For those of you already familiar with the basics of socially responsible investing, feel free to skip down to the performance table 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 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 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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Both SRI and general indices advanced again last month, with the general market pulling in slightly higher returns than the SRI indices.
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:
(NYSE:XOM)announced its participation in a European research initiative on the role of carbon capture and storage technology in the reduction of greenhouse gas emissions.
- A senior executive of Microsoft
(NASDAQ:MSFT)at an international Internet conference mentioned that the firm could pull out of non-democratic countries in light of repressive practices.
KLD Research & Analytics, together with proxy voting system operator Glass, Lewis & Co., launched KLD Proxy Voting Guidelines, which enables ballot instruction and proxy vote execution in accordance with the firm's SRI guidelines. The firm also announced the launch of the KLD Dividend Achievers Social Index -- together with data provider Mergent -- to serve as a benchmark for U.S. equity portfolios interested in SRI policies and dividend growth.
(NASDAQ:SBUX)issued a press release disputing Oxfam's allegations that the company does not support Ethiopian coffee farmers.
- Aluminum producer Alcan
(NYSE:AL)launched a global indigenous persons policy designed to promote constructive and sustainable relationships with local communities.
(NYSE:VOD), in partnership with The Consultative Group to Assist the Poor and World Resource Institute, published a report examining the impact of mobile phones in enabling economic transactions and social benefits among the world's poorest communities.
(NYSE:GM)received the Award for Corporate Excellence from the U.S. Secretary of State in recognition of its corporate social responsibility programs in Colombia.
(NYSE:KMB)received the corporate citizenship award for international community service from the U.S. Chamber of Commerce, in recognition of the firm's $5.2 million donation to UNICEF's U.S. fund for its HIV/AIDS initiative.
- Ten major food companies promised to tighten voluntary curbs on advertising to children under 12 years old. The companies are McDonald's, PepsiCo, Kraft Foods, Coca-Cola, Cadbury Schweppes, Campbell Soup, General Mills, Hershey, Kellogg, and Unilever.
- An advertising campaign criticizing Wal-Mart's employment practices is being planned by union-backed critics.
- The preliminary vote count at the annual shareholders' meeting of Cisco revealed 29% support -- a record level -- for a human rights and Internet fragmentation proposal led by Boston Common Asset Management. The proposal requested that management disclose plans to reduce the negative impacts of selling networking technology to repressive governments.
Nike kicked the ball out of the hands of Saga Sports, a Pakistani soccer ball supplier, when it ceased orders because of the company's failure to correct labor compliance violations.
- Just in time for the onslaught of holiday junk mail, Williams-Sonoma announced that virtually all of the paper used in the company's seven catalogs will come from sources certified by the Forest Stewardship Council, aimed at ensuring strict environmental and socioeconomic standards.
What others are saying
The Red Cross published a report entitled "Business and International Humanitarian Law," aimed at helping companies understand their rights and obligations when involved in sectors affected by armed conflict.
The Wall Street Journal published a commentary by Alan Murray entitled "Pivotal Fight Looms For Shareholder Democracy," discussing SEC examination of how directors are elected.
Forbes published an article entitled "Can Corporations Save the World?", describing the growing acceptance by business of corporate responsibility.
The Fool also published the following articles:
- Foolish Book Review: Corporate Responsibility, Part 3
- Women on Board, for Better Governance
- Go Green, Save Money
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 topics such 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, Timberland released its first factory-specific report.
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.
Microsoft and Vodafone are Inside Value recommendations. Kraft and Unilever are Income Investor picks. Starbucks is a Stock Advisor selection. No matter what your investment style is, the Motley Fool has a newsletter for you.
Fool contributor S.J. Caplan is often social, if not always responsible, but she did complete the World Bank Institute's course on corporate social responsibility. She does not own shares of any company mentioned in this article. The Motley Fool's disclosure policy is socially responsible.