Those already familiar with the basics of socially responsible investing can skip down to the performance table for August 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 before you make 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 the impact of those decisions on society. Naturally, this notion is jam-packed with personalized value judgments and carries a certain morally infused attitude. But so, too, do 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 acknowledgment. According to the Social Investment Forum's fifth biennial report on investment trends, which was released in January, SRI investment assets have grown by more than 258% since 1995 -- more quickly than all other managed assets in this country. 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 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 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:
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The SRI indices actually outperformed the general market last month, although they still lag in year-to-date 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:
- Hess announced that it will contribute $20 million over five years to support education in Equatorial Guinea.
- Jantzi Research, a Canadian SRI research firm, named U.K.-based BP as the top oil and gas company out of 23 reviewed in its study of the industry's social and environmental practices. Chevron claimed the top ranking for a U.S.-based company, placing 12th.
- Care2, an online progressive network, reported that according to its survey, 48% of employees would work for less pay if they could work for a socially responsible company. The organization also launched a job list composed of SRI-friendly companies.
(NYSE:TM)released its environmental progress report, which highlighted, among other facts, that global sales of the hybrid Prius model surpassed the 500,000 mark in May.
- USG announced it has become the first building manufacturer to provide recycling alternatives for gypsum wallboards and ceiling panels.
(NASDAQ:AAPL)reported that it found no forced labor at a Chinese iPod factory, although workers did exceed the company's work limits.
- The Interfaith Center on Corporate Responsibility released a critical report detailing the pharmaceutical industry's efforts in fighting HIV/AIDS and highlighting discrepancies between best practices and current actions.
- Home Depot
(NYSE:HD)announced that it will adopt a majority-vote standard for election to its board of directors.
What others are saying
- Fortune magazine published an article titled "The Green Machine," which discussed the professed intentions of Wal-Mart
(NYSE:WMT)to become one of the most environmentally friendly companies.
- Business 2.0 magazine published an article titled "Chiquita Cleans Up Its Act," which looked at the efforts of Chiquita to turn around its record of corporate responsibility.
- The New York Times published an article titled "For 2 Giants of Soft Drinks, a Crisis in a Crucial Market," which examined the challenges Coca-Cola
(NYSE:KO)and PepsiCo (NYSE:PEP)face with regard to findings that the companies' drinks in India contain an average of more than 24 times the safe limits of pesticides.
- The Wall Street Journal published an article titled "Benefits of Supplier Diversity May Go Beyond 'Social Good,'" which reported that Hackett Group, an Atlanta-based business-consulting company, has found that companies focused on supplier diversity attain a 133% greater return on procurement investments.
- The Washington Times published an article titled "Socially responsible gold mining urged," which examined pressures on the gold-mining industry in regard to environmental and societal damage from their activities. The story mentioned that some jewelers, including Tiffany
(NYSE:TIF), have agreed not to buy gold from mines that harm the environment and surrounding communities.
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 submits 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 August included Coca-Cola, Coca-Cola Enterprises, Athens-based Coca-Cola HBC, and Office Depot.
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 related events.
Home Depot, Wal-Mart, and Coca-Cola are all recommendations of theMotley Fool Inside Valuenewsletter service. If you're on the hunt for the market's best bargains, try out Inside Value free for 30 days.
Fool contributor S.J. Caplan is often social, if not always responsible. She did complete the World Bank Institute's course on corporate social responsibility. The Motley Fool's disclosure policy keeps all of our writers conscientious.