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| Feature |
Portfolios With Purpose
Catherine Curan
03/01/2008
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"Certainly this is going to increase," says Ileana van der
Linde, a principal in the wealth management practice of Capgemini, which began
tracking SRI in last year’s report because of growing investor interest. "The
high-net-worth individual will have access to private areas they want to invest
in, pet projects where they can say, ‘This is where my interests lie.’"
Energized Investors Delve Deeper
Increasing concern about global warm-ing underpins many
investors’ interest in SRI. This new urgency has encouraged a broad examination
of environmental practices, regardless of industry sector, with a view toward
the risks pollution poses to profits and to people. It has also hiked demand for
alternative-energy investments, which leapt 43 percent in 2006 to $70
billion worldwide, according to the World Wealth Report. New vehicles are
still popping up, including Calvert’s clean-energy fund, which enjoyed a 16.8
percent return from its inception in June 2007 through the middle of November.
Following recent corporate scandals, some individuals have also
come to view corporate governance issues as a central element of smart
investing, and one that falls under the rubric of social responsibility. Al
Jubitz, for example, deems good governance so important that he ranks it on par
with environmental issues and production of firearms. The Social Investment
Forum says that from 2003 to 2005, the attention inspired by SRI combined with
existing activism around corporate governance to produce a 22 percent uptick in
social-issue shareholder resolutions that came to a proxy vote. While
institutions are generating much of the increased shareholder advocacy, wealthy
individuals and foundations are increasingly interested in committing their
assets to activism.
"It’s a different type of SRI than, ‘Oh, just buy me some SRI
mutual funds,’" says Bruce Kahn, second vice president of wealth management at
Smith Barney and a specialist in socially responsible investing. "The active
shareholder is critical, and that’s a growing trend with SRI."
Still, attempting to reconcile cherished personal beliefs with
money management principles adds one more layer of intricacy to today’s highly
complex investment universe. Those seeking a truly customized SRI product must
spend time articulating their values and then matching those values to assets to
be invested. And even though recent research is shoring up SRI’s credentials,
some on Wall Street still dismiss the movement. Actively incorporating
environmental, governmental and social factors into a portfolio may mean
educating your advisor, or, as the Jubitz family did, transferring funds to a
more receptive firm.
Investors must also confront the compromises that are
inevitable with SRI. No business is completely socially responsible or
irresponsible. In a summer 2007 article in the Journal of Investment Consulting, Statman analyzed firms in the Domini 400 Social Index and illuminated the nuances of their scores. Hewlett Packard and Green Mountain
Coffee Roasters had roughly equivalent total social responsibility scores. HP
racked up stronger results in corporate governance and human rights, while Green
Mountain Coffee scored higher on community and diversity.
Individuals who are engaged in SRI are willing to invest their
time because they see it as an important mechanism for both influencing society
and articulating their personal philosophies. Advi-sors say the trend is
particularly strong among the newly wealthy and second- and third-generation
trust beneficiaries interested in defining what being worth millions means in
terms of their moral values.
Others who have been successful in business view SRI as a
market force to achieve personal goals. "Pretty much all of the endeavors and
choices one makes in life are a vote that pushes a market, even in some tiny
way, in one direction or another, and that has a social impact," Davidson says.
"The more I am able to use the capital allocation process to tilt the playing
field in favor of positive societal outcomes, the better. If this can be done
without any hit to returns, even better."
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