Socially responsible investing is about to enter Phase 2.
The first phase involved proving that small investors can do relatively well over time by quietly backing companies that "do good."
Now SRI investors are being told not only can they make a profit, but they also can drive real cultural and political change within corporate America - starting with the reform of corporate governance. All they need to do is deepen their commitment to SRI as a cause.
That message came from many who attended an SRI conference held here last month. SRI officials celebrated having won more support from "mainstream" investors and laid plans to develop even more of the ethical and social screens used to assess whether to include a company's stock within an SRI portfolio.
Some within the SRI movement want to provide investors with mutual funds that take a much more aggressive stance on fighting gender discrimination (including getting more women on corporate boards), promoting native American rights, and opposing excessive pay to corporate officers.
They also hope to expand shareholder activism, although some are more eager than others to advance this reform. In addition to representatives from SRI fund groups, community activists, representatives from church groups, pension-fund over-sight officials, and activist-oriented local mutual-fund representatives also attended the conference.
Such factions have traditionally pursued separate agendas. Today that is less often the case. "It has come to the point where all the circles are starting to cross each other," says Anita Green, director of research for the Pax World fund group, headquartered in Portsmouth, N.H.
The SRI community has consistently been far more activist than the larger and more traditional mutual-fund industry. In part, some analysts say, the activism may reflect the large number of women leaders within the SRI community, who may be more interested in social issues than their more profit-oriented male counterparts at old-line funds.
The heads of the Citizens Fund Group, the Calvert Group of Funds, and the Domini Social Equity Fund, perhaps the best known SRI fund, are all women.
Regardless of who runs SRI funds, a key question is whether investors accustomed to using screens to gently steer their portfolios away from various social or economic vices will embrace a more activist approach.
Pushing an agenda of greater shareholder activism will not drive investors away, says Laurie McClain, a financial adviser and SRI enthusiast in Eugene, Ore. Rather, she says greater shareholder activism, especially on matters of corporate governance, will attract more investors to SRI products.
"Ethics have never really gone out of fashion. Folks have watched a lot of their stocks go down in value, but they are now looking for answers and help when it comes to wise investing," says Ms. McClain. "We are a proactive and activist industry."
Some analysts, however, believe the SRI community must walk a careful line between political action and seeking better corporate governance. "Public disclosure is a good thing. I just don't think it is wise to use corporations to enforce a political or social agenda," says Hans Stoll, who heads up the Financial Markets Research Center at Vanderbilt University, in Nashville, Tenn. "That's for the political sector."
One sign of the SRI industry's more activist approach is its backing of a proposal before the Securities and Exchange Commission that would require mutual-fund groups to disclose how they vote on proxy questions. The SEC is taking comments on the issue until Dec. 6.
In 1999, Domini Social Investments became the first US mutual- fund group to do so voluntarily. The company now annually issues guidelines to its investors explaining its positions on matters of corporate governance and social …