Socially responsible investing isn't about whether you sit around with friends and gab about your stock picks. It isn't about whether you've thought long and hard about each investment decision before you execute a trade. (Of course you've done that!) Nor is it 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 posesses a certain morally infused attitude. Then again, so 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, and 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, 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 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 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 of the companies from 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, let's look at what happened in June:
|Total Returns, June||Change, Year to Date|
As you can see, the S&P 500 and Russell indices tagged on small gains during June's choppy trading sessions, with the KLD Broad Market Social Index even slightly outpacing them. The Calvert Social Index and the Domini 400 Social Index lagged behind, producing similar results.
To learn more about selecting your own SRI-based portfolio, see the article "Who's Naughty? Who's Nice?"
So what's been going on?
Last month's developments include the following:
- The president of Xerox North America delivered a keynote speech on the value of corporate citizenship to an international conference of financial executives.
(NYSE:KO)announced that it's near completion of its transition to including insulation that's free of hydrofluorocarbons in refrigeration units to help combat global warming.
- Shareholders of General Motors voted against its board of directors' recommendations for the first time, approving non-binding proposals that would provide them more influence over management.
(NASDAQ:SBUX)and Pepsi signed an agreement to distribute Ethos Water, a company acquired by Starbucks last year and founded to focus attention on the world water crisis and to assist children around the world in obtaining clean water.
- A consumer group sued Yum! Brands, trying to halt KFC from frying foods in trans-fats.
Wendy's announced that it will eliminate most trans-fats from its menu beginning in August.
ExxonMobil announced a $1.5 million commitment to assist people affected by the Indonesian earthquake.
Bank of America
(NYSE:BAC)announced cash incentives available to certain employees who purchase hybrid vehicles.
- The Human Rights Watch International Film Festival showcased Total Denial, the story of Burmese villagers who eventually sued Unocal for human rights abuses, and Black Gold, a documentary about struggling Ethiopian coffee farmers.
Black Enterprise Magazine named the 40 best companies for diversity, including category standouts Denny's, EastmanKodak, Pepsi, Bank of America, Xerox, McDonald's, Marriott, PG&E, Aflac, and Aramark.
DiversityInc named its top 50 companies for diversity, including Verizon, ConEd, Coca-Cola, Health Care Service, and HBO.
Aetna announced a $50 million commitment to support businesses owned by women and minorities.
The Financial Times announced its Sustainable Banking Awards, naming HSBC, Banco ABN Amro Real, WestLB, Citigroup, and Credit Suisse as winners in various categories.
- The executive director of the United Nations Environment Programme called for a new era in which environmental concerns would be fully integrated into economic market regulations.
- In a letter to the SEC, institutional investors managing more than $1 trillion of assets called for companies to disclose the financial risks of global warming in their required filings.
- Reporters Without Borders named Yahoo!
(NASDAQ:YHOO)as the worst offender in censorship tests after the group used the Chinese version of the company's Internet search engine.
(NASDAQ:AAPL)announced that it will investigate charges of poor working conditions at a Chinese iPod factory.
Bank of New York created a registry to assist in the trading of voluntary greenhouse-gas credits.
- The International Council on Mining and Metals released guidelines to improve biodiversity.
(NASDAQ:DELL)announced that it will offer free recycling of its computer equipment.
Whole Foods Market
(NASDAQ:WFMI)pledged an additional $10 million to support locally grown food.
What others are saying
The Economist published an article titled "Can Business Be Cool?" examining the efforts of a number of companies regarding global warming, including BSkyB, GE, and HSBC.
The New York Times ran a special section titled "The Business of Green" examining businesses' growing environmental efforts.
- The Wall Street Journal published an article titled "Options Grow for Green Investors," discussing alternative-energy investments. The paper also ran a piece regarding activist European shareholders seeking to press their views on executive pay and corporate governance. Columnist Alan Murray, meanwhile, penned a column criticizing activists who are pushing for corporations to take action against global warming.
The Fool also published articles on socially responsible credit cards and sustainable banking:
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 companies on 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.
Companies submitting reports in June included Anheuser-Busch, BCE, Coca-Cola, Unilever, and Telefonica.
For a more detailed examination of sustainability reports, see the article "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.
Coca-Cola and Anheuser-Busch are Motley Fool Inside Value recommendations. Unilever and Bank of America are Motley Fool Income Investor picks. Starbucks and Whole Foods are Motley Fool Stock Advisor selections. Dell does double duty as a Stock Advisor and Inside Value pick. Try out any of our investing newsletter services free for 30 days.
Fool contributor S.J. Caplan is often social, if not always responsible. She did, however, complete the World Bank Institute's course on corporate social responsibility. The Motley Fool's disclosure policy has always been socially responsible.