For the past few years, Philippe Cousteau Jr. has been the hunky embodiment of 21st-century philanthropy. An heir to a proud lineage of explorers–his grandfather is Jacques; his father is Philippe Sr.–Cousteau appeared regularly on CNN and started the foundation EarthEcho International with his sister, Alexandra, drawing attention to the world’s environmental problems. Money came easy with the name, the face. But then came the economic crash.
“It hammered everybody,” Cousteau says. “In my business, we didn’t get a bailout.”
In the wake of the recession, Cousteau began to wonder if the not-for-profit system itself was flawed. “I’ve been a grant seeker all my life,” he says. “But when I apply for one and get it, that means someone else doesn’t. I didn’t want to be a part of that anymore. I wanted to contribute to that pool and make it bigger.” So two years ago, he began considering other possibilities.
Soon enough, Cousteau settled on starting a socially responsible exchange-traded fund (ETF), similar in many ways to a traditional mutual fund, which is open to institutional and individual investors alike. (A main difference is that shares in an ETF can be traded on a stock exchange.) In October, his Global Echo fund–managed by his financial partner, AdvisorShares, and traded on the NYSE–will debut. Fund managers will invest Global Echo’s assets only in companies that abide by specific social and sustainability guidelines. A portion of its management fees will be directed toward a new foundation Cousteau has formed.
What would success look like? If the fund succeeds in gathering $50 million to manage–a level plenty of ETFs reach–it could spin off management revenue of $400,000 a year, a large portion of which Cousteau could pour into his pool of causes.
And it’s a large pool. He says part of the revenue will go to his foundation, and the rest will be divided among a wide range of worthy recipients–environmental issues and social entrepreneurship initiatives such as microloans.
“Much of that is meant to help women in developing countries,” he says. “This was something my grandfather talked about a lot. Targeting women is key in developing countries. It allows them to go to school, to say how many children they’re going to have, which drives the issue of population and how their children will be educated. Women are the best investments in developing countries.”
But although Cousteau’s celebrity could bring new energy to the world of socially responsible ETFs, there’s no guarantee his fund will gather $50 million to invest with. According to Matt Hougan at IndexUniverse, a publication that covers the ETF industry, socially responsible mutual funds tend to be smaller than other funds–and investors can be wary of actively managed ETFs (compared with funds that track an index, such as the S&P 500) because they tend to underperform the market.
Part of the problem: Socially responsible ETFs hold fewer companies than traditional ETFs, which means their risk isn’t as diversified, says Mitch Tuchman, CEO of online investing advisory firm MarketRiders. This isn’t a matter of policy; it’s just that when a fund invests only in companies whose practices it feels a kinship to, there are far fewer investments to choose from. The world isn’t stuffed with publicly traded wind-energy companies.
“I wish them the best,” Hougan says, “but there are just a lot of things stacked against it.”
Cousteau nevertheless approaches his new effort with the spirit of an explorer. And it isn’t just the share of management fees that motivates him. In the coming years, he points out, the earth’s population will grow by 2 billion people. Not-for-profits don’t have the firepower to solve the challenges of that new world. But private companies do, which is why Cousteau wants to invest in them. “We just can’t do things the same way,” he says.