For years, British Petroleum tried to cast itself as the cleaner, greener oil company. The U.K.-based firm had even gone so far as to call itself Beyond Petroleum. Socially responsible investors liked the message and the company was a component of the Dow Jones Sustainability Index, which many SRI funds follow, until May 31.

To make the case for BP, many managers argued that the oil giant spent more than others on renewable energy. These funds follow a best-of-breed strategy, which calls for investing across all industries and finding the best corporate citizens in each.

SIMPLY UNIMPRESSED

But that wasn't enough to satisfy fund managers Leslie Christian and Tony Tursich, of Portland, Ore.-based Portfolio 21. As managers of a fund focused to environmental sustainability, they were dubious about BP's commitment to alternatives and took a pass. "If you looked at what they were spending on renewables as a percentage of the total research and development money, it came out to no more than a rounding error," Christian says.

Christian's and Tursich's decision seemed sound in June 2009, when BP closed the London headquarters of its renewable energy operation. Today, it seems prescient.

As a performer, too, Portfolio 21 has held up well. Over the last three years through July 13, Portfolio 21 is down 8% a year annualized, besting 72% of its world stock competitors. (The fund lands in the world category because of the large number of foreign-based companies it holds.) Over the previous five years through July 13, the fund is up 4% annualized, in the category's top 18%.

PASSING MUSTER

Excluding BP was the result of tough environmental screens. "We are interested in companies that are serious about the opportunities and limits of natural resources," Christian says.

So, the firm does not hold any oil companies. Nor does it own shares of mining companies or airlines. Like other SRI funds, Portfolio 21 excludes businesses engaged in nuclear energy, tobacco, gambling and weapons.

CORE FUND

To be sure, Portfolio 21 is not a fund of wind turbine and solar panel companies alone. It is structured to be a core holding for socially minded investors and is diversified into numerous industries. But the environment is the lens through which stocks are analyzed.

The managers do not apply so-called negative screens because these would only eliminate the worst offenders. Instead, they look for companies that are keenly aware of the ticking clock on natural resources and are running their businesses with this reality in mind.

But it's not enough for a company to get top marks on the environment, and then score poorly in areas like labor relations, diversity and human rights. And it does have its share of wind and solar. One name is Scottish and Southern Energy, the second largest power producer in the U.K. The firm acquired several Irish wind farms in 2009 and is selling the electricity they generate. Only two of the company's power plants are fueled by coal. "They are ultimately looking to decommission those plants and invest more in wind and cleaner energy," Tursich says. Scottish and Southern returned 12.9% in the last 12 months.

ACROSS THE POND

Their criteria have led the fund to concentrate its holdings overseas. Fifty-five percent of Portfolio 21's assets are based outside the U.S., particularly in northern Europe. "It became very clear to us early on that much more is happening on the sustainability front outside the U.S.," Christian says.

The European holdings are dragging Portfolio 21 down this year, however. The fund is off 3.8% over the last 12 months, landing in the world stock's bottom 34%. The European debt crisis and its toll on European currencies have much to do with the performance. In addition, proposed austerity measures call into question whether European governments will be able to continue subsidizing green energy programs.

"We're not about to abandon our European holdings and wait until they get their fiscal house in order," Tursich says. "If you did that you'd miss the upside." In fact, Tursich says, Portfolio 21 has added to its core positions in European names.

MAKING THE CUT

Among the stocks the pair is keeping is Novo Nordisk, a Danish pharmaceutical company focused on diabetes therapies. Tursich and Christian like Novo Nordisk's Victoza, a once-a-day injection. On the environmental front, Novo Nordisk gets points for treatment of its manufacturing wastewater. Reducing the amount of medication needed also reduces the firm's environmental impact, Tursich argues. And that has financial implications.