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, or 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. 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.
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 Jan %||% Change Past Year|
Maybe there's something to be said for those January resolutions about being good -- last month, the SRI indices trumped the returns of the general indices. We'll be watching to see whether the adage "so goes January, so goes the year" holds true for this realm, as the sector's performance lagged that of the general market for the past year.
So what's been going on?
Last month's developments include the following:
(NASDAQ:DELL)outlined a new environmental initiative whereby customers can make a donation to be used by two non-profits to plant trees in sustainable managed forests. These trees, in turn, help offset the carbon dioxide produced when computers are powered.
- The Union of Concerned Scientists, a science-based U.S. non-profit, published a report entitled "Smoke, Mirrors, & Hot Air" charging ExxonMobil
(NYSE:XOM)with misleading the public about global warming.
- Several environmental groups -- together with BP America, Caterpillar, DuPont, Lehman Brothers, PG&E, and PNM Resources, and other companies -- formed the U.S. Climate Action Partnership and announced an "unprecedented alliance" to urge policymakers to pass mandatory curbs on voluntary emissions.
- The Carroll School of Management at Boston College launched a new magazine, The Corporate Citizen, aimed at providing news in the field of corporate responsibility.
- Green Mountain Coffee Roasters signed an agreement with Ethiopia to help raise the value that Ethiopian farmers receive for their coffee.
- Safeway became the first retail grocer in California to join the state's official registry for greenhouse gas emissions reduction projects.
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.
For a more detailed examination of sustainability reports, see "A Bottom Line With a Human Touch", and to learn more about selecting your own SRI-based portfolio, check out "Who's Naughty? Who's Nice?" You can also 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.