameters. (The fund is not open to US investors.)

"It's difficult to [imagine] governments funding subsidies for wind and solar when they have high unemployment and are really reluctant to increase electricity prices," Mr. Mercado says. "But gas is a nice little area within alternative energy. It's currently cheap; it's a cleaner source of fuel; and it's sort of a stopgap, transitional area for energy."

Others worry that in a bid to shed volatility, some climate-related funds might be cozying up to climate culprits and pulling support from companies that are on the front lines of fighting climate change. Agribusinesses don't belong in a climate fund in part because fertilizer manufacturing and farm equipment compound emissions problems, according to Rob Berridge, senior manager of investor programs at Ceres, a Boston-based advocacy group for sustainable business practices. (DWS owns a miner of potash, a key fertilizer ingredient, as its second-largest holding. F&C owns farm-equipment manufacturers Deere and AGCO in its Top 5.)

What's more, when investors shift millions from wind and solar to natural gas, "it slows the speed with which we'll get to the really true climate solutions," Mr. Berridge says. "But it's not really their fault." In his view, investors are responding rationally to market and regulatory forces.

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