For those of you already familiar with the basics of socially responsible investing, feel free to skip down to the performance table for October 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.
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 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:
|Total returns Oct (%)||Change year to date (%)|
Both SRI and general indices climbed higher and achieved similar returns during October's strong equity performance.
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:
- The Global Reporting Initiative, a voluntary global framework for sustainability reporting, launched new G3 Guidelines, aimed at simplifying reporting and harmonizing with the UN Global Compact.
Benchmark Asset Managers introduced a new index and related portfolio services designed to replicate the S&P 500 while screening for Catholic values.
- The Social Investment Forum reported that the 2006 proxy season has been the most successful yet, as evidenced by increasing corporate and shareholder support for a broad array of SRI-themed proposals.
Progressive Asset Management introduced seven portfolios screened on social and environmental factors and subsequently optimized to track a specific market benchmark.
- Former President Clinton and the American Heart Association reached an agreement, aimed at making snack foods sold at schools healthier, with Kraft Foods
(NYSE:KFT), a division of Altria; Mars; Campbell Soup; GroupeDanone; and PepsiCo.
- The U.S. Department of State and U.S. Department of Labor led a forum focusing on cocoa labor issues in West Africa.
(NYSE:WMT)lost a Pennsylvania lawsuit in which a jury awarded $78.4 million to thousands of employees who claimed they were forced to work during breaks and off the time clock. The company will likely pursue an appeal.
- Project RED, an effort created by musician Bono and Bobby Shriver aimed at donating a portion of profits from a variety of merchandise to help fight AIDS and other diseases, launched, and included products from initial partners American Express, Converse, Giorgio Armani, and Gap
(NYSE:GPS), as well as Apple Computer (NASDAQ:AAPL)and Motorola.
(NYSE:DIS)announced plans to eliminate trans-fats from its theme-park restaurants and in its licensed products.
- Muhammad Yunus, a Bangladeshi economist, and the institution he founded, GrameenBank, won the Nobel Peace Prize for their pioneering work in global microfinance.
Fortune magazine released its second annual listing of socially responsible large global companies, with the top U.S. company, General Motors, claiming 12th place.
Kiplinger's Personal Finance magazine named the Winslow Green Growth Fund as the best socially screened fund of 2006.
- A survey of more than 2,000 MBA students showed that the overwhelming majority believe that business should be an instrument of social change.
- World Bank President Paul Wolfowitz charged that the Chinese government and its banks are neglecting human rights and environmental standards in their dealings with Africa.
- Oxfam claimed that Starbucks
(NASDAQ:SBUX)opposes a plan by Ethiopia to trademark specialty coffee names that could alleviate poverty for many coffee farmers. The company disputes the claims.
What others are saying
The Wall Street Journal published an article titled "Bigger Than They Look," examining the increasing impact of small shareholders in proxy fights, as well as an article titled "Hospitals Go 'Green' To Cut Toxins, Improve Patient Environment."
The Fool also published the following articles:
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 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 releasing reports included Baxter International, Green Mountain Coffee Roasters, and Xerox.
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.
Gap and Wal-Mart are Inside Value recommendations. Disney, Gap, and Starbucks are Stock Advisor recommendations. Kraft is an Income Investor selection.
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 she does not own shares of any company mentioned in this article. The Motley Fool's disclosure policy is socially responsible.