|
1999 Report on Responsible
Investing Trends in the United States
|
| Social Investment Forum,
©1999 |
|
Social Investment
Forum
1999 Report on Socially
Responsible Investing Trends in the United States
SIF Industry Research
Program
November 4,
1999
A French
translation is available in Acrobat PDF form,
by Terra Nova Conseil, which is fully
responsible for its accuracy.
This report was made
possible by the generous support of the following
organizations that
specialize in socially responsible investing.
Please contact
them directly for additional information.
Calvert Group
Elizabeth Laurienzo, 301/657-7047
Christian Brothers Investment
Services
Francis G. Coleman,
212/490-0800 x101
Citizens Funds
Joseph F. Keefe, 603/436-5152
Co-op America
Todd Larsen, 202/872-5310
Domini Social Investments
Sigward Moser, 212/352-9200 x232
Dreyfus Corporation
Paul Hilton, 212/922-6262
Dubuque Bank & Trust
Mel Miller, 319/589-2138
First Affirmative Financial Network,
LLC
George Gay, 800/422-7284
x111
Friends Ivory & Sime, Inc.
Sally Zimmerman, 212/390-1895
Harris Bretall Sullivan &
Smith
Lloyd Kurtz,
415/391-8040
Kinder, Lydenberg, Domini & Co.,
Inc.
Peter Kinder,
617/426-5270
MMA Praxis Mutual Funds
Judy Martin-Godshalk, 800/348-7468
Parnassus Investments
Marie Chen, 800/999-3505
Pax World Fund Family
Thomas W. Grant, 212/732-6800
The Security Benefit Group of
Companies
Dana Ripley,
785/431-3598
Trillium Asset Management
Patrick McVeigh, 617/423-6655
Vantage Investment Advisors
Christopher Rowe, 212/247-5858
Special
Thanks:
Research Director: Patrick
McVeigh, Trillim Asset Management
Research
Team: Christopher Rowe and Tamara Doi, Vantage Investment
Advisors
Authors:
Steve Schueth, First Affirmative Financial Network, LLC;
Alisa Gravitz
and Todd Larsen, Co-op America
Design and
Web: Russ Gaskin and Herb Ettel, Co-op
America
Full
Report French Translation News
Release
EXECUTIVE SUMMARY
Socially responsible investing in the
United States experienced rapid growth from 1997 to 1999. All segments of
social investing – screened portfolios,
shareholder advocacy efforts and community investment –
expanded. In examining socially and environmentally responsible
investing trends in the two years since its last study, the Social
Investment Forum found:
- Socially responsible investing tops
the $2 trillion mark. For the first time ever, more than $2 trillion
in assets are involved in socially and environmentally responsible
investing in the United States. Social investment grew from $1.185
trillion in 1997 to $2.16 trillion in 1999.
- One out of every eight dollars under
professional management in the United States today is part of a
socially responsible portfolio. The $2.16 trillion being managed by
major investing institutions (including pension funds, mutual fund
families, foundations, religious organizations and community
development financial institutions) accounts for roughly 13 percent of
the total $16.3 trillion in investment assets under management in the
U.S., according to the 1999 Nelson’s Directory of Investment
Managers. That’s up from 9 percent of the total in 1997.
- Growth of assets involved in socially
responsible investment significantly outpaced the broad market.
Socially responsible investment assets grew at twice the rate of all
assets under professional management in the United States. Between
1997 and 1999, total assets involved in socially responsible
investment grew 82 percent – from $1.185 trillion to $2.16 trillion.
In the same period, according to a comparison of total assets under
professional management in the United States reported annually in
Nelson’s Directory of Investment Managers, the broad market
grew 42 percent (including both market appreciation and net cash
inflows).
- Socially screened portfolios
continued their explosive growth. Since 1997, total assets under
management in screened portfolios for socially concerned investors
rose 183 percent, from $529 billion to $1,497 billion. Assets in
socially screened mutual funds grew by 60 percent to $154 billion, and
assets in screened separate accounts grew 210 percent to $1,343
billion.
- The competitive performance of
socially screened mutual funds, the continuing divestment of tobacco
holdings and the increased availability of social investment options
in retirement plans played key roles in the growth of socially
responsible investment over the past two years.
- The competitive performance of
socially screened investments continues to be a regular news
feature. Social investment indexes have consistently outperformed
the S&P 500. Twice as many socially responsible mutual funds,
across all major asset classes, get top Morningstar ratings.
- An increasing number of
institutional investors – from state pension plans to hospitals and
universities -- are excluding tobacco stocks. Growing awareness of
tobacco companies’ past efforts to withhold evidence about the
health risks of smoking and the targeting of teenagers in tobacco
advertising campaigns, coupled with the under-performance of tobacco
stocks, is driving this tobacco divestment.
- More employers are offering
socially responsible investment options as part of retirement plans
and employees are increasingly moving assets into them.
- Social investors share a broad common
ground in their choice of portfolio screens. The most common screens
are tobacco – 96 percent of screened
assets, gambling (86 percent), weapon (81 percent), alcohol (83
percent), and the environment (79 percent). Other screens include
human rights (43 percent), labor (38 percent), birth control/abortion
(23 percent), and animal welfare (15 percent).
- Nearly a trillion dollars is
controlled by investors who play an active role in shareholder
advocacy on social responsibility issues. Over 120 institutions and
mutual fund families have leveraged assets valued at $922 billion in
the form of shareholder resolutions. These institutional investors
used the power of their ownership positions in corporate America to
sponsor or co-sponsor proxy resolutions on social issues. They also
voted their proxies on the basis of formal policies embodying socially
responsible goals and actively worked with companies to encourage more
responsible levels of corporate citizenship.
- Socially responsible investors are
increasingly using both screening and shareholder advocacy to
encourage greater corporate responsibility. The fastest growing
component of socially responsible investing is the growth of
portfolios that employ both screening and shareholder advocacy. Assets
in portfolios utilizing both strategies grew 215 percent, from $84
billion in 1997 to $265 billion in 1999.
- Community investing grew by 35
percent. Assets held and invested locally by community development
financial institutions (CDFIs) totaled $5.4 billion, up from $4
billion in 1997. This critically important capital is invested in
community development banks, credit unions, loan funds and venture
capital funds, and is focused on local development initiatives,
affordable housing and small business lending in many of the neediest
urban and rural areas of the country.
The Social Investment Forum’s research
finds that socially responsible investments are growing rapidly, providing
competitive performance for investors, encouraging corporate
responsibility and meeting needs in economically distressed
communities.
|
FIGURE 2: SUMMARY OF SOCIALLY RESPONSIBLE INVESTING IN THE
U.S |
|
Socially responsible investing embraces
three strategies:
Screening, shareholder advocacy and community
investing.
|
|
|
1997
($billions) |
1999
($billions) |
% Change
1997-1999 |
|
|
|
| Total Screening |
|
$529 |
$1,497 |
183% |
| Total Shareholder Advocacy |
$736 |
$922 |
25% |
| Both Screening and Shareholder * |
($84) |
($265) |
215% |
| Community Investing |
|
$4 |
$5.4 |
35% |
| Total |
|
|
$1,185 |
$2,159 |
82% |
* Some social investment portfolios conduct both
screening and shareholder
advocacy. These assets are subtracted
out of the total to avoid double
counting. |
SECTION
I
THE SCOPE OF SOCIALLY
RESPONSIBLE INVESTING
IN THE UNITED STATES
Today, one out of every eight dollars
under professional management in the United States – totaling $2.16
trillion – is involved in socially and environmentally
responsible investing. This accounts for over 13 percent of the $16.3
trillion in investment assets under professional management in the United
States, and marks a substantial increase over 1997, when 9 percent of all
assets under professional management were invested in socially responsible
portfolios.
Socially responsible investing is growing
rapidly in the United States:
- In 1984, the Social Investment Forum
conducted the first industry-wide survey to identify assets involved in
social investing and found a total of $40 billion.
- In 1995, the Forum conducted a
follow-up study and found that the assets involved in socially
responsible investing had grown to $639 billion.
- In 1997, the Forum found that social
investing had grown to $1.185 trillion, led by substantial growth in two
segments of the industry: screening and shareholder advocacy.
- In this 1999 survey, the Forum found
that social investing has again experienced rapid growth, reaching the
$2.16 trillion mark, with growth in all three segments of socially
responsible investing: screening, shareholder advocacy and community
investment. (See Figure 3.)
Social Investing
Defined
Social investing,
socially responsible investing, socially aware investing, ethical
investing, and mission-based investing all describe the same concept.
These terms are often used interchangeably to describe an approach to
investing that integrates social and environmental concerns into
investment decisions.
Social investors include individuals,
businesses, universities, hospitals, foundations, pension funds, religious
institutions and other nonprofit organizations. Social investors
consciously put their money to work in ways designed to achieve their
financial goals while working to build a better, more just and sustainable
economy. Social investment requires investment managers to overlay a
qualitative analysis of corporate policies, practices and impacts on to
the traditional quantitative analysis of profit potential.
The Three Strategies of Socially
Responsible Investment
Socially responsible investing
incorporates three main strategies that work together to promote socially
and environmentally responsible business practices, which, in turn,
contribute to improvements in the quality of life throughout
society:
- Screening is the practice of including
or excluding publicly traded securities from investment portfolios or
mutual funds based on social and/or environmental criteria. Generally,
social investors seek to own profitable companies that make positive
contributions to society. "Buy lists" include enterprises with
outstanding employer-employee relations, excellent environmental
practices: products that are safe and useful, and respect for human
rights around the world. Conversely, they avoid investing in companies
whose products and business practices are harmful.
- Shareholder Advocacy describes the
actions many socially aware investors take in their role as owners of
corporate America. These efforts include dialoging with companies on
issues of concern, and submitting and voting proxy resolutions. Socially
responsible proxy resolutions are generally aimed at influencing
corporate behavior toward a more responsible level of corporate
citizenship, steering management toward action that enhances the
well-being of all the company's stakeholders, and improving financial
performance over time.
- Community-Based Investment programs
provide capital to people who have difficulty attaining it through
conventional channels or are underserved by conventional lending
institutions. These institutions include community development banks and
credit unions, as well as loan funds and venture capital funds for
low-income housing and small business development in the United States
and abroad. Community-based investments enable people to improve their
standard of living, develop their own small businesses, and create jobs
for themselves and their neighbors.
Socially Responsible Investing:
Deep Roots
The origins of ethical
investing date back many hundreds of years. In early biblical times,
Jewish laws laid down many directives on how to invest ethically. In the
mid-1700s, the founder of Methodism, John Wesley, emphasized the fact that
the use of money was the second most important subject of New Testament
teachings. As Quakers settled North America, they refused to invest in
weapons and slavery. For hundreds of years, many religious investors whose
traditions embrace peace and nonviolence have actively avoided investing
in enterprises that profit from products designed to kill fellow human
beings. Many avoid the "sin" stocks -- those companies in the alcohol,
tobacco and gaming industries.
The modern roots of social investing can
be traced to the impassioned political climate of the 1960s. During that
decade, a series of social and environmental movements from civil rights
and women’s rights, to the anti-war and environmental movements served to
escalate awareness around issues of social responsibility. These concerns
also broadened to include management and labor issues, and anti-nuclear
sentiment. In the late 1970s, the concept of social investing began
attracting a considerably larger group of American investors due, in large
part, to concerns about the racist system of Apartheid in South Africa.
Concerned U.S. investors joined
international efforts to put economic pressure on South Africa to end
Apartheid. A growing number of investors throughout the 1970s and 1980s
used both screening and shareholder advocacy to press for change in South
Africa. Both individual and institutional investors refused to invest in
companies who did business in South Africa, and sponsored shareholder
resolutions asking companies to withdraw from South Africa.
A Lasting
Legacy
On September 24, 1993,
Nelson Mandela appeared before the United Nations Special Committee on
Apartheid and stated: "The international community should now end all
economic sanctions against South Africa." At the time, with free and fair
elections scheduled in South Africa, analysts predicted that social
investing would fade from the American investment picture. Two years after
Nelson Mandela’s historic appearance at the United Nations, the Forum set
out to discover whether social investing had actually declined.
The Forum’s research found that not only
was social investing alive and well -- it had grown dramatically over the
previous decade. The Forum’s 1995 study found that 78 percent of all money
managers in the U.S. managing socially responsible investment portfolios
on behalf of clients continued to do so after divestment from South Africa
ended. Furthermore, the research found that many institutions that had
taken up shareholder resolutions on South Africa had created committees
and policies that allowed them to take positions on other issues of
concern. Thus, even before the free elections in South Africa, social
investors had applied screening and shareholder advocacy strategies to a
broad range of issues. After South Africa, social investing continued in
full force.
Clearly, over the past 15 years, the
Bhopal, Chernobyl, and Exxon Valdez incidents, along with vast amounts of
new information about global warming, ozone depletion and the concomitant
risks to all life on the planet, have brought the seriousness of
environmental issues to the forefront of social investors’ minds. Having
protested discrimination in South Africa, investors also began to look
more deeply at the employment practices of companies in the United States.
Most recently, issues of human rights and healthy working conditions in
factories around the world producing goods for U.S. consumption have
become rallying points for investors who expect both good financial
performance and good social and environmental performance from the
companies in which they invest.
In 1995, the Forum also decided to conduct
follow-up trends surveys every two years. The 1997 study found that social
investing grew rapidly in just two years, from $639 billion to $1.185
trillion. In this 1999 study, the Forum finds that this growth has
continued, with total assets under professional management of $2.16
trillion invested in portfolios utilizing social screening criteria,
actively involved in shareholder activism, and/or invested in local
community development financial institutions. This 82 percent growth rate
is roughly twice that of all assets under professional management in the
U.S.
The following sections of this report
detail the dimensions of the growth of all three components of social
investing. Finally, this report describes the study’s methodology and
provides additional information about social investing and the Social
Investment Forum.
SECTION
II
SCREENED
PORTFOLIOS EXPERIENCE RAPID GROWTH
Between 1997 and 1999,
the amount of money in socially screened portfolios, including mutual
funds, rose 183 percent, from $529 billion to $1,497 billion. (See Figure
4.)
Of the $1,497 billion in screened
portfolios with one or more screens, $154 billion are in screened mutual
funds and $1,343 billion in separate accounts, privately managed and
screened for both individual and institutional clients.
Key components of the growth of screened
portfolios include:
- The number of screened mutual funds
increased to 175 in 1999, from 139 in 1997, and just 55 in 1995.
- Assets in screened mutual funds grew by
60 percent from 1997 to 1999. Screened mutual fund assets expanded to
$154 billion in 1999 from $96 billion in 1997 and up from just $12
billion in 1995.
- Assets in separate accounts grew by an
impressive 210 percent from 1997 to 1999. These screened private
portfolios rose to $1,343 billion in 1999, from $433 billion in 1997,
and up from just $150 billion in 1995.
- Of the total $1,497 billion in screened
portfolios, $285 billion is in portfolios controlled by investors who
are also involved in shareholder advocacy.
|
FIGURE 4: SCREENED PORTFOLIO
GROWTH |
| Screened Portfolios |
1995 |
1997 |
1999 |
% Change |
|
|
($billions) |
($billions) |
($billions) |
1997-1999 |
| Mutual Funds |
$12 |
$96 |
$154 |
60% |
| Separate Accounts |
$150 |
$433 |
$1,343 |
210% |
| Total |
|
$162 |
$529 |
$1,497 |
183% |
|
|
|
|
|
|
Screens Used by Social
Investors
Social investors share
a broad common ground in their choice of portfolio screens. In
1999:
- Tobacco is the most common screen – 96
percent of all screened assets are void of tobacco holdings.
- The majority of assets are screened to
exclude gambling (86 percent); alcohol (83 percent); and weapons (81
percent).
- The majority of screened assets – 79
percent – also address environmental concerns, with screens that either
exclude securities of companies with bad environmental track records or
seek to include companies with good environmental performance and
environmentally-friendly products, or both.
- Assets are also frequently screened on
issues of human rights (43 percent); labor (38 percent); birth control
and abortion (23 percent); and animal welfare (15 percent).
The majority of investment managers use
multiple screens for their screened portfolios; 88 percent report using
three or more screens.
Analysis of Factors
Spurring the Rapid Growth of Socially Screened
Investing
Several factors
account for the rapid growth of screened portfolios:
- Performance: Socially responsible
investing is performing well financially for both individual and
institutional investors. Investors that find the concept of portfolio
screening compelling are moving increasing portions of their assets into
screened portfolios as they determine that they can achieve competitive
performance. The evidence of the competitive performance of socially
screened portfolios includes:
Socially screened indexes, designed for
direct comparison to the S&P 500 index, are outperforming the
S&P 500. Both the Domini 400 Social Index (DSI) and the Citizens
Index have outperformed the S&P 500 on a total returns basis since
their inception. (See Figure 6.)
- Socially screened mutual funds,
across all major asset classes, are twice as likely as all mutual
funds to get top Morningstar ratings.
- A growing body of academic studies
have found that socially screened portfolios provide competitive
performance to investors.
FIGURE 6: THE SOCIALLY SCREENED DOMINI SOCIAL INDEX
AND
CITIZENS INDEX HAVE OUTPERFORMED THE S&P
500.
|
 |
DSI 400 AND CITIZEN’S INDEX
VS. S&P 500
Value of $1 invested
May 1990 - May
1999
Comparison of Domini Social Index 400 and
Citizen’s Index versus Standard & Poor’s 500. Courtesy of
Kinder, Lydenberg & Domini, and Citizen’s Funds. Analysis tracks
the growth in value of $1 invested in the S&P 500 since April
1990; $1 invested in the S&P 500 in April 1990, switched to the
DSI 400 May 1990; and $1 invested in the S&P 500 in April 1990,
switched to the Citizen’s Index in May
1995. |
Emily Hall and John Hale, "How Do
Socially Responsible Funds Stack Up?" http://www.morningstar.com/: Aug.
1999.
See for example Michael Russo and Paul Fouts, "A
Resource-Based Perspective on Corporate Environmental Performance and
Profitabilities," Academy of Management Journal Vol. 40 No. 3
Jun. 1997: 534-559, where the authors demonstrate that companies that
adopt higher environmental standards than those required by government
regulation post higher profits. And see John B. Guerard, Jr. "Is there a
cost to being a Socially Responsible Investor?" Journal of
Investing Summer 1997, where the author found that risk adjusted
performance is the same for socially screened funds as for unscreened
funds.
- Anti-Tobacco Sentiment:
Tobacco is an example of an issue of social concern that has become a
financial consideration. Investors are continuing to divest from tobacco
stocks due to concerns about the impact of smoking on public health –
spurred by recent admissions on the part of the tobacco industry that it
has marketed cigarettes to children and withheld evidence about the
health risks of smoking. In addition, a growing number of investors are
spurning tobacco because tobacco stocks have become more volatile and
less profitable. Other recent studies have also identified the trend
among investors to divest tobacco stocks:
- The Investor Responsibility Research
Center (IRRC) conducted a nationwide survey of institutions’ tobacco
investment guidelines. The survey, conducted in the summer of 1998
found a growing number of institutions with tobacco investment
restrictions. Altogether, 437 institutions were contacted. Of the 174
responses, 29 percent of educational institutions reported having
tobacco investment restrictions, as did 20 percent of public pension
funds, 79 percent of health and life insurers and 92 percent of public
health associations.
- Hewitt Associates, in a study of
2,500 hospitals, identified that 44 percent exclude tobacco stocks
from their portfolios.
- Increased Participation by Retirement
Plans: More employers are offering socially screened investment options
as part of retirement plans, and employees are increasingly moving
assets into them. Other recent studies have also identified the growth
in socially screened retirement investments:
- A Calvert Group sponsored study of
investors’ attitudes toward socially responsible investing showed that
35 percent of mutual fund investors with defined contribution
retirement plans at work said that their employer offers a socially
screened investment option, more than double the 16 percent found in
1996.
- Domini Social Investments reported
that over the past two years, defined benefit plans have grown from
about one percent to more than 33 percent of the assets in the Domini
Social Equity Fund, as of October 1999. Citizens Funds and other
socially responsible mutual funds report similar rapid growth of
retirement assets within their funds.
The United States Department of Labor’s
Office of Regulations and Interpretations issued a May 1998 letter that
helped settle a lingering question about whether a socially responsible
mutual fund could be included in retirement plans that qualify under
section 404c of the Employment Retirement Income Security Act (ERISA).
The letter clarified that investments such as socially screened mutual
fund could be included in an ERISA-qualified retirement plan, as long as
the fiduciary determines that the mutual fund is expected to provide an
investment return similar to alternative investments having similar risk
characteristics. This clarification helped spur the use of socially
screened funds in retirement plans. It also helped provide a greater
level of comfort for trustees and fiduciaries to make use of social
screens for other types of institutional investments.
SECTION
III
SHAREHOLDER ADVOCACY
ADVANCES
ISSUES OF SOCIAL CONCERN
Shareholder advocacy
describes the actions many socially aware investors take in their role as
owners of corporate America. These efforts include engaging or "dialoging"
with companies on issues of concern, and submitting and voting proxy
resolutions when companies refuse to talk or when the dialog breaks down.
Shareholder advocacy is undertaken primarily by institutional investors.
These efforts are aimed at encouraging corporate management to choose
policies and practices that advocates believe will enhance the well being
of all the company’s stakeholders and improve both the company’s
reputation and bottom line over time.
Shareholder advocacy is on the
rise:
- Between 1997 and 1999, the amount of
money controlled by investors who are involved in shareholder advocacy
rose from $736 billion to $922 billion, an increase of 25
percent.
- Of this $922 billion, $657 billion
represents institutional investors that are actively involved in
shareholder advocacy but do not employ social screens, and $265 billion
is both screened and involved in shareholder advocacy
efforts.
The Shareholder Process:
Background
This section takes a
brief look at what the shareholder process and shareholder resolutions
are, how they work, and who utilizes the process.
Shareholder Resolutions: What They Are and How
They Work
As stockholders and owners of the company,
shareholders have both a right and a responsibility to take an interest in
the company’s performance, policies, practices and impacts. The
shareholder resolution process provides a formal communication channel
between shareholders, management and the board of directors, and with
other shareholders, on issues of corporate governance and social
responsibility. In addition, shareholder actions often complement the work
of other citizen advocates and nonprofit organizations in pressing
corporations to adopt socially or environmentally responsible conduct, and
often open company doors that are otherwise closed to citizens. The
Securities and Exchange Commission (SEC) regulates the shareholder
process.
The shareholder resolution process is open
to a wide range of investors. According to SEC rules, any shareholder who
owns at least $2,000 of stock in a given company for one year may file
shareholder resolutions requesting information from management or asking
management to consider changes in practices or policies. Resolutions
appear on the company’s proxy ballot and are voted on at its annual
meeting by all shareholders.
In many cases, shareholder advocates do
not need to even formally introduce a resolution for their concerns to
have an impact. Most often this occurs because management, knowing that
investors have access to the shareholder resolution process, agrees to
discuss issues with investors in order to avoid a formal shareholder
proposal. Thus, the decision to file a shareholder resolution often sparks
a fruitful, ongoing dialog between shareholder proponents and management,
which is generally the most effective way to encourage changes within the
company. When fruitful dialog with management occurs, shareholder
advocates often willingly agree to withdraw their resolutions before
having them presented to the body of the company's shareholders through
the proxy ballot and at the annual meeting. Thus a successful shareholder
process may lead to an effective dialog and the company’s agreement to
improve a practice or policy without the shareholder proposal needing to
go to a vote before the entire body of shareholders.
Even when shareholder resolutions are
presented to the entire body of shareholders, proxy voting is not like
electoral politics. Success is not measured solely through the attainment
of a majority vote. In fact, a shareholder campaign may achieve its goals
having only obtained a relatively small number of votes. Managements know
that there are a number of factors that often limit the votes attained. If
an individual or institution does not actively vote their proxies, the
votes default to management. Many large institutional investors vote only
if they have researched the issues involved, a process which may take more
than a year and extend beyond the initial vote. Also, investors who own
stocks through mutual funds do not have the ability to vote their shares.
Therefore, even relatively low votes through the proxy process often
indicate real, and likely increasing, interest among shareholders, and
reflect interest on the part of the public and press. This combined level
of interest is often enough to encourage management to enter into dialog
and to consider changing its practices or policies.
In short, not only is the shareholder
process a right and responsibility of shareholders, the existence of the
shareholder resolution process creates a healthy climate of dialog between
investors and management. Management-shareholder dialogs have led to many
creative outcomes that have advanced issues of social and economic justice
while providing bottom-line benefits to the performance of the company,
and thus added value to all shareholders.
Types of Shareholder Resolutions
and Who Files Them
The shareholder
resolution process is used by individuals and by some of the nation’s
largest institutional investors, such as public pension funds and
foundations. Investors have an enormous financial and ethical stake in a
healthy shareholder resolution process.
Traditionally, analysts have classified
shareholder resolutions into two categories, corporate governance and
corporate social responsibility.
- Corporate governance resolutions
address issues such as confidential voting, board of director
qualifications, compensation of directors and executives, and board
composition.
- Social responsibility resolutions
address issues such as company policies and practices on the
environment, health and safety, race and gender, tobacco, sweatshops and
other human rights issues.
Shareholder actions introduced by socially
responsible investors are best categorized according to the social issue
that is being addressed. According to the Interfaith Center on Corporate
Responsibility (ICCR), in 1999 socially concerned investors -– including
religious shareholders, foundations, mutual funds, social investment
managers, pension funds and others -– filed approximately 220 resolutions
with more than 150 major U.S. companies. Figure 6 (below) details the
major areas covered by their resolutions:
| FIGURE 6: CATEGORIES OF SHAREHOLDER
RESOLUTIONS |
| 1999 Shareholder
Issues |
# of
Resolutions |
| Environment |
54 |
| Global Corporate
Accountability |
41 |
| Equality |
38 |
| Corporate
Governance/Executive Compensation |
30 |
| International
Health and Tobacco |
31 |
| Global
Finance |
14 |
| Militarism and
Violence |
12 |
Examples of Shareholder Successes in
1999
In 1999, socially
responsible shareholders have experienced successes in each of the
categories listed above. The following is a sampling of successful
actions, which illustrate the process of shareholders using resolutions to
open dialog with companies, and the ways in which shareholder actions work
in concert with other forms of advocacy.
- Home Depot announced an environmental
wood purchasing policy and stated that it would eliminate its practice
of buying three species of old-growth timber from endangered forests by
2002. At an annual meeting three months earlier, 12 percent of
shareholders sent a clear message by asking the company to develop a
plan to stop selling old-growth wood.
- After one year of dialog with
shareholders about their resolution, Baxter International, the world's
largest health-care products manufacturer, has agreed to look for
alternatives and to phase out polyvinyl chloride (PVC) materials in its
intravenous products. During manufacture and incineration, PVCs release
dioxin. Two hospital corporations –- Universal Health Services and
Tenant Healthcare -– have also agreed to research alternatives to PVCs.
- RJ Reynolds has agreed to separate its
tobacco business from its food business, which shareholders have been
encouraging the company to do for years.
- McDonald's has agreed to implement a
sexual orientation non-discrimination policy. Trillium Asset Management
and the Pride Foundation co-filed this resolution, which was withdrawn
after the company agreed to enter into dialog over the proposal.
- Since 1996, shareholders have been
asking General Electric to clean up toxic PCBs in the Housatonic River
in western Massachusetts. A number of forces, including government
agencies, were brought to bear on GE, and shareholder resolutions were
instrumental in calling attention to these polluted areas. In October
1999, GE agreed to spend $150 million to $250 million cleaning up a
stretch of the Housatonic River that was polluted by PCBs decades
ago.
Examples of Shareholder Advocacy
Planned for 2000
Socially responsible
shareholder advocates are once again planning to address a broad range of
issues with companies. Issues range from the environment to equality to
militarism and violence. Examples are listed in Figure 7
below.
|
FIGURE 7: SHAREHOLDER ACTIONS PLANNED FOR 2000
(Examples) |
| Company/Industry
(Examples) |
Goal(s) |
| Kraft,
McDonald's, Kroger and Archer Daniels Midland |
Explore the
health and safety issues surrounding genetic
engineering |
| Amoco, Chevron,
General Motors and Ford |
Report on carbon
emissions (global warming) and to disclose affiliations with
associations and lobbying groups that might be working against
pollution controls |
| Baker Hughes, Dun
and Bradstreet, TJX (parent company of TJ Maxx), Bell
Atlantic |
Implement the
MacBride Principles for fair employment in Northern
Ireland |
| Exxon, Southwest
Airlines, GE |
Implement sexual
orientation non-discrimination policies |
| Federated
Department Stores (Macy's, Bloomingdale's) |
Stop selling
items with negative images of indigenous peoples |
| Chevron and
Exxon |
Abandon plans to
drill in the Arctic National Wildlife Refuge |
| Huffy
(bicycles) |
Freeze executive
pay when the company lays off a significant number of
employees |
| Kmart, Wal-Mart
and others in the apparel industry |
Stop sweatshops
by reporting on vendor compliance programs, working with nonprofit
organizations in independent monitoring programs, and paying
sustainable living wages |
| Unocal |
Withdraw operations from Burma because of human rights
issues |
Sources: Interfaith Center on Corporate
Responsibility, Trillium Asset Management, Maryland Safe Energy Coalition,
Friends of the Earth, and As You Sow Foundation.
SECTION IV
COMMUNITY INVESTING GROWS AS A
FORCE FOR ADDRESSING
LOCAL PROBLEMS
Community investing grew by
35 percent between 1997 and 1999. Assets held and invested locally by
community development financial institutions (CDFIs) totaled $5.4 billion
in 1999, up from $4 billion in 1997.
These critically important capital
resources are focused on local development initiatives, affordable housing
and small business lending in many of the neediest urban and rural areas
of the country. The people who benefit from community investment
initiatives generally don’t have access to reasonably priced capital
through traditional sources.
The Four Types of Community Investing
Both institutions and
individuals invest in four main types of CDFIs that provide funds to
communities in need:
- Community development banks (CDBs).
CDBs, the type of CDFI with the greatest amount of assets ($2,922
million), are located throughout the country, and provide capital to
rebuild many lower-income communities. For account holders, they offer
services available at conventional banks, including savings and checking
accounts. Like their conventional counterparts, they are federally
insured.
- Community development loan funds
(CDLFs). CDLFs are the second largest type of CDFI, with $1,742 million
in assets. These funds operate in specific geographic areas, acting as
intermediaries which pool investments and loans provided by individuals
and institutions at below-market rates to further community development.
One form of CDLFs are microenterprise development loan funds.
Microenterprise funds have lent $25 million to low-income individuals
for purposes such as small business start-ups, and help people who may
not be able to go through the traditional financing route. CDLF funds
are not federally insured.
- Community development credit unions
(CDCUs). With combined assets of $601 million, there are over 100 of
these membership-owned and controlled nonprofit financial institutions
serving people and communities with limited access to traditional
financial institutions. Account holders receive all the services
available at conventional credit unions and are covered under the
National Credit Union Share Insurance Fund.
- Community development venture capital
funds (CDVCs). With assets of $150 million, community development
venture capital funds use the tools of venture capital to create good
jobs, entrepreneurial capacity, and wealth that improves the livelihoods
of low-income individuals and the economies of distressed communities.
CDVC funds make equity and equity-like investments in highly competitive
small businesses that hold the promise of rapid growth. The investments
typically range from $100,000 to $1 million, much smaller than most
traditional venture capital investments. The companies in which CDVC
invest generally employ between 10 and 100 people.
| FIGURE 8: THE FOUR TYPES OF CDFIS AND THEIR ASSETS,
1999 |
| Community
Development Banks |
$2,922
million |
| Community
Development Credit Unions |
$601 million |
Community Development Loan Funds
(includes Micro Enterprise Development Funds) |
$1,742
million |
| Community
Development Venture Capital Funds |
$150 million |
| Total Community
Investment Assets |
$5,415
million |
Expanding Community
Investment
The Social Investment Forum has
recently launched a program to encourage expanded community investment. As
part of this program, the Forum is:
- Encouraging all socially
responsible investors involved in screening or shareholder advocacy, or
both, to direct at least one percent of their portfolios to community
investing.
- Preparing a guide to community
investing, to be published early in 2000, which will assist investment
professionals who are interested in directing funds toward CDFIs. The
guide will provide information on managed money and the range of options
in community investment, and will provide effective methodologies and
information-sharing on how institutions and money managers can overcome
barriers to entry for community investment.
SECTION
V
METHODOLOGY
The Social Investment Forum utilizes
a direct survey methodology to determine the assets involved in socially
responsible investing. This section describes the data qualification, data
sources and survey methodology used. It also discusses improvements to the
methodology in this 1999 survey. Finally, this section identifies social
investment assets which are not counted in the survey, thus providing
additional confidence that the survey results are a conservative statement
of the total assets involved in socially responsible investment in
1999.
Data
Qualification
For purposes of the survey underlying
this Social Investment Forum study, an institution was considered to
engage in socially responsible investing if its practice includes one or
more of the following:
- Screening: The institution
utilizes one or more social screens as part of a formal investment
policy. Only that portion of an institution’s funds that are screened
for one or more issues are credited as such, and are included in the
screened portfolio component of social investing.
- Shareholder Advocacy: The
institution sponsors or co-sponsors shareholder resolutions on social
responsibility issues, addressing issues of social or environmental
concern. A qualifying institution must have filed at least one
resolution as a socially responsible investor over the past three years,
or be part of the active shareholder dialog process managed by the
Interfaith Center on Corporate Responsibility. If the institution was a
sponsor or a co-sponsor, the assets under its management were included
in the shareholder advocacy segment of social investing. Resolutions on
corporate governance were not included.
- Community Investment: The
institution qualifies as a Community Development Financial Institution
(CDFI), which the Forum defines as an organization that is a private
sector institution, that has a primary mission of lending to low-income
or very-low-income communities, and that engages in finance as its
primary activity.
Exclusions were determined in the
following manner:
- Social Screening: Any institution
which says that it takes into account social criteria in its investment
decisions, but has no formal policy and/or no social screens was
excluded.
- Shareholder Advocacy excludes any
institution that:
- Votes proxies in support of
shareholder resolutions on issues of concern to socially responsible
investors, and has an active social investment committee, but has not
sponsored or co-sponsored a resolution in the past three years or does
not take part in active shareholder dialog through the Interfaith
Center on Corporate Responsibility.
- Says it "votes proxies" but
lacks any formal policy determining votes; or votes with management in
a clear majority of cases, especially on resolutions submitted by
socially concerned investors.
- Conducts only shareholder
resolutions regarding corporate governance.
- Community Investment: Any
institution that says it has some type of economically targeted
investment(s) which are not recognized by a Community Development
Financial Institution (for details, see Data Sources below) was
excluded.
The research employed in this study
is designed to identify assets that qualify as socially responsible
investments. Members of the Social Investment Forum are included in the
survey, but the survey is not limited to these members. Mutual funds and
other institutions and money managers that are not members of the Social
Investment Forum can also qualify for inclusion in the survey provided
they meet the criteria outlined above.
Data
Sources
The following data sources were used
to compile the institutions and investment managers included in the
survey:
- Mutual funds: Mutual funds that
have at least one social screen were included in the study. This list
was compiled from material provided by Morningstar, Wiesenberger, the
Social Investment Forum, First Affirmative Financial Network, Jack
Brill, and public media sources.
- Other screened portfolios: Forum
researchers compiled a list of all investment managers who identify
themselves in the 1999 Nelson’s Directory of Investment Managers as
utilizing "social screening" as an investment strategy. Researchers also
listed all institutions identifying themselves in the 1999 Nelson’s
Directory of Plan Sponsors as restricting their investments with some
social criteria. Added to this list were institutions that were
otherwise known to have adopted social screening strategies in the past
two years. These institutions were identified through the assistance of
the Investor Responsibility Research Center, the Interfaith Center on
Corporate Responsibility and multiple media sources. Other additions
came from a Hewitt Associates survey of the health care industry which
identified hospitals that have money managed using social investment
criteria.
- Shareholder Advocacy: The list of
institutions involved in shareholder advocacy came from the Interfaith
Center on Corporate Responsibility’s Corporate Resolutions Book, the
Investor Responsibility Research Center’s "Checklist of Shareholder
Resolutions" in the Corporate Issues Reporter, and from the
AFL-CIO.
- Community Investment: The Forum
contacted all of the community development trade organizations to
determine the number of member institutions and the assets they control.
Trade associations contacted included the National Community Capital
Association, the Association for Enterprise Opportunity, the National
Federation of Community Development Credit Unions, and the Community
Development Venture Capital Alliance. Since there is no trade
association for community development banks, the Forum gathered data on
these institutions from the individual banks directly.
Survey
Methodology
The Social Investment Forum utilizes
a survey to determine the total assets involved in socially responsible
investing. The survey methodology is direct and
straightforward:
- The list of institutions to be
surveyed is compiled from the data sources described in the Data Sources
subsection above.
- The entire list of managers and
institutions were surveyed for the amount of assets they manage which
qualify under social screening, shareholder advocacy and community
investing. Managers and institutions that screen were also surveyed for
the type of screen(s) utilized. Community Development Financial
Institutions (CDFIs) were surveyed for the amount of assets managed by
their member organizations. Assets managed by hospitals with screens as
reported in the Hewitt Associates survey that were not already included
in the Social Investment Forum survey were added.
- The surveys are compiled by
investment type and any double counting is eliminated. An example of
double counting that is eliminated is a mutual fund sub advisor and a
mutual fund reporting the same assets. No estimates or sampling
techniques were used in gathering data for this report.
Methodology
Improvements
This survey is conducted by the
Social Investment Forum every two years. The methodology is applied and
improved to allow survey results to be compared across years. Improvements
and changes in 1999 include:
- Shareholder Advocacy: The data
qualification criteria for shareholder advocacy were made stricter. In
previous years, qualification criteria for shareholder advocacy included
institutions that voted proxies in support of shareholder resolutions on
issues of concern to socially responsible investors, and had an active
social investment committee, but did not sponsor or co-sponsor a
resolution in the past three years. For the 1999 survey, institutions
that vote on resolutions but do not sponsor or co-sponsor them were not
included. By making the shareholder qualification stricter, $10 billion
were eliminated from the 1999 shareholder advocacy only category that
would have been included in previous years. Since this makes the
methodology more conservative without significantly changing it,
shareholder advocacy results can still be compared over the
years.
- Screened mutual funds (1997): The
total number of mutual funds was revised downward in 1997 from 144 to
139 because of the elimination of a mutual fund company which had five
funds. This elimination was due to a changed reporting of qualification
by the mutual fund company. This revised number of mutual funds for 1997
is included in this report. This revision affected the total number of
mutual funds, but did not materially affect the total amount of assets
in the screened mutual fund category, so there was no need for the total
screened mutual funds figure to be revised.
- Introduction of a new category:
This 1999 report adds a new category for tracking social investment
assets managed by institutions that both screen and conduct shareholder
advocacy. As social investing grows, investors that once only conducted
shareholder advocacy are adding screens and investors that once did only
screening are engaging in shareholder advocacy. This is an important
emerging trend to track. In this survey, and going forward, the Forum
will track and report on this category of investors that do both
screening and shareholder advocacy. This figure was captured in the 1997
survey and reported as a footnote. To the extent that it appeared in the
1995 survey, assets managed by institutions that conducted both
screening and shareholder advocacy were included in the totals for
screening. The tables and charts in this report have been updated to
include the "both" category for both 1997 and 1999.
Conservative Bias: Note on
Undercounting
The Social Investment Forum believes
that the data sources included in this study allow the survey to identify
nearly all of the assets involved in socially responsible investment.
However, there are certain types of social investment assets that this
survey is not able to identify, including:
- Investment assets owned by
individuals who directly purchase the equity or debt securities of
companies according to the individual's personal social investment
criteria. With the rapid increase of internet trading since the 1997
study, and the increased information available on the internet that
provides individual investors with the information needed to create
their own screened investment portfolios, this may be a growing area of
socially responsible investment.
- The stocks and bonds of
responsibly managed companies purchased for individuals through personal
stock brokers and financial planners.
- The portfolios of socially aware
investors whose investment assets are managed through the trust
departments of banks or law firms.
- Smaller investors who participate
in the shareholder advocacy process.
In short, there are a number of
investors and investment portfolios engaged in socially responsible
investing which are currently invisible to the public view. The Forum
intends to explore the development of the survey methodology to capture
these sources in the future. At present, this undercounting of assets
involved in social investment introduces a conservative bias to the
survey, and provides confidence that survey results are a conservative
statement of the total assets involved in socially responsible investment
in 1999.
SECTION VI
ABOUT THE SOCIAL INVESTMENT FORUM
The Social Investment Forum is a
national nonprofit membership association dedicated to promoting the
concept, practice and growth of socially and environmentally responsible
investing. The Forum’s membership includes over 500 social investment
practitioners and institutions, including financial advisers, analysts,
portfolio managers, banks, mutual funds, researchers, foundations,
community development organizations and public educators. Membership is
open to any organization or practitioner involved in the social investment
field. The Forum provides cutting-edge research on trends in social
investing, publishes the nation’s most comprehensive annual directory of
practitioners in the field, and publishes a Mutual Fund Performance Chart
which provides monthly performance data on socially screened funds. The
Forum’s web site, http://www.socialinvest.org/,
links interested parties to member sites and dozens of other
resources.
Helping to Create a More Just and
Sustainable Future
Socially aware investors are
sensitive to the idea of achieving personal financial goals while putting
their money where their hearts are. The multiple strategies which combine
to define the concept of socially responsible investing are important to
achieving the multiple goals of social investors.
Social Screening allows socially
aware investors to match their personal values to their investment
decisions. Through social screening, investors include or exclude
securities based on the track record of companies on key issues of
societal impact, such as environmental performance, the implementation of
anti-discrimination and other fair workplace policies, human rights and
the exclusion of sweatshop and child labor in the countries in which the
companies conduct business, and product impact on the health and safety of
consumers (tobacco, gambling, weapons). Shareholder Advocacy provides
concerned investors with a powerful way to communicate directly with
corporate management and boards of directors about desired changes in
policy and practice. Community Investing works in local communities where
capital is not readily available to create jobs, affordable housing and
environmentally-friendly products and services.
Socially aware investors are a fast
growing segment of investors who applaud and reward management for
responsible corporate practices and put pressure on firms not taking
responsibility for their impacts on society. As dollars are pooled around
social investment strategies, these progressive individual and
institutional investors encourage more responsible corporate citizenship
through traditional marketplace mechanisms.
FOR MORE INFORMATION ON THIS
REPORT
Social Investment Forum
1612 K Street NW,
#600
Washington, DC 20006
Telephone: 202-872-5319
Facsimile:
202-331-8166
E-mail: info@socialinvest.org
Web: http://www.socialinvest.org/
FOR PRESS MATERIALS AND
INFORMATION
Todd Larsen
Telephone: 202-872-5310
E-mail: media@socialinvest.org
1999
SRI Trends News Release
FOR MEMBERSHIP
INFORMATION
Rob Hanson
Telephone: 202-872-5342
E-mail:
membership@socialinvest.org |
|
