The
SRI Explosion
Although SRI dates back to the late
1700s - when investors shunned companies
involved with alcohol, gambling and
tobacco - modern screening of investments
for social purposes has its roots
in the anti-war movement of the 1960s.
Interest in SRI has grown significantly
since then. Assets in SRI accounts
rose from $40 billion in 1984 to $639
billion in 1995 and nearly doubled
from 1995 to 1997, according to the
Social Investment Forum, an industry
watchdog. In a 1997 survey, which
identified some existing accounts
for the first time, the Forum found
that SRI assets had grown to $1.2
trillion - or about 9% of total U.S.
assets under management. This growth
in SRI assets is significantly stronger
than growth for managed assets as
a whole, the Forum says. Between 1995
and 1997, the number of SRI mutual
funds rose from 55 to 144. (Data from
a 1999 Forum survey is expected at
the end of this year.)
The
recent surge in SRI stems largely
from stronger demand for tobacco-free
portfolios, says Forum President Steve
Schueth. Currently about 85% of all
socially screened accounts exclude
tobacco-related firms. A rise in stockholder
activism has also contributed to SRI
growth.
Responsible Returns
Compelling performances by SRI portfolios
have helped, too. For many years,
conventional wisdom held that returns
from screened investments could not
compete with returns from non-screened
accounts. Recent results have proved
such theories untrue:
-
Stocks of socially managed firms
represented by the Domini Social
Index and the Citizens Index earned
stronger annualized returns than
stocks in the Standard & Poor's
500 Index for the one- and three-year
periods ended March 31, 1999.
Both the Domini and Citizens indices
have outpaced the S&P 500 since
their inceptions in 1990 and 1995,
respectively.
-
In 1998, 21 of the 41 mutual funds
tracked by the Social Investment
Forum that were three years or
older earned one of two top ratings
from Lipper Analytical Services,
a mutual fund research firm, for
their one- and three-year returns.
-
For the three years ending in
1998, 13 of the 41 funds earned
one of two top ratings from Morningstar
Inc., another research firm.
These performances should be "the
last nail in the coffin of the tired
myth that responsible investing means
sacrificing returns," says the Forum's
Schueth. "The data show conclusively
that socially responsible funds can
go toe-to toe with anyone."
Like other investment portfolios,
SRI funds look for high-quality companies
with strong financials. Some SRI experts
suggest that companies with social
consciences may even have special
business advantages.
"Good
employee and community relations,
a diverse workforce, and protecting
the environment are all things that
can add to a company's strength,"
says Jon Hale, an analyst with Morningstar,
"by giving [the company] more productive
workers, community support, a good
corporate image and less exposure
to lawsuits."
Not all SRI funds are winners, of
course. "Investors must look carefully
for SRI funds that have track records
competitive with their non-screened
peers," says Hale.
Women's
Screens Take Hold
To screens for "negatives" like involvement
in tobacco, gambling, alcohol, military,
or nuclear power, SRI funds have added
"positive" screens for company policies
that benefit women, minorities, and
the environment. About 25% of SRI-screened
assets meet various "fair employment"
criteria, according to the Social
Investment Forum. In addition to company
labor practices, these criteria may
address the gender and racial diversity
of a firm's managers and board of
directors. Other screens check for
patterns of discrimination based on
gender - as well as race, religion,
disability, or sexual orientation.
The Domini Social Equity Fund, which
invests in the 400 companies included
in the Domini Index, takes its "women's
screens" a step further. According
to its prospectus, the fund seeks
companies with "a record of purchasing
from or investing in women- and minority-owned
business," as well as firms "with
strong employee benefit programs that
address work/family concerns such
as child care, elder care, and flextime."
The fund gives special weight to companies
whose chief executive officers are
women or minorities and to firms that
have made "notable progress" in promoting
women and minorities to positions
with "profit-and-loss" responsibilities.
In choosing its screens, the fund
tries to reflect values that are currently
important to a majority of socially
responsible investors, says President
Amy Domini. To this end, the fund
updates its screens yearly based on
a survey of SRI professionals. "Gender
diversity was not one of the fund's
screens when we started," Domini notes.
"It became a core issue in 1994, when
investors grew more interested this
area."
The Women's Equity Mutual Fund includes
screens for career development and
training programs that benefit women
employees and for company advertising,
promotion, and marketing that present
positive images of women. The fund
avoids companies that promote "sexist
stereotypes in the workplace," companies
that "sell or promote products that
adversely affect women," and companies
that "demonstrate unwillingness to
engage in a dialogue concerning women's
issues."
"Women
are the secret weapon of U.S. companies,"
says Women's Equity Mutual Fund President
Linda Pei. Like firms in Japan, she
says, U.S. companies can significantly
improve employee loyalty and strengthen
productivity by treating all workers
fairly.
Choosing
Women-Friendly Funds
How do you choose a women-friendly
mutual fund? If the investment objectives
meet your needs, and the long-term
performance beats the average for
its peers, take a look at the fund's
prospectus. In the section on investment
policies, you'll find a list of the
fund's social screens. Some funds
give more detailed descriptions in
separate brochures. You can also check
the fund's web site or, in the case
of smaller funds, speak with the portfolio
manager. By reading the latest shareholder
report, you can see what the fund
actually owns.
Don't
be surprised if a fund invests in
companies with less-than-perfect records
on women's concerns, however.
"No
SRI fund has drop-dead standards for
women's issues," says Amy Domini.
"Some companies can be weak on one
issue and strong on several others.
You have to weigh many factors."
Anita Saville is the publisher of
Purse
Strings, an investment newsletter
for women
