For those of you already familiar with the basics of socially responsible investing, feel free to skip down to the performance table for December and the month's news highlights. If you're just learning about the world of SRI, then you're right where you should be!
Socially responsible investing isn't about whether you sit around with friends and gab about your stock picks. Nor is it about whether you've thought long and hard about each investment decision prior to executing a trade -- of course you've done that! It's also not about whether you file your brokerage statements away in a neat and timely fashion. Each of those things may be deemed "social" or "responsible" -- perhaps even admirable -- but it's not what the investment world means when it talks about SRI.
SRI refers to blending one's financial decision-making with one's perception of its impact on society. Naturally, this notion is jam-packed with personalized value judgments and not without a certain morally infused attitude. Well, so, too, are most of our daily activities. SRI can take various strategic forms. Some investors use screens to avoid what they perceive as "sin" stocks. Others may use their shareholder power to challenge management on current practices.
But you probably already knew all that. After all, the Fool has covered the topic in articles and even argued about it in a DuelingFools debate on socially responsible investing.
Why should I care?
Here's the scoop, and please don't take it too personally: It really doesn't matter how you feel about SRI. Like it or not, this way of investing has already made its presence known in the press and in the boardroom, on campus and in congregations, through a larger number of tailored securities products, increased shareholder activism, and greater corporate acknowledgement. According to the Social Investment Forum's fifth biennial report on investment trends, which was released in January, SRI investment assets have grown faster since 1995 than all managed assets in this country -- more than 258%. That report documents an 18.5% increase in SRI mutual funds and a 16% rise in social and corporate governance resolutions over the past two calendar years.
At first blush, it's hard to deny the allure of potentially saving the world while also reaping investment returns. But questions and conflicts abound, whether or not you believe that any inherent rapaciousness of capitalism can or even should be tamed for the greater good (or if you're simply mesmerized by the slick PR brochures portraying a company's integrity).
You can judge the movement's impact for yourself through our monthly reports highlighting performance and interesting developments.
Profiting my portfolio as well as my soul?
Ever heard someone say you can't put a price on virtue? Sure you can. Many general indices in this arena use a blend of exclusionary factors to bar companies involved in such businesses as alcohol, tobacco, firearms, gambling, and military contracting, and then further evaluate candidates on issues including product and workplace safety, environmental impact, diversity, and community relations. Here are a few performance yardsticks:
- The KLD Broad Market Social Index consists of all companies of the Russell 3000 index that meet research firm KLD Research & Analytics' criteria.
- The Calvert Social Index consists of the 1,000 largest U.S. companies, which are then screened by Calvert, an asset management firm.
- The Domini 400 Social Index includes about 250 S&P 500 companies, 100 additional companies providing industry representation, and another 50 companies with strong characteristics selected by KLD Research & Analytics. This index, established in May 1990, is the benchmark for measuring the impact of SRI on financial returns because it was the first to subject portfolios to multiple screens.
For an overall view:
Sources: Bloomberg; Calvert Group, Ltd.; KLD Research & Analytics.
||Total returns: Dec. %
||Year-end 2006 %
Both SRI and general indices advanced again last month, with the general market pulling in slightly higher returns than the SRI indices. The general benchmarks also outperformed the SRI indices for the year, but returns of 12%-13% are nothing to turn away at any time -- especially if they bring a little needed soul to your investing experience.
To learn more about selecting your own SRI-based portfolio, see Who's Naughty? Who's Nice?
So what's been going on?
Last month's developments include the following:
- A group of Dow Chemical (NYSE: DOW ) shareholders, including New York City Pension Funds, the New York State Common Retirement Fund, and Amnesty International USA, filed a resolution requesting that the company provide a description of new steps taken to address social and environmental concerns of the survivors of the 1984 chemical-facility explosion in Bhopal.
- Coca-Cola (NYSE: KO ) was advised by a federal judge to continue efforts toward workplace diversity following a task force report created after a $200 million discrimination settlement.
- Several carmakers, including DaimlerChrysler (NYSE: DCX ) , Ford (NYSE: F ) , General Motors (NYSE: GM ) , and Honda (NYSE: HMC ) , joined an industry-wide project initiated by the Automotive Industry Action Group aimed at promoting decent working conditions worldwide for auto workers. Toyota (NYSE: TM ) declined to join, with a spokesperson saying that the company supports the principles but prefers to work on its own with its suppliers.
- The Calvert Group, an asset management firm, initiated a survey of investor input regarding environment, climate change, and energy policy options to further tailor their SRI portfolios.
- New York City approved trans fat restrictions for all eateries, with a goal of virtually eliminating the artery-clogging substance by July 2008.
- Warner Brothers, a business segment of Time Warner (NYSE: TWX ) , released the movie Blood Diamond, a film set in 1990s Sierra Leone that involves the story of conflict diamonds, those stones illicitly mined and used to finance wars.
- JPMorgan Chase (NYSE: JPM ) faced a day of nationwide demonstrations protesting alleged discrimination by service contractors it hires.
- The United Nations Environment Programme Finance Initiative launched a working group on responsible property investment, aiming to encourage sustainability concerns in property finance.
- Shareholder engagement by Boston Common Asset Management and the First Swedish National Pension Fund prompted Marriott (NYSE: MAR ) to revise its human-rights policy to specifically address sexual exploitation of children.
- Bayer (NYSE: BAY ) donated antibiotics with a wholesale value of more than $25 million to MAP International, an international aid organization, which will distribute the drugs in Africa and Latin America.
- Reporters Without Borders voiced support for shareholder resolutions filed by the New York City Pension Fund with Google and Yahoo!, asking the companies to respect freedom of expression even when operating in repressive countries.
- The Interfaith Center on Corporate Responsibility announced the filing of its first 150 shareholder-sponsored resolutions for the 2007 proxy season, spanning an array of concerns. Resolutions include political contributions by General Electric, foreign military sales by Boeing, vendor standards by Hershey (NYSE: HSY ) , toxic chemicals in cosmetics by Walgreen, and global warming by Wells Fargo.
- Standard & Poor's, a division of McGraw-Hill, launched new versions of its global indices -- known as the S&P 500 Shariah, S&P Europe 350 Shariah, and Japan 500 Shariah -- to screen shares for compliance with Islamic law.
- The U.S. Court of Appeals for the Seventh Circuit revived a huge class action litigation requesting compensation based on theories that corporations such as Aetna, CSX, and FleetBoston Bank profited from slavery through corporate predecessors hundreds of years ago.
- Wal-Mart, a major distributor of MGA Entertainment's Bratz dolls, said it would investigate charges of harsh working conditions at a Chinese manufacturing plant.
What others are saying
- The Financial Times published an editorial urging greater private-sector involvement to combat the spread of AIDS. The newspaper also published an article titled "Communities start to push the right buttons," which featured a two-year computer networking certification program by Cisco (Nasdaq: CSCO ) that brings Arab and Jewish high school students together in Nazareth.
- The Wall Street Journal published an article titled "To Retain Valued Women Employees, Companies Pitch Flextime as Macho," discussing a new approach by employers to overcome the oft-perceived stigma of flexible work schedules.
Anything more to say?
Join the Fool's Socially Responsible Investing discussion board to weigh in with your views on the topic, and keep reading the Fool to stay on top of events.
Dow Chemical and JPMorgan Chase are Income Investor picks. Coca-Cola and Wal-Mart are Inside Value selections. Time Warner and Yahoo! are Stock Advisor recommendations. You can check out any of the Fool's newsletters with a 30-day free trial.
Fool contributor S.J. Caplan is often social, if not always responsible. She completed the World Bank Institute's course on corporate social responsibility and owns shares of Google. She does not own shares of any other company mentioned in this article. The Motley Fool's disclosure policy is a social disclosure policy -- it goes to a lot of parties, and gets along well with other disclosure policies.