For those of you already familiar with the basics of socially responsible investing, feel free to skip down to the performance table for March 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 before 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 Dueling Fools 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 on social and corporate governance resolutions over the past two calendar years.
On 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 whether you're simply mesmerized by the slick PR brochures portraying a company's integrity.
You can judge for yourself the movement's impact through our monthly reports highlighting performance and interesting developments.
Profiting my portfolio as well as my soul?
Some may 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, which consists of all companies of the Russell 3000 index that meet research firm KLD Research & Analytics' criteria.
- The Calvert Social Index, which consists of the 1,000 largest U.S. companies, which are then screened by Calvert, an asset-management firm.
- The Domini 400 Social Index, which 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, KLD Research & Analytics
Although both SRI and general indices advanced again last month, the SRI indices lagged substantially both for the month and for the first quarter of the calendar year. Some of the SRI indices' disappointing returns compared with the general indices were due to overexposure to tech and underexposure to energy.
To learn more about selecting your own SRI-based portfolio, see "Who's Naughty? Who's Nice?"
So what's been going on?
Following are some of last month's developments.
- Bank of America (NYSE: BAC ) launched a $20 billion initiative to finance environmentally friendly business practices.
- The Equal Employment Opportunity Commission filed suit against Walgreen (NYSE: WAG ) , charging racially discriminatory promotion practices.
- Hershey (NYSE: HSY ) responded to a shareholder proposal from Walden Asset Management and agreed to create a broad-based vendor supply-chain code of conduct encompassing fair labor practices as well as workplace, health and safety, environmental, and food safety and quality issues.
- Investor advocates, including a union and corporate-governance experts, testified before Congress in support of legislation that would give shareholders a nonbinding vote on executive compensation.
- The United Nations published a report opining that while international human-rights instruments do not impose direct responsibilities on companies, increasing scrutiny is focusing on corporate actions.
- AIG (NYSE: AIG ) launched a new corporate-responsibility website.
- TIAA-CREF published an updated edition of its corporate governance policy statement reflecting its views on sound governance for portfolio companies.
- Starbucks came under attack from the Ethiopian Fine Coffee Farmers Cooperative Unions and Exporters for alleged delays in negotiations over the country's trademark and licensing initiative meant to alleviate poverty.
- At the invitation of the Business & Human Rights Resource Centre, Ford responded to allegations of involvement in human-rights abuses in Argentina during the '70s.
- Chiquita Brands (NYSE: CQB ) pleaded guilty in federal court to making payments for years to a Columbian terrorist organization to protect its operations. It will pay a $25 million fine.
- A federal judge dismissed a racketeering charge against Chevron by nine Nigerians who claimed that the company conspired with the military and police to shoot protesters.
- Barrick Gold (NYSE: ABX ) announced a $1.3 million five-year commitment to World Vision Canada to develop nutrition, employment, and educational programs to benefit communities in Northern Peru near the company's Lagunas Norte mine.
- Coca-Cola (NYSE: KO ) and the U.S. Agency for International Development announced a $7 million joint investment in nine water projects in Africa.
- Marriott announced that it's on the way toward reducing its greenhouse gas emissions by nearly one-fifth over the period from 2000 to 2010.
- DiversityInc. named its top 50 companies for diversity, with Bank of America, Pepsi Bottling Group, AT&T, Coca-Cola, Ford, Verizon, Xerox, ConEd, and JPMorgan Chase claiming the top 10 rankings.
- The CEOs of Ford, General Motors, and DaimlerChrysler lobbied President Bush for assistance in making alternative fuels more available.
- ABNAmro Asset Management, a unit of ABN Amro, launched the Indian Sustainable Development Fund, what it claims is the first broadly screened Indian SRI fund.
- The Center for Political Accountability, a non-profit aimed at increasing campaign giving transparency, called for rules on corporate political donations to be included in companies' codes of conduct.
- Hewlett-Packard announced that it will seek to reduce its global energy use by 20% by 2010.
What others are saying
- Fortune magazine published a special report titled "Going Green," which focused on companies leading the way regarding environmentalism in their industries.
- The New York Times published an article titled "What's So Bad About Big?" that examined the use of renewable energies in large-scale projects.
- The Wall Street Journal published the following articles:
- "Businesses Rethink Carbon Curbs," examining the growing corporate support for federal curbs on greenhouse-gas emissions.
- "Analyst Finds Union Groups Have Impact on Wal-Mart," reporting on the opinion of a Bank of America analyst that union-backed critical campaigns of the company have had a "meaningful" impact on operations, a contention the company disputes.
- "Why Coke Aims to Slake Global Thirst for Water," examining Coca-Cola's 70 clean-water projects in 40 countries.
- "CEO Compensation Scoreboard," with information culled from SEC filings.
The Fool also published the following articles:
These voluntary documents, often called sustainability or citizenship reports, have become increasingly popular. According to the Social Investment Analysts Research Network, about 40% of the companies that make up S&P 100 Index now submit reports that document a company's progress on such topics as environmental and labor practices, human rights, philanthropy, and product responsibility. The documents can usually be found on the issuing company's website.
Last month, companies issuing reports included ABNAmro, Eaton, GlaxoSmithKline, HP, Novo Nordisk, and Starbucks.
For a more detailed examination of sustainability reports, see "A Bottom Line With a Human Touch."
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.
Bank of America, JPMorgan Chase, and GlaxoSmithKline are Income Investor recommendations. Coca-Cola is an Inside Value selection. Starbucks is a Stock Advisor pick. Check out any of these Foolish investing services free for 30 days.
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 does not own shares of companies mentioned in this article. The Motley Fool's disclosure policy is socially responsible.