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Cause investing: Do-it-yourself giving

Don’t underestimate the power of cause investing. As it happens, putting your money into “socially responsible” stocks, mutual funds and community loans can put change in your pocket — and make change in your world, Contribute magazine reports.
/ Source: Contribute Magazine

You won’t – by yourself – halt global warming if you buy stock in a company that sells solar-powered cars to drivers in Mexico City. And your dad probably won’t single-handedly end the genocide in Darfur if he sells his stock in that oil company that does business with the Sudanese government.

But don’t underestimate the power of cause investing. As it happens, putting your money into “socially responsible” stocks, mutual funds and community loans can put change in your pocket — and make change in your world.

How much change? So-called Socially Responsible Investment funds (SRIs) continue to match or outperform the S&P 500: They can make as much money for you as any other. The Domini 400 Social Index, the SRI world’s answer to the S&P 500, shows that since 1990, the S&P 500 racked up a total return of 10.57%, versus the 11.01% return of the Domini 400 — proof positive that armchair activists can profit just by weaving their values about society, the environment, animal rights, corporate America and religion into their long-term savings strategies.

And consider the choices. There’s an SRI for practically every religious belief, social cause or global viewpoint. There’s the Ave Maria Catholic Values Fund, which invests in companies that operate in keeping with Vatican teachings on abortion, marriage, and other issues. Then there’s the Domini Social Investments fund, which — among other things — advocates fair employment practices for gays and lesbians. For the environmentally minded, there’s the Winslow Green Growth Fund, which invests in companies that compete in green market sectors such as clean energy, natural products, and recycling.

And that’s just for starters. North Dakota-based Integrity Mutual Funds, Inc., for example, attracts investors who support animal rights. Chicago-based Ariel Mutual Funds, on the other hand, yanks investor money from companies that promote tobacco, handguns and nuclear energy. The Portsmouth, N.H.-based Women’s Equity Mutual Fund, meanwhile, screens companies according to how well they treat women.

SRI funds are hot
Regardless of what they push or punish, these funds are hot. And they’re getting hotter by the year. Between 1995 and 2007, total SRI dollars under professional management grew from $639 billion to $2.71 trillion — an increase of 324%.

Cause investing isn’t a new idea. In the 1920s, churches in the United States began divesting so-called “sin stocks” — shares in alcohol, gambling, and tobacco interests. In the 1940s, the Boston-based Pioneer Fund instituted a policy of investing in “businesses providing truly useful goods and services to people rather than businesses making money by exploiting people’s weaknesses,” says John Carey, the fund’s present-day manager. Cause investing gained steam in the 1960s amid the grassroots social movements protesting the Vietnam War and advocating for civil rights, product safety and environmental protection.

The watershed in the evolution of SRIs came in the 1970s with the founding of the Interfaith Center on Corporate Responsibility (ICCR), a New York–based international coalition of nearly 300 Protestant, Catholic and Jewish institutional investors who advocated diversity, tolerance, and global peace. With a combined portfolio estimated to be worth more than $100 billion today, the ICCR is credited with creating the movement to divest from South Africa during Apartheid. Today, environmental and governance issues are the primary focus of most SRI investors, fund managers say.

To be sure, SRIs aren’t without some downside. Since the start of the Iraq war, some SRI funds haven’t fared as well because they tend to divest in defense contractors. But an even greater negative impact may be felt in the high-performing commodities sector. “If you look at commodities — energy, mining, coal, oil — they’ve been performing extremely well recently,” says David Kathman, an analyst with Morningstar, which tracks mutual funds, “and many SRIs avoid them for environmental reasons.” Further, SRIs are so diverse, Kathman says, that not all of them make a wise choice, money-wise.

But given today’s mainstream mania for social change, there's never been as much variety from which to choose, nor as much public demand for ways to make a difference, analysts agree. Don’t believe it? Consider the public’s growing awareness of climate change, as well the escalating talent war among multinationals for the best and brightest recruits among today’s passionately cause-minded 20- and 30-somethings from Paris to Peoria.

A look at some choices
Is an SRI for you? There are a variety of ways to cause-invest. Here’s a quick overview of some of those choices:

COMMUNITY INVESTING: Want to help economically disadvantaged entrepreneurs locally and abroad who are underserved by traditional financial institutions? This strategy is for you. These types of investments supply capital to small businesses and affordable housing projects, most notably. Community investing may be part of a mutual fund portfolio or can be achieved through community loans funds, development bonds, or the like. Assets in community investing institutions are on the rise, from $19.6 billion in 2005 to $25.8 billion last year—a 32% increase.

SHAREHOLDER/STAKEHOLDER ADVOCACY: Want to organize everyone who holds stock in your favorite company to make it more socially responsible? Shareholder/stakeholder support for social and environmental issues is at record highs. According to the Washington, D.C.-based Social Investment Forum’s 2007 Report on Socially Responsible Investing Trends in the United States, the average level of corporate shareholder support for such issues has increased by 57% in the past three years — from 9.8% in 2005 to 15.4% in 2007. Socially responsible investment clubs, for example, can be quite active. The Investor Environmental Health Network — a Falls Church, Va.-based investor club that wants to rid consumer products of chemical toxins — filed or re-filed 46 resolutions urging safer chemical policies at 28 companies for consideration at corporate annual meetings between 2006 and 2008. Meanwhile, in April, more than 60 people representing various U.S. colleges and universities from across the country attended a first-of-its-kind conference at Columbia University — co-sponsored by the school’s Advisory Committee on Socially Responsible Investing — to urge universities and nonprofits to invest their hefty endowments in companies that act in socially responsible ways and to challenge corporate behavior where appropriate.

SOCIAL SCREENING: Simply put, investors using this strategy choose their securities based on a list of criteria called “screens.” Positive screens search for companies with values similar to those of many socially responsible investors, such as firms with human rights or pro-environment policies, or companies that invest in communities. Negative screens, conversely, weed out companies from the portfolio if they, say, produce tobacco products, engage in animal-testing, or pollute the environment. Socially and environmentally screened assets have increased by nearly 28 percent from the $1.5 trillion identified in 2005.

Getting results on the ground
Besides reaping good returns, SRI investors also tend to get results on the ground. In 2003, Calvert Mutual Funds led a coalition of socially responsible investors in a campaign to improve the environmental performance of computer manufacturers. The result? Dell signed on to establish a materials tracking program that measures the company’s impact on the environment and tells shareholders and the public what it is.

In 2005, a dialogue between Domini and Proctor & Gamble over its coffee harvesting practices convinced the consumer products firm to launch its Fair Trade coffee brand, which guarantees farmers a standard price per pound for coffee and offers better pay to democratically managed cooperatives that use environmentally sound farming techniques.

In October 2007, Pax World Management Corp., the investment advisor to Pax World Funds — which launched the nation’s first SRI in 1971 — decided to toss out all holdings in Weatherford International Ltd., a $7.8 billion Houston-based corporation that discovers and develops oil and gas reserves in more than 100 countries worldwide. The reason: “problematic ties” to the government of Sudan, which is widely viewed as responsible for the genocide in Darfur. “We adopted a Sudan Investment Policy to try to be responsive to the ongoing violence and human rights abuses in Darfur,” Pax President and CEO Joe Keefe explained in an October 16 statement. “Our policy includes both engagement and, where appropriate, divestment. We determined the latter was the proper course in the case of Weatherford International as it remains unclear what the company intends to do about its continued operations in Sudan.”

Shareholders making a difference
Still not convinced that SRIs can make a difference? Earlier this month, CVS/Caremark announced a new Cosmetic Safety Policy, the direct result of a shareholder resolution filed in 2006 by Boston Common Asset Management, LLC, urging the company to stop selling products that contain toxic and potentially toxic chemicals. Separately, on May 1, Avon Products shareholders expressed support for a shareholder resolution filed by Calvert Asset Management Company asking Avon to disclose its policies on so-called nanomaterials — a rapidly growing class of very small engineered substances whose safety and environmental hazards have not been well-studied.

And before that, in late 2005, Sierra Club Mutual Funds joined with other funds to ask Whole Foods stores to remove plastic baby bottles that contained Bisphenol- A, a chemical compound that some alleged could leach into beverages and foods when exposed to heat or acidic materials and elevate hormones in children, potentially leading to cancer and other health problems. In January 2006, Whole Foods removed baby bottles and child drinking cups made from polycarbonate plastic or other plastics with added phthalates.

Not a bad return for any investment.