Do-Good Investing Grabs Market Share in US ...
Socially responsible investing is near an important milestone: Almost 1 in 10 investment dollars in America is put to work with ethical as well as financial considerations in mind.
It's a sign of how ethically based investing has come of age since the 1980s push for divestment from apartheid South Africa. Today SRI - as socially responsible investment is known to insiders - represents more than an immense growth area for brokerage houses and mutual-fund companies. Supporters say SRI may also be changing how companies think about their bottom line. And despite criticism that the movement is more focused on politics than profits, proponents say it offers clients both.
"Social issues have become more important for companies as regards their bottom line," says Farha-Joyce Haboucha, co-director for Socially Responsive Investment Services, Neuberger & Berman, an investment firm in New York. "A company's employment or environmental practices can cost it money. Social issues have an impact on profits, and really good managers know that. They're paying attention."
Big money attracted
As of last year, individuals and a wide array of groups, from government pension funds to charitable foundations and community development funds, had channeled $639 billion into SRI, out of a total $7 trillion in funds under management in the US. By comparison, in 1985 the SRI total was $65 billion, according to the Social Investment Forum, a 500-member coalition in Washington.
"The growth in this field has been a grass-roots phenomenon," says Patrick McVeigh, senior vice president at Franklin Research and supervisor of the forum's study. "Clients are asking for it, money management and research firms are beginning to respond."
Neuberger & Berman has seen its SRI portfolio, which includes a stock mutual fund and individual advisory accounts, grow to $250 million since the firm began offering it in 1992.
Another mainstream brokerage firm, Prudential Securities Inc., has begun providing research on social-investing issues alongside its traditional financial analysis. Recent reports have listed companies with gambling or tobacco interests.
Money managers focusing on SRI often apply "screens" or "filters." These may rule out alcohol, tobacco, or nuclear-power producers, for example. Broader, qualitative screens are used to look at a company as a whole, taking into account the negative and positive aspects of its performance. These screens can examine a company's environmental performance, its labor practices, or its hiring and gender policies.
"This is where this type of investing is fascinating but so frustrating," says Peter Kinder, president of the research firm Kinder, Lydenberg, Domini & Co. and author of several books on social investment. "A company like Amoco is a real leader in solar power, but it also has a horrible waste disposal record," he claims.
The challenge of selecting investments can be particularly tricky with overseas or multinational investments.
Screened investments account for only one-fourth of the SRI total. Shareholder activism is the other, higher-profile side of ethical investing. Investors have been pushing companies to change their practices through proxy votes at annual meetings, resulting in Kimberley Clark's 1995 decision to spin off its tobacco stock and Pepsico's divestiture from Burma. Investors behind these resolutions wield $473 billion in financial clout.
"One-third of the resolutions submitted to corporations deal with SRI issues," estimates Diane Bratcher of the Interfaith Center of Corporate Responsibility, the body of 275 religious investors that has used its $50 billion portfolio to produce policy shifts at Pepsico, Kimberley-Clark, and Minnesota Mining & Manufacturing.
SRI often meets a hostile reception. "The Securities and Exchange Commission is unfriendly to social responsibility," Ms. Bratcher says. "They will bend over backward to help corporations avoid shareholder resolutions on social responsibility."
"We don't take anybody's side," counters Meredith Cross of the SEC. "We just apply the rules in the most consistent and fair manner we can."
The movement has grown in scope as well as size and isn't just the province of liberal investors. Anti-abortion activists have used SRI to pressure pharmaceutical giant Eli Lilly to stop using human fetal tissue for research.
Affecting social change
"It is a very effective means for achieving social change," Mr. Kinder says. It is precisely this stance that has drawn criticism from analysts who dismiss SRI as a "moral laundering service" or say that activist investment sacrifices yields for political ideals.
Steve Viederman, president of the Jessie Smith Noyes Foundation, which uses SRI for its $62 million in assets, says incorporating social views into investment strategy is prudent. "All investing has social, political or environmental impact," he says. "And what happens in society is going to affect your investment. You have to take into account what's happening in the social arena."