Sources
for Comprehensive Information |
Shareholder Advocacy | Shareholder
Campaigns
| Corporate Governance | Corporate Codes
of Conduct | Community Investment
Socially Responsible & Green Funds |
Asset
Managers & Advisors
Social Screening |
Fund
Performance |
Research
| Frequently Asked Questions
Sources
for Comprehensive Information
AccountAbility
International nonprofit features studies and executive summaries on social/environmental
performance improving financial value, as well as specific items like redefining
the ³materiality² threshold for social disclosures. Also offers a Sustainable
Business email list.
American
Institute of Certified Public Accountants
Contains detailed overview and guidelines to SRI. Environmental Investors
Network: www.environmentalinvestors.com Offers SRI news, new SRI company listings,
and daily company profiles.
Business
for Social Responsibility
Excellent site for social responsibility issues and issue-based reports. Features
best practices, social audits, social performance metrics, business ethics.
Business
and Social Initiatives Database
International Labor Organization site features database of employment and
labor issues, including child labor, investment screens, international labor
standards, living wage, glass ceiling issues, and worker safety.
Corporate
Social Responsibility Forum
Database of ethical corporate practices and social responsibility issues in
business.
CSRwire
Directory
Resources for Promoting Global Business Principles and Best Practices: Free
searchable database with more than 900 organizations working on all aspects
of corporate social responsibility in 65 countries.
CSR
Europe
Case studies, publications, and database for European social responsibility
issues. Also: www.ebnsc.org Databank of best practices in Europe, published
by CSR Europe.
Council
for Responsible Public Investment
Works
with institutional investors and public officials for tobacco divestment and
to encourage consideration of the consequences of all investments.
Ethical
Performance
Newsletter for investors and CSR professionals. International Corporate Environmental
Reports: www.enviroreporting.com Corporate accountability reports.
Good
Money
Contains
SRI facts, figures and investment strategies.
Green
Biz
Site from Joel Makower, author of The Green Business Letter. Covers environmental
audits, sustainable management, legislation, clean technologies, and free
e-newsletter.
Investor Environmental Health Network
A coalition of investors and nonprofits working to improve the environmental health policies of major corporations.
Investor
Responsibility Resource Center
For
over 25 years, IRRC has been the pre-eminent source of high quality, impartial
information on corporate governance and social responsibility issues affecting
investors and corporations worldwide. Today, IRRC provides research, software
products and consulting services to nearly 500 subscribers and clients representing
institutional investors, corporations, law firms and other organizations.
SocialFunds.com
SocialFunds.com
is a comprehensive personal finance site devoted to socially responsible investing.
The site offers complete coverage of social mutual funds, community investment,
shareholder action. Daily news and investment advice is also provided along
with education and dialog links to articles, other information sources on
the web and a SRI chat service.
Social
Investment Forum
The Forum is a national nonprofit membership association dedicated to promoting
the concept and practice of Socially Responsible Investing. The Forum is made
up of over 600 financial professionals and institutions. Membership is open
to any organization or practitioner who wishes to participate in the socially
responsible investing field. Their website provides an extensive directory
of SRI professionals, a mutual funds performance chart, and other educational
materials and links.
Social
Investment Organization -- Canada
SIO provides information about socially
responsible investment and takes a leadership role in coordinating the development
of the socially responsible investment agenda in Canada.
Sustainable
Business
Features monthly online magazine on green business issues and trends. Includes
investment information.
As
You Sow Foundation
Advocacy foundation that partners with other advocates for shareholder campaigns.
Offers issue-based research on its site, along with services for proxy (voting
support) solicitation services.
Coalition
for Environmentally Responsible Economies
Investor-nonprofit-labor coalition that works with businesses to improve corporate
reporting and responsibility records. Initiated over the Valdez Principles,
a voluntary set of reporting and disclosure guidelines for corporations implementing
Best Practices.
Corporate Register is a global resource of sustainability and environmental reports on corporations. Registration is free.
Friends of the Earth Handbook is the site for a handbook on socially oriented shareholder activity for foundations and endowments that might wish to engage corporations directly and/pr file or co-file shareholder resolutions.
Interfaith
Center on Corporate Responsibility
Coalition of 275 religious institutions filing social shareholder resolutions.
Site features issue-based reports, news, and a chart of social resolutions
filedalong with the resolution text itself.
Investor
Responsibility Research Center
Provider of impartial research and consulting services on corporate governance,
social research, and proxy voting services. Also offers profiles for portfolio
screening, benchmarking and other purposes.
I-Shareowner
Site highlighting research and reports for institutional investors and trustees.
Paid and free content.
Jantzi
Research
Offers
a full range of proxy research and voting services through our relationship
with the Washington, D.C.-based Investor Responsibility Research Center (IRRC).
Proxy Information provides background information on, and arguments to support corporate responsibility resolutions via a neutral on-line venue.
Shareholder
Action Network
Central clearinghouse on social shareholder activism and investor rights issues.
Offers news, annual meeting dates, shareholder victories, proxy voting section,
and extensive links section.
Social
Funds
Comprehensive
site for individual and institutional investors, covering community investing,
shareholder advocacy and social investment products and news.
Social Investment Forum -- Advocacy and Policy Program is a coalition of institutional investors aligned with the SIF to encourage greater corporate accountability through shareholder activity.
Social Investment Organization --Canada, provides background information, support and useful links for undertaking shareholder action in Canada.
Other useful Shareholder Information
"Confronting Companies Using Shareholder Power: A Handbook on Socially-Oriented Shareholder Activism," Extensive guide to social shareholder activism has case studies of proxy fights, info on international campaigns, regulatory issues, and a brief timeline.
Shareholder Proposals by Broc Romanek and Beth Young -- Extensive resource for corporate governance and social filings. Includes SEC reasons for exclusion.
Step by Step Guide to Filing a Shareowner Resolution by SocialFunds.com
Interfaith Center on Corporate Responsibility List of Social Resolutions (includes full text of proposals)
Why Consider Shareholder Action: Guidelines for New Advocates by United for a Fair Economy
R.R. Donnelley Financial: Shareholder Proposals by Broc Romanek
Equality Project: How Shareholder Proposals Work
SEC Proxy Solicitation Regulations
A Quick Look at the Proxy Statement, (downloadable 2-page PDF) by AIMR, 2003
Proxy voting records and policies of SRI funds
Shareholder Coalitions or Campaigns
As
You Sow Foundation: www.asyousow.org
Works
on toxin, sweatshop and labor rights, and human rights shareholder campaigns.
Australian
Ethical and Green Shareholdersı Groups
Information and contact for several Australian NGOs working on corporate accountability
from an investment angle.
Carbon
Disclosure Project
Serves as secretariat of large coalition of institutional investors seeking
greater disclosure on climate change from companies.
Coalition for Environmentally Responsible Economies
Corporate
Monitoring Project
Seeks to develop an independent consultancy that shareholders can turn to
in nominating and evaluating directors of large corporations. Also focuses
on executive pay, and files resolutions about proxy voting advisory services
being made available to investors.
Ecumenical Council for Corporate Responsibility (UK)
Equality Project
Web site devoted to the Equality Principles and lesbian, gay, bisexual and
transgendered shareholder activism.
eRaider
Shareholder campaign targeting companies for improved performance and turn-around.
Ethical Shareholders (European Network)
Interfaith Center on Corporate Responsibility
Publish
What You Pay Initiative
Shareholder
campaign for nations to hold their governments accountable for how revenues
from the oil, gas and mining industries are managed and distributed.
Responsible Wealthıs Shareholder Initiatives
Shareholder
Action Network
Coalition of shareholder advocates working on policy reform, shareholder rights,
and several issue-specific campaigns each year.
The Corporate Library: International corporate governance research. Current news, extensive reports, and database products on the relationship between company management, their boards, and shareholders.
Council of Institutional Investors: Coalition of institutional investors, including public pension funds and labor funds, representing $3 trillion in investments. Focus is shareholder rights and corporate governance. Has database of corporate governance resolutions on web site.
Corporate Governance: Thorough site of corporate governance alerts and issues, petitions submitted to SEC for rulemaking by site author, and some emphasis on emerging social issues for investors. Extensive links for corporate governance.
Investor Responsibility Research Center: Comprehensive research and services for investors focusing on corporate governance and social concerns.
Institutional Shareholder Services: Leading provider of proxy voting and corporate governance services, serving clients globally. Research and recommend votes for 20,000 shareholder meetings each year. Other services focus on corporate issuers, Taft-Hartley funds, and social investors.
The Conference Board: Studies and white papers on corporate governance and executive pay issues.
CalPERS: Premiere corporate governance activist in U.S. Posts voting records for 300 companies. Others disclosed by request. Corporate Focus List of under-performing companies. Policy and shareholder rights and disclosure alerts.
The Business Roundtable: Association of directors, CEOs and academics publishing research and discussion papers on emerging issues of corporate governance and ethical business.
International Corporate Governance Network: Network that provides investors, companies, academics, and finance experts with a forum for expressing ideas regarding global corporate governance practices.
Governance Magazine: Published monthly, provides coverage of corporate governance developments around the world.
European Corporate Governance Institute: Provides calendar of upcoming conferences and research efforts, publications, and developments within EU corporate governance.
Davis Global Advisors: Independent consulting firm specializing in global corporate governance. Offers Global Proxy Watch (paid) to keep investors up-to-date on proxy voting, corporate governance and disclosure issue trends and news.
National Association of Corporate Directors
Corporate Governance/Social Ratings Services:
Institutional Shareholder Services
Governance Metrics International
ETHIBEL: Independent consulting agency in the Netherlands that rates and audits sustainability, ethics, and social responsibility metrics of corporations, and maintains a standardized labeling scheme for European SRI funds.
Jantzi Research offers corporate data and analysis on a broad range of issues, including corporate governance, aboriginal and community relations, diversity in the workplace, employee relations, environmental performance, human rights, and involvement in controversial business activities such as alcohol, tobacco, and weapons-related production.
Codes of Conduct and Disclosure Initiatives
Anti-Scofflaw regulations: Prevents federal government from contracting with companies that are chronic violators environmental, labor, consumer and antitrust laws.
Coalition for Environmentally Responsible Economies (CERES) Principles: Originally called the Valdez Principles, a voluntary set of reporting and disclosure guidelines for corporations implementing Best Practices.
Global Reporting Initiative: Founded by CERES, an international set of guidelines for corporationsı social and environmental reporting. A multi-stakeholder process implementing the Sustainability Reporting Guidelines, the GRI incorporates representatives from business, accounting, investment, environmental, human rights, research and labor organizations from around the world.
The MacBride Principles: Principles of conduct for firms doing business in Northern Ireland.
SA8000: Social Accountability 8000 standards
Calvert Foundation is the community investment arm of the Calvert Group of funds. The site provides information on various forms of community investment available through them.
Community Investing Program of the Social Investment Forum and Co-op America
National Community Capital Association
National
Association of Community Development Loan Funds
924 Cherry Street, 3rd Foor, Philadelphia, PA 19107-2405 215.923.4754
National
Federation of Community Development Credit Unions
59 John Street, 8th Floor, New York, NY 10038 212.513.7191
Shefa Fund The Tzedec Economic Development Fund (TEDF) of The Shefa Fund blends Jewish values with socially responsible investing principles by offering Jewish family foundations and businesses, communal organizations, and individuals opportunities to invest in community development financial institutions nationwide and to leverage investment from the wider Jewish community. Contact ajoseph@shefafund.org
www.socialinvestment.ca provides background information on and useful links for Community Investment in Canada.
Socially
Responsible and Green Funds
A
growing number of socially responsible and green funds are becoming available
to individual and institutional investors. The Socialfunds.com website contains
a Mutual Fund Center with a General
Information Table that provides a comprehensive overiew of the leading
SRI options in mutual funds. The Social Investment Forum also maintains a
directory
of socially responsible mutual funds. Listed below is a sampling of some
of the companies providing SRI mutual funds.
Domini
Social Investments
The Domini
Social Equity Fund (DSEF) is a no-load mutual fund which seeks to provide
its shareholders with long-term total return which corresponds to the total
return performance of the Domini 400 Social Index (DSI), an index of 400 companies
that pass multiple broad-based social or ethical screens. The DSI includes
companies with positive records in community involvement, the environment,
employee relations, product related issues, and hiring practices. It strives
to avoid companies with significant revenues from alcohol, tobacco, gambling,
nuclear power and weapons contracting. The DSEF addresses both the social
and financial needs of today's social investors. The Fund offers you an opportunity
to invest in a diversified stock portfolio for long-term total return while
being consistent with your sense of social responsibility. Further, the Fund's
management votes its shareholder proxies in a manner consistent with its corporate
accountability approach.
Green
Century Funds
With Green
Century's mutual funds, you can use your investment dollars to help the environment.
They seek competitive returns while putting your money to work for cleaner
air, cleaner water and a safer planet. They believe that, in the long run,
companies that protect the environment can be more profitable than companies
that pollute. And that means a better future for everyone. The Green Century
Funds are unique because the company that administers both Green Century Funds,
Green Century Capital Management (GCCM), was founded and is wholly owned by
non-profit environmental advocacy organizations.
New
Alternatives Fund
This is
a socially repsonisble mutual fund concentrating its investments in renewable
energy and the environment. The fund seeks long term gains for its investors.
Founded in 1982, this was the first environmental fund.
Portfolio
21
In
the 21st century and beyond, bold new thinking will be required to transform
our society into one that is in balance with nature. Portfolio 21 is a no
load mutual fund for individuals and institutions committed to investing in
a sustainable future. They believe that companies using sustainability principles
as a core part of their business strategies are positioned to prosper in the
future and can be more efficient and profitable today. Portfolio 21 concentrates
on companies that have made a commitment to environmental sustainability and
have demonstrated this commitment through their business strategies, practices
and investments.
Walden
Asset Management
Since 1975,
Walden Asset Management has been engaged in successfully meeting the challenges
of caring about the social impact of investments. They work with individual
and institutional clients to address their particular social concerns in ways
that include: focusing portfolios on companies that reflect positive and unique
values, supporting shareholder dialogue and resolutions for improved business
behavior, and investing directly in affordable housing and jobs for the economically
disadvantaged. Client services include: Portfolio Management Services, Social
Screening, Shareholder Advocacy, and Walden Mutual Funds. Walden
Mutual Funds consist of a family of four socially responsive mutual funds.
The funds are all no-load, and include a balanced fund (WSBFX), an equity
fund (WSEFX), a domestic index fund (WDSIX), and an international index fund
(WISIX). The Walden Funds may be offered only by the Funds' distributor, BISYS
Fund Services.
Asset
Managers and Advisors
The Social Investment Forum contains an extensive member directory
– including mutual fund companies, community investment institutions,
social research companies, money managers, financial planners and more. The
directory can be searched by state and with keywords and is maintained by
Co-op America.
Social investment professionals and more can also be found using SocialFunds.com's index covering brokerage, financial planner and money manager services as well as company information, manager profiles, investment styles and financial services.
Listed below is a sampling of Asset Managers and Advisors in the SRI field.
The Assabet GroupLight
Green Advisors
LGA is
a Seattle-based investment advisor. LGA was founded to provide mainstream,
environmentally aware investors with investment options that are environmentally
and financially sound. LGA manages Standard & Poors 500-based investments
for environmentally-conscious organizations and individuals interested in
supporting companies with the best track records in their industries.
First
Affirmative Financial Network
FAFN is
an independent investment advisory firm registered with the SEC. They support
a nationwide network of investment professionals who specialize in helping
clients engage in socially responsible investing. They provide consulting
and asset management services for institutions seeking to integrate mission
and values into investment strategy and decision making.
Sustainable
Asset Management
SAM
is an independent asset management company headquartered in Zurich, Switzerland.
Established in 1995, SAM was among the first asset managers to specialize
in the field of sustainability-driven investments. Over the last few years,
the company has grown rapidly in terms of headcount and mandates. Today, SAM's
customers include major European banks, global insurance companies, large
pension funds and private clients. SAM manages institutional and private mandates
in line with sustainability criteria. SAM offers sustainability-driven investment
vehicles such as the Sustainable Performance Group and various mutual funds.
And together with Dow Jones & Company, SAM launched the world's first index
to track the performance of sustainability-driven companies worldwide.
Trillium
Asset Management
Trillium Asset Management Corporation is an independent investment management
firm dedicated solely to socially responsible investing. They believe that
active investing can offer good returns to the investor, while also promoting
social and economic justice. Trillium Asset Management is an independent employee-owned
firm, dedicated to professional, high quality, individualized service for
clients.
Winslow Management Company
Winslow
Management Company distinguishes itself from other investment management firms
through its strategy of investing exclusively in environmentally effective
companies. From its base in Boston, Winslow invests the assets of high net
worth individuals, pension funds, and non-profit institutions in companies
whose impact on the environment is either beneficial or benign. Winslow is
a separate division of Adams, Harkness & Hill, a research-driven investment
bank and asset manager that has focused on growth companies since 1969.
1.
Domini Social Investors
The companies
in the Domini 400 Social Index are selected using social and environmental
factors, or 'screens.' A summary of the social and environmental screens applied
to the Fund may be found in the prospectus. The social research firm of Kinder,
Lydenberg, Domini & Co., Inc. (KLD), an affiliate of Domini Social Investments,
determines the composition of the Domini 400 Social Index. The screening criteria
elaborates on the screens described in the Prospectus, and reflects how KLD
evaluates each company.
2.
SocialFunds.com:
Corporate Research Center
The Corporate
Research Center provides information that individual and institutional investors
can use to screen an extensive list of companies. Corporate Social Summaries
include a comprehensive listing of news articles, CSR press releases,
shareholder resolutions, and a Corporate Social Brief on each company's involvments,
strengths, and concerns. Environmental reports and Innovest Strategic Value
Advisor's reports based on its Eco Value 21TM environmental performance rating
model are also available along with more than 700 international company reports,
subscription to monthly industry reports, Microcap reports, and small company
social reports from Principal Profits Asset Management.
3.
Innovest Group
The Innovest
Strategic Value Advisors, a specialized financial inforamtion services and
investment advosory firms that has developed sophisticated environemtnal screens
that when applied to actual portfolios show high correlations with financial
performance. See their library page for abstracts of studies.
4.
Walden
Asset Management
Walden
offers social investors many approaches to achieve their social investment
goals meeting investors' social criteria: They evaluate companies according
to their activities in issue areas such as pollution prevention, diversity
initiatives or labor relations. Their methodologies allow them to screen out
companies that fail to meet a client's minimum standards and screen in companies
providing solutions to social problems. For more information see Social Research
and Portfolio Screening.
1.
GreenMoney Journal
The GreenMoney
Journal is the online version of an outstanding newsletter directed by Cliff
Feigenbaum which promotes the awareness of socially and environmentally responsible
business, investing and consumer resources. Their goal is to educate and empower
individuals and businesses to make informed financial decisions through aligning
their corporate and financial principles. With the slogan of, "Responsibility
from the Supermarket to the Stockmarket," the site offers the GreenMoney Gallery
of Products & Services; Green Consumer Resources & Natural Products; Services
for Socially Responsible Business; Socially Responsible Investments; SRI Mutual
Funds; and Community Investing.
2.
Morningstar
Chicago-based
Morningstar is the leading provider of mutual fund, stock, and variable-insurance
investment information. An independent company, Morningstar does not own,
operate, or hold any interest in mutual funds, stocks, or insurance products.
You can count on Morningstar for unbiased data and analysis, and candid editorial
commentary.
3.
SocialFunds.com
The SocialFunds
Mutual Fund Center maintains a General Information Table that provides a comprehensive
overiew of the leading SRI options in mutual funds. That can be viewed in
its original format, reorganized by selecting any single criteria, or more
information about a specific fund can be viewed by clicking on the fund name.
4. Performance chart for SRI funds by Social Investment Forum as of 4/30/2004
Research
and Literature
The amount of available research materials on Mission Related Investment,
Socially Responsible Investment, and Green Investment has been growing over
the past few years. Web sites where research has been collected are a good
place to start to find the most up to date information.
Investor Responsibility Research Center: Source of information on corporate governance and social responsibility issues affecting investors and corporations worldwide. Provides research, software products, and consulting services to institutional investors, corporations, law firms and other organizations.
KLD
Research & Analytics, Inc.: Subscription-based social investment research
database services for institutional investors. Also maintains Domini Social
Index and other social indexes.
Social
Investment Forum
The
Social Investment conducts and sponsors a range of research on issues in socially
responsible investment. A number of these reports are available online or
print versions can be ordered. Topics covered include community investment,
tobacco investment research, shareholder resolutions, comparative statistical
information on screened and unscreened mutual funds, and annual trend reports
on Socially Responsible Investing (SRI). Winning papers from the Moskowitz
Prize Competition, a SRI literary contest, are also available. Other Social
Investment Forum Publications can also be ordered.
SRIStudies.org
This website
is a valuable resource for people interested in the impact of social screening
on investment performance with catalogs
and summaries of research studies that address the impact of screening
on investment performance. Also view the Ten
Most Important Studies of SRI- Their list of the studies that have done
the most to advance our knowledge of the performance impact of social screening.
Blended Value Map by Jed Emersen: Discussion and extensive links resources for funding community on SRI, mission-based investing, social venture capital, and corporate responsibility overlay.
Sustainable Investment Research International Group (SiRi): Grouping of many independent local SRI research organizations spanning three continents. Provides harmonized social investing profiles of major global public companies
Verite: Non-profit social auditing and research organization looking at issues related to safe, fair, and legal working conditions. Research for shareholder activists and investors. United States. Global.
Ethical Investment Research Service (EIRIS): European research organization founded by churches and charities to investigate companies' ethical, environmental and social policies and performance. Also provides information to the general public on personal finance to enable people to put their principles into practice.
EthicScan Canada Limited: Original and regular research on paper and electronic files on major public corporations, both Canadian and transnational. Performance reporting across a broad range of corporate social responsibility and corporate governance topics.
The International Corporate Environmental Reporting Site: Subjects include environmental performance measuring and accounting, the relation between environmental performance and shareholder value, international news, and web links. Based in the Netherlands.
Centre for Australian Ethical Research: Offers corporate ethics research services for institutional investors in the Australian ASX 300 market index.
Sustainable Investment Research Institute Pty Ltd.: A dedicated research group providing social and environmental investment research to investors, lenders and other users of financial data. Database primarily comprises the ASX 300 and NZSE 40 companies.
Sustainability Reporter: Corporate sustainability and social responsibility information highlighting the ASX 300 (Australia's market index) listed companies.
CorpWatch: Research guide for social investors and activists.
Literature is also available from:
Domini Social Investments- their Prospectus can be downloaded from their site and other literature can be requested to be sent by mail, as well as information on products and services designed exclusively for institutional investors.
Innovest Publications: Free PDF downloads of research articles on the value of corporate ethics and social responsibility.
Walden Asset Management- they publish their newsletter, Values, three time a year which can be downloaded as an adobe acrobat file from their website along with other Walden publications.
Each month, the Noyes Foundation receives about a half dozen calls from small and family foundations, less often from larger foundations, inquiring about our mission-related investment activities. Many of the callers are younger family members or staff who are motivated by a strong sense of values in their grantmaking, and desire a more focused approach to their investment portfolios. The three questions most frequently asked are:
Is mission-related investing legal?
Competitive
Rate of Financial Return?
Contribute to Long Term Goals?
1.
Is mission-related investing legal?
Under
the law, fiduciary responsibility includes three duties as part of a trustee's
standard of care. The first, the duty of care, specifies that trustees are
to act as a prudent person would in like circumstances.
The second, the duty of loyalty, is to avoid conflicts of interest. The third,
the duty of obedience, mandates that trustees act in a manner that ensures
that the organization operates in keeping with the rules and laws governing
its formulation, and in accordance with its bylaws and mission.
One
of the mantras of endowment management is that financial rate of return is
the sine qua non of fiduciary responsibility under the prudent person or business
care rule. Any other considerations-such as the social and environmental consequences
of an investment-have traditionally been considered extraneous. But as William
B. McKeown, recently of Patterson, Belknap and Webb, has observed, board members
of charities "may have a duty to consider the effect on program of their investment
decisions [and] to consider whether their investment decisions will further
those charitable purposes, or at least not run counter to them." In other
words, obedience to mission calls for a linkage between finance and mission.
Although
this view of fiduciary responsibility is growing, it is still far from the
mainstream.Noyes has found its logic compelling, believing that institutional
integrity has an important place in investment decisions. Unfortunately, there
is not yet a large body of law on the subject.
In
a path-breaking review of judicial decisions and state statutes, Lewis Solomon,
Theodore Rinehart Professor of Business Law at the George Washington University
Law School, and Karen Coe, conclude that:
Directors
and trustees of nonprofit entities, including foundations, may undertake social
investing without violating their fiduciary duties. They may consider social
and environmental factors when making investment decisions, whether the prudent
investor rule or the business binds them care rule. Under the prudent investor
rule, a fiduciary may consider the social implications of her investments
only if they do not take precedence over financial considerations. Under the
business care rule, a fiduciary may consider social and financial factors
equally when making investment decisions.
(back to top)
A second mantra of endowment management is that any reduction in the universe from which a money manager may select stocks or bonds for a portfolio produces "opportunity costs" that will inevitably lower the possible return. For years, consultants and money managers have argued against using social screens, suggesting that they create unintended portfolio risk and/or performance degradation.
Over the past decade, a growing number of research studies have shown that screened portfolios do not necessarily result in lower returns. A 1997 study by John B. Guerard found there to be "no statistically significant difference between the average returns of a socially screened and an unscreened universe during the 1987-1996 period."Manager selection and stock picking are the key determinants of performance. Other studies reach similar conclusions.
The Domini 400 Social Index, a broad-based index of 400 socially screened corporations, and the Citizens Index, a market-weighted portfolio of 300 screened companies, have significantly outperformed the S & P 500. Since 1995, screened mutual funds have performed at least on a par with unscreened funds, overcoming slightly below average performance in the period 1971 to 1995. And for the period since 1995, Morningstar rankings also show high performance for socially screened funds.
Domestic
equities
A growing body of research shows significant correlation between specific
corporate activities and greater shareholder value. For example, a live simulation
run by Innovest Strategic Advisers in concert with a leading Wall Street investment
bank using a newly developed set of environmental screens showed "out-performance"
in the range of 100-170 basis points per year for a highly diversified, S&P
500 portfolio. For high environmental risk sectors of the economy, such as
chemicals and petroleum, the premium is as high as 500 basis points. Furthermore,
there is reason to believe that the outperformance premium may be even greater
in the future as environmental regulations tighten, globalize, and impact
corporate balance sheets with even greater force. More than 50 other studies
show strong correlations, ranging from 50 to 450 basis points, between improving
a corporation's environmental management system and improved shareholder value.
As a result, an environmentally screened portfolio might, under certain circumstances,
outperform a more traditional portfolio.
Similarly, research shows that "companies making a public commitment to follow ethical business practices are more profitable than companies which do not make ethics a key component of their overall management."
International
equities
Currently, only a few screened international equity investment vehicles
are available to investors. Limited data indicates outperformance by screened
international managers; although a brief history and lack of appropriate benchmarks
make it difficult to draw any firm conclusions.9 Still, interest in this asset
category is growing.
Fixed
income
No publicly available performance history currently exists for screened fixed
income portfolios. Noyes has screened its fixed income instruments for more
than a decade. Our experience with screened fixed income portfolios has met
or exceeded our fixed income benchmark, the Lehman index. Research has shown
that "should socially responsible investors choose to broaden their investment
set to encompass bonds, there should be no penalty for following their social
values after adjusting for credit risk."
Venture
capital
Mission-related venture capital, or social venture capital, is an investment
instrument of relatively recent origin. As with traditional venture capital
investing, data on financial performance over time are difficult to amass.
While there may not be any socially responsible "home runs" as yet, what has
been called "patient capital" is helping to create new firms, with new corporate
cultures that are financially solid while creating social returns value through
their work.
Investment cost of Mission-Related Investing
Rates of return on investments reflect investment costs. Most managers of
separately managed institutional accounts report they do not charge extra
fees for managing screened portfolios. Weisenberger reports the expense ratio
for non-socially screened funds is 1.40 percent compared with 1.62 percent
for screened portfolios. Morningstar compared large cap growth funds and found
that the average expense ratio for socially screened funds is slightly lower,
1.44 percent versus 1.47 for non-screened funds.
Conclusion
Noyes has concluded that the financial risk in mission-related investing
is no different from the risk inherent in investing in any asset class. Given
the large universe of publicly traded stocks and bonds, a skilled money manager
who applies mission-related screens is as likely to achieve his benchmark
goals over time as a manager who has no screens. As one John Knox of Trainer,
Wortham and Company, the foundation's fixed income manager for many years,
has observed, "If there is something in the portfolio that you don't like,
let me know. There are many options so I can respond to differing needs, taking
into account your level of risk, need for diversification, and other factors."
that to the extent that our grantmaking budgets, in combination with our operating
expenses, exceed investment returns over a multi-year period, the preservation
of the real value of our assets over the long-term becomes increasingly difficult.
Because the Board has determined that the foundation should be viewed as a
perpetual institution, investments that have the potential to generate substantial
long-term capital gains will be particularly important.
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Of the three questions most frequently asked, this is the most important and most difficult to answer, since each mission-related "leg" must be evaluated separately.
A discussion of screening by a foundation board begins with awareness of the fact that investments have non-financial, social and environmental consequences, in addition to financial returns. It acknowledges that inevitably there are varying degrees of dissonance between the foundation's values, its grantmaking, and its investments. Ultimately, it raises the question of institutional integrity, "the dissonance between creed and deed," that institutions need to address. Noyes has found that the very process deepens and strengthens the board's understanding of our mission and our values, which is of great value whether or not we have changed the world through the investment process.
There is no single path to reducing dissonance. Negative screens can be used to weed out the worst offenders. Positive screens can identify "best-in-class" companies, which are potentially part of the solution to a problem. Many foundations screen only a portion of their portfolio in order to become comfortable with the process over time.
Instead of using exclusionary screens, a foundation may decide it would be more effective to engage the "offending" company through proxy voting, letter writing, attending meetings with management, or filing shareholder resolutions on issues of concern. Noyes, for example, occasionally buys stock in companies for the purpose of shareholder activity to support its grantees.
It is important to note that effectiveness is not necessarily a function of the size of a foundation's holdings in a particular company. Noyes had just 100 shares when it filed its resolution with Intel, described below. A foundation's assets, combined with those of other social investors, can provide a powerful voice for corporate change.
Mission-related venture capital consists of investments in young, privately held companies whose products, services, processes and corporate cultures are in varying degrees aligned with the foundation's mission. Because Noyes is committed to developing a sustainable and environmentally sound agriculture and food system in the U.S., one that is socially just and economically viable, it decided to participate in a venture capital opportunity with Stonyfield Farm, a profitable yogurt manufacturer in New Hampshire having sustainable agriculture integral to its mission. Stonyfield sources organic milk from family farms, uses containers with a minimum of plastic so as to reduce chemical inputs and damage to the environment, and gives 10 percent of its profits "to the planet." Noyes believes that its investment in Stonyfield will further its own mission-related goals while providing healthy returns on its investment. Other mission-related venture capital opportunities include a new technique for detecting leaks in underground storage tanks, environmentally sound aquaculture, apparel from organic and recycled cotton, and bio-degradable cleaners.12 Each provides a market-based solution to environmental problems.
Shareholder activity has clearly demonstrated it can add value to grantmaking. Noyes' intervention on behalf of its grantee, the SouthWest Organizing Project (SWOP) in Albuquerque, New Mexico, resulted in Intel's coming to the table for discussion even though it had previously refused to meet with SWOP.
Intel agreed to change its Environmental, Health and Safety Policy and agreed to share information with communities. Of further value, SWOP earned respect within the state for its role in the process. Many foundations neither vote their proxies themselves nor direct their managers in the voting of proxies and, consequently, abrogate the opportunity to let management know their concerns related to their programs. It is interesting to note that Taft-Hartley pension plans are required by law to vote their proxies in a manner to benefit their pensioners and to report their votes. Proxies in this case are seen as assets, in addition to the underlying value of the stocks.
Issues most often encountered by foundations in planning and implementing MRI
Based upon Noyes' discussions with foundations, four issues need to be addressed in order to move a foundation's investment policies and programs toward mission-related investing.
First, the board must identify the areas of dissonance between its investments and grantmaking values. Second, the board should evaluate its discomfort level with this dissonance. Assuming some discomfort, the conversation can then be directed to explore ways to minimize the dissonance given the foundation's circumstances and its resolve.
The issues identified here need not be constraints or barriers to change. Rather they are described in order that the readers can learn from the experience of others so that desired outcomes might be easier to attain.
1.
The culture of finance
Business schools do not teach how to incorporate social, political, cultural,
and environmental criteria into the investment decision-making process. Driven
by short-term incentives, few investors see reasons to consider the long-term
effects on society of harmful products and business practices. As Dee Hock,
founder, president and CEO emeritus of Visa observed:
Institutions that operate so as to capitalize all gain in the interests of the few, while socializing all loss to the detriment of the many, are ethically, socially and operationally unsound. Yet that is precisely what far too many corporations demand and far too many societies tolerate. It must change. Some years ago London financial analysts were surveyed about the way they brought environmental considerations into their analysis. Despite evidence that good corporate environmental performance can increase shareholder value, most viewed the environment as an ethical and moral issue and, therefore, not relevant to their financial analysis. This survey underscores the market's inattention to so-called "externalities." Another recent study found "an overall insignificant capital market response "to a sample of 98 negative environmental events in which electric power companies or oil firms were involved (as reported in the Wall Street Journal between 1970 and 1992)."
These examples underline the sensitivity needed in raising the issue of mission-related investment with a finance committee. This is especially true in circumstances when the finance committee members are advisors but not board members because as a rule, they are not familiar with the foundation's programs and values.
2.
Board politics
Board politics is a subject not often addressed in the philanthropic literature.
However, anyone who has worked in and around philanthropy is no stranger to
the subject. Whether the issue intensifies when 'family' is added to the mix
is an empirical question, though many would suggest that it does.
Experience suggests that a committed board member -- willing to champion the issue of mission-related investment and to work until there is resolution -- is essential. This member must have the respect of other board members, be well informed about the issues, and be willing to use his or her political capital within the institution to make things happen. The problem in the absence of such a board member can be seen in the case of one sizable family foundation, whose executive director had a strong commitment to aligning grantmaking and investment strategies, only to be told by the chair, a financial professional, that the matter was not to be raised at a board meeting.
3.
Underlying financial and economic assumptions and culture
The MIT economist Paul Krugman observed that "simplistic ideas of economics
often become badges of identity for groups of like-minded people, who repeat
certain phrases to each other, and eventually mistake repetition for truth."17
The same may be said for finance, especially around the topic of socially
responsive or mission-related investing, leading to a conclusion that it cannot
be done.
Economics, which defines the rules of the game, also sets constraints on the discussion. Consider, for example, the convention that the environment is an "externality"; that the "commons", our shared heritage of air, land and water, is not 'valued'; that equity as an issue of justice is not found in the index of economic texts; and that the future is to be discounted. This world-view further constrains the discussion of mission investing.
However, there are answers, some of which we have summarized, to the questions of legality, financial return and effectiveness discussed above.
4.
Time
Mission-related investing takes time. However, the time spent is justifiable
if the process is defined as adding value to grants and program, rather than
simply spending more time on finance. At Noyes, much of our mission-related
investing, especially the shareholder activity, is seen as a program activity,
not a financial activity.
Time is required to decide which screens are most appropriate to a foundation's mission, and what advocacy strategies will advance the foundation's goals. If the portfolio is to be actively managed, it takes some time to review the portfolio constraints with the manager and to determine if the companies held still reflect the foundation's goals. If the manager is professionally involved in social investing, this process is usually relatively easy. If he or she is not, more time may be needed to develop sensitivity to the social issues impacting the corporations.18
Finally, time is needed to develop and review proxy guidelines. If done internally, voting proxies may also require significant amounts of time. Monitoring how managers vote the foundation's proxies will take additional time, although, once again, if the manager is professionally involved in social investment, less time will be needed to oversee proxy voting.19 Letter writing, engagement with management, and/or filing shareholder resolution will require substantial commitments of time and perhaps additional budget resources.
How prevalent is mission-based investing among family foundations? The Council on Foundation's Management Survey suggests that fewer than 10 percent of foundations presently screen their portfolios.20 Much of the screening may reflect a singular concern, such as tobacco, which is quite prevalent among health funders. An informal survey of environmental grantmakers done by Noyes and the Interfaith Center on Corporate Responsibility in 1995 suggests that perhaps as many as 25 percent of these foundations screen at least some portion of their portfolios.21
Data on proxy voting are not available. However, during the 1999 proxy season, ten foundations did co-file, while two foundations filed shareholder resolutions. They were all family foundations. It is clear that some progress has been made when these admittedly small numbers are measured against the fact that the first foundation-initiated shareholder resolution was filed in 1994 by Noyes. The number of foundations doing mission-related venture capital is also very small, and again these are family foundations.
Mission-related investing is not a "one size fits all" activity nor need it necessarily encompass all aspects of mission-related investing. Some foundations may choose to screen all or part of their investments while they develop a comfort level with the activity. Others may choose to direct their attention to voting proxies and engaging corporate management in a variety of ways. Still others may choose community investment or focus on mission-related venture capital with part of their assets. The best approaches are those that support the mission-goals of the foundation and the skill sets of the board members and staff.
It has been suggested that the obscure takes a while to see, and the obvious takes even longer. The philosopher Schopenhauer believed all truth passes through three stages: first it is ridiculed; second it is violently opposed; and third, it is accepted as being self-evident. For many foundations, mission-related investing appears to be somewhere between stages one and two. For the Noyes Foundation, where we have begun to see the fruits of our efforts, mission- related investing is becoming self-evident, i.e. part of who we are and what we do. The Foundation would be delighted to assist other foundations to share in the excitement of our journey.
Stephen Viederman, President
Miriam
Ballert, Finance Chair
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1.
This is adapted from "Thinking About Mission-Related Investing," National
Center for Family Philanthropy, "Investment Issues for Family Foundations:
Managing and Monitoring Your Philanthropic Assets," National Center Journal,
Vol. 2, Washington, D.C., NCFP, 1999.
2.
It is important to observe that, in its original meaning, to be prudent is
to be farseeing. This sense of the term is lost in the more modern usage,
which implies looking backward.
3.
W.B.McKeown, "On Being True to Your Mission: Social Investments for Endowments,"
Journal of Investing, Winter 1997, 6 (4), 71-78.
4. See the Restatement of the Law Third, Trusts, section 227, as quoted in Mark Dowie, Passive, Dissonant or Making a Difference: Which Way for Foundation Investing?, Financial Markets and Society, Philomont,Va.: Financial Markets Center, 1998.
5. Lewis D. Solomon and Karen C. Coe, "Social Investments By Nonprofit Corporations and Charitable Trusts: A Legal and Business Primer for Foundation Managers and Other Nonprofit Fiduciaries," UMKC Law Review, 66,2, Winter 1997,213-250; and same authors, "The Legal Aspects of Social Investing by Non-Profit Fiduciaries," Journal of Investing, Winter 1997, 6 (4), 112-119.
6. John B. Guerard, "Additional Evidence on the Cost of Being Socially Responsible in Investing," Journal of Investing, Winter 1997, 6(4), 31-36; see also Lloyd Kurtz, "No Effect, or No Net Effect? Studies on Socially Responsible Investing," Journal of Investing, Winter 1997, 6(4)37-49.
7. For a more complete discussion of financial performance of screened portfolios, see the Winter 1997 issue of The Journal of Investing, and The Investment Research Guide to Socially Responsible Investment (Ed. Brian R. Bruce for the Colloquium on Socially Responsible Investing, Plano,Tx., Investment Research Forums, 1998) ,which provide a compendium of some of the most relevant research.
8. Curtis Verschoor, "Internal Control: A Weapon in the War Against Fraud," Director's Monthly (National Association of Corporate Directors, Washington, DC), February 1999, p.7.
9. Frank J. Travers, "Socially Responsible Investing on a Global Basis: Mixing Money and Morality Outside the U.S.," Journal of Investing, Winter 1997, 6 (4), 50-56.
10. Louis D'Antonio, Tommi Johnsen, R. Bruce Hutton, "Expanding Socially Screened Portfolios: An Attribution Analysis of Bond Performance," Journal of Investing, Winter 1997, 6(4),79-86
11. Climate Change Report reported that all of the large funders of global warming activities held stocks of the major producers of global warming chemicals, yet none had engaged these corporations in discussions of the issues, nor would any discuss this dissonance with the reporter (April 29, 1998, Vol. 1, No. 2, pp. 1-6).
12. See the Foundation's annual report, available by mail or on our web site, www.noyes.org, for the up-to-date list of our alternative investments.
13. See Stephen Viederman, "Shareholder Activity and Community Organizing," 1997 Annual Report, Jessie Smith Noyes Foundation and Stephen Viederman, "Adding Value to Your Grants," Foundation News and Commentary, January/February 1997, 68 ff. The issues of concern to the SouthWest Organizing Project are reflected in its report, Intel Inside New Mexico, Albuquerque, New Mexico, SouthWest Organizing Project,1995.
14. The Foundation Partnership on Corporate Responsibility, initially a project of the Interfaith Center on Corporate Responsibility (which has 30 years of experience representing religious institutional investors in pursuit of their concerns about issues of global finance, militarism, health, corporate accountability, environment and equality) will assist foundations learning about the issues involved in voting their proxies. Contact: Tim Smith, FPCR, 475 Riverside Drive, New York, NY 10115, 212-870-2295; fax 212-870-2023, info@iccr.org.
15. Personal communication to Stephen Viederman, January 13, 1998.
16. Kari Jones and Paul Rubin, Department of Economics, Emory University, "Effects of Harmful Events on Reputations of Firms," April 1999.
17. The Economist, August 31, 1996, page 19.
18. Noyes held Potash of Saskatchewan in its portfolio, providing a naturally available substance necessary for agriculture. When we read that the company had acquired a chemical nitrogen fertilizer plant our screened manager and we agreed to sell since this no longer supported a low-input agriculture. A portfolio manager, not sensitive to the issues, would have probably not noticed this, or would have reacted positively assuming that combining the sale of both potash and nitrogen fertilizer would be more efficient.
19. The time needed for these activities can be greatly reduced as the substantive background on the proxy issues can be obtained from the FPCR, note 14 above. The FPCR service is at this writing free to foundations. There are also other entities that can assist including the IRRC and Proxy Monitor, which charge for proxy voting information and services.
20. Data from the Management Survey must be interpreted with caution since it reflects only Council members who have responded. No effort is made to normalize the data to the foundation community as a whole.
21.
Caution is also in order interpreting these data, which are unpublished. A
brief report is available from the Noyes Foundation. 1995.
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