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
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
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
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
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.
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 responsibility. …