Stocks With Scruples

For those of you already familiar with the basics of socially responsible investing, feel free to skip down to the performance table for June 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 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.

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 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, which highlight performance and interesting developments.

Profiting in 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. Then they 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 asset management firm Calvert.
  • The Domini 400 Social Index includes roughly 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:   

Total returns                          

Index

July returns

YTD returns

KLD Broad Market

-3.41%

2.51%

Calvert

-3.30%

2.12%

Domini

-2.89%

2.34%

Russell 3000

-3.41%

3.46%

Russell 1000

-3.09%

3.87%

S&P 500

-3.10%

3.64%

Sources: Bloomberg, Calvert Group, KLD Research & Analytics

Subprime concerns again took their toll on equities last month. Both SRI and general indices endured largely comparable losses.

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 congressional committee began examining allegations that BP (NYSE: BP  ) allowed an excessive buildup of compressed natural gas to occur at a processing facility in Alaska's Prudhoe Bay. Separately, the U.S. Occupational Safety and Health Administration (OSHA) said it will fine the company $92,000 for breaches after a fatal blast in Texas in 2005.
  • Vodafone, together with Nokia (NYSE: NOK  ) and Nokia Siemens Network, called for a new regulatory framework to allow greater access to financial services via mobile phones in developing countries.
  • Studies presented by the United Nations, Goldman Sachs, and McKinsey at the Global Compact Leaders Summit showed that an increasing number of business leaders see corporate responsibility as a way to compete successfully and to build trust with stakeholders, and that sustainability frontrunners in a range of industries can generate higher stock prices.
  • The United Nations Global Compact called on business schools to advance education in corporate social responsibility.
  • The United Nations Global Compact, the International Finance Corporation, and the Global Leadership Network formed a joint partnership to help UN Global Compact signatories, IFC clients, and the wider private sector in emerging markets integrate corporate citizenship into business strategy and performance.

  • Shared Interest, a New York-based social investment fund, received a $1 million investment from The United Methodist General Board of Pension and Health Benefits to support small and microenterprise development in South Africa, one of the first U.S. pension-fund investments in African communities.
  • A federal jury court found that Alabama coal company Drummond was not liable for the killings of three mining-union leaders at its mine in Colombia in 2001. The case marked the first consideration of whether a U.S. company can be held accountable for alleged human-rights transgressions committed overseas.
  • TIAA-CREF announced a 2% target allocation to proactive social investments within the fixed-income portion of its CREF Social Choice account.
  • Wendy's strengthened its animal welfare guidelines by giving preferential treatment to pork and chicken suppliers committed to animal welfare.
  • Goldman Sachs launched "GS Sustain," a list of companies it believes will be top performers over coming decades, as determined by how well they integrate SRI into their businesses.
  • Walgreen will pay $20 million to settle a federal lawsuit alleging widespread racial basis, subject to a judge's approval.
  • SustainableBusiness.com announced its 20 most innovative companies in creating an environmentally sustainable society, including Comverge, Chipotle Mexican Grill (NYSE: CMG  ) , First Solar, Fuel Tech, Green Mountain Coffee Roasters, Herman Miller, Interface, Nike (NYSE: NKE  ) , Ormat Technologies, and Whole Foods (Nasdaq: WFMI  ) , with an honorable mention to Google.
  • Xerox joined the U.S. Climate Action Partnership, an alliance of business and environmental leaders working together to protect the climate and spur legislation and regulation aimed at reducing greenhouse gas emissions.
  • Barrick Gold and Newmont Mining joined the Global Business Coalition on HIV/AIDS, Tuberculosis, and Malaria, an alliance of 220 international companies leading the private-sector fight against these three epidemics. Separately, Oxfam called on Newmont to address alleged human-rights abuses at one of its gold mines in Northern Peru.
  • Innovest Strategic Value Advisors rated Alcan the highest in its metals-and-mining-sector report, which analyzed the environmental, social and governance strategies and performance of the world's largest 57 mining companies.
  • Colombian families filed a federal class action lawsuit against Chiquita for allegedly funding and arming known Colombian terrorist organizations.
  • DuPont (NYSE: DD  ) agreed to spend $66 million to reduce air pollution at four plants as part of a settlement with the Department of Justice and the EPA.
  • The Business Roundtable, an association of 160 U.S. CEOs, acknowledged the reality of climate change by releasing a policy statement urging collective action, though they didn't reach a consensus on which policy tools should be used.
  • Nigeria filed a $7 billion suit against Pfizer (NYSE: PFE  ) , alleging it conducted illegal trials of an anti-meningitis drug which caused the deaths of children. Pfizer denied all wrongdoing.
  • PepsiCo announced that it will clarify that its Aquafina water comes from the same source as tap water. Corporate Accountability International is pressuring Coca-Cola to do likewise regarding its Dasani water.
  • Several food and beverage companies, including Campbell Soup, General Mills, Hershey, McDonald's, PepsiCo, and Unilever, announced that they will adopt new self-imposed rules aimed at fighting childhood obesity by limiting advertising to children.
  • KLD Research & Analytics announced the launch of its new Sudan Targeted Divestment Compliance Product, aimed at institutional investors and money managers. It meets the requirements of the new Sudan divestment model created by the Sudan Divestment Task Force and passed or under consideration in 20 state legislatures.

What others are saying
The following are among the more interesting articles published on topics of corporate responsibility last month:

Social responsibility reports
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 in the S&P 100 Index now submit reports that document their 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 Brown-Forman, Citigroup, Coca-Cola, and Staples.

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.

Related Foolishness:

Whole Foods is a Motley Fool Stock Advisor recommendation. Coca-Cola, Pfizer, and Vodafone are Motley Fool Inside Value picks. Unilever is a Motley Fool Income Investor selection. Check out any of our investing services with a free 30-day 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 Goldman Sachs, Google, and 529 plans managed by TIAA-CREF. The Motley Fool's disclosure policy has a low carbon footprint.


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