For those of you already familiar with the basics of socially responsible investing, feel free to skip down to the performance table for February 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 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 starts with 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 February returns||Change year to date|
As the returns indicate, an ugly month for equities took a higher toll on the SRI indices. Exposure to the information technology sector contributed the most to the underperformance of the 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:MAR)announced that it will eliminate trans fats from the cooking oil used by its hotel restaurants.
- A bipartisan group of U.S. senators introduced a bill aimed at preventing domestic corporations from profiting from the use of foreign sweatshops and other unfair labor practices.
- Calvert formed a partnership with the Save Darfur Coalition and the Sudan Divestment Task Force to identify companies for divestment from their mutual funds.
(NYSE:WMT)lost a bid to prevent 2 million female employees from gaining class action status to proceed with discrimination claims in the largest employment lawsuit in U.S. history. In other news, Wal-Mart joined jewelry retailers, including Tiffany (NYSE:TIF)and Zale (NYSE:ZLC), in supporting more socially and environmentally responsible gold mining.
- Resolutions calling for the inclusion of sexual orientation in employment nondiscrimination policies gained 55% support from shareholders of Micron
(NYSE:MU)and 43% approval from those of Commercial Metals (NYSE:CMC).
- CorporateRegister.com introduced a set of search filters which allow users to search sustainability reports with respect to the Global Reporting Initiative G3 Guidelines.
- The Investor Environmental Health Network, a consortium of investment groups with $22 billion in managed assets, issued a report warning of investor implications concerning health risks in the cosmetics industry.
(NYSE:FPL)endorsed the Joint Statement of the Global Roundtable on Climate Change, aimed at mitigating climate change risks while providing energy needs.
(NYSE:MAT), the first toy company to issue a sustainability report, joined the World Environment Center, a global nonprofit advocating sustainable business practices.
What others are saying
Fortune published an article titled "Fidelity's Sudan problem" highlighting the divestment campaign against mutual fund investment in Sudan.
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 companies in 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.
Last month, Deutsche Telekom and Teck Cominco issued reports.
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.
Wal-Mart is a current Inside Value recommendation, while Mattel is a former Inside Value pick. Why the change of heart? Take a free 30-day trial to find out why and to read about other companies that have great potential.
Fool contributor S.J. Caplan is often social, if not always responsible. She completed the World Bank Institute's course on corporate social responsibility and does not own shares of any company mentioned in this article. The Motley Fool's disclosure policy is socially responsible.