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 making 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 other 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 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 as we begin 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 indexes in this arena use a blend of exclusionary factors to bar companies involved in businesses such 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 in the Russell 3000 index that meet research firm KLD Research & Analytics' criteria. (Link opens a PDF file.)
- 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 socially responsible investing on financial returns because it was the first to subject portfolios to multiple screens.
For an overall view:
|May %||% change year to date|
As you can see, SRI indexes were also subject to May's general stock market misery, declining a bit more than their benchmarks.
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.
Magazine published a report examining corporate responsibility, including details on efforts by BP, DuPont, McDonald's, and Walt Disney.
- The Environmental Protection Agency issued 2006 Climate Protection Awards to individuals and organizations including Baxter International, IBM, and Johnson & Johnson.
(NYSE:SGP)announced the launch of a long-term plan to address broad societal issues as part of its strategy.
(NYSE:COP)shareholders made history when 25.8% of them voted in favor of protecting certain areas within the Alaska National Petroleum Reserve, the highest number ever to vote for a wilderness-preservation issue.
Business Ethics magazine named its 100 best corporate citizens, with Green Mountain Coffee Roasters
(NYSE:GMCR)taking the No. 1 spot, followed by Hewlett-Packard, Advanced Micro Devices, Motorola, and Agilent Technologies.
- The Investor Environmental Health Network, comprising 17 organizations representing more than $22 billion in assets under management, launched an initiative of shareholder resolutions addressing toxic chemicals in products. Companies addressed included Avon, CVS, Dow Chemical
(NYSE:DOW), DuPont, ServiceMaster, and Whole Foods Market.
- Amnesty International USA addressed both the Google
(NASDAQ:GOOG)and Yahoo! (NASDAQ:YHOO)annual shareholders' meetings to encourage the companies to end their perceived involvement in Internet censorship in China.
- Shareholders of ExxonMobil
(NYSE:XOM), angry about executive compensation, voted in favor of a non-binding proposal to require a majority vote, rather than a plurality, to elect directors. The 52.2% vote marked the first time a resolution opposed by the company's management has been approved.
Domini Social Equity Fund, the first and largest SRI fund, filed documents with the Securities and Exchange Commission to seek shareholder approval for Wellington Management to actively manage the fund, instead of its tracking the Domini 400 Social Index.
Dow Chemical announced its sustainability goals for the next 10 years.
Nasdaq launched its NASDAQ Clean Edge U.S. Index to track companies involved in electricity generation, renewable fuels, energy storage and conversion, energy intelligence, and advanced materials. The index comprises 47 companies, including Evergreen Solar, FuelCellEnergy, Greatbatch, Itron, Maxwell Technologies, Sun Power, SuntechPower, UltralifeBatteries, and Zoltek.
Bank of China launched China's first SRI fund, the Sustainable Growth Equity Fund.
- Buying Influence, a nonprofit, began operations evaluating how publicly traded companies treat women and minorities. The organization will issue letter grades, which will be available on its website.
- Financial services company TIAA-CREF opened a new social and community investing division in its asset management area.
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 companies now submit reports that document a company's progress on things such as environmental and labor practices, human rights, philanthropy, and product responsibility. The documents can usually be found on the issuing company's website.
Companies submitting reports in May include Abbott, Alcoa (including an individual report focusing on China), Bertelsmann, ExxonMobil, General Electric, Motorola, Royal Dutch Shell, Staples, State Street, and Time Warner.
For a more detailed examination of sustainability reports, see "A Bottom Line With a Human Touch."
Anything more to say?
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Fool contributor S.J. Caplan is often social, if not always responsible, but she does not own shares of any company in the story. She completed the World Bank Institute's course on corporate social responsibility. The Motley Fool's disclosure policy is socially responsible.