Conscience Guides More Investors
BOSTON — Ann Heidkamp believes that in today's global economy, corporate policies shape the world, more so than political decisions.
So she says she and her husband actively screen their investments - mostly stocks and mutual funds - to make sure their money "is not going to corporations that hurt people."
For Ms. Heidkamp, a college instructor in Wauwatosa, Wis., that means avoiding defense-industry stocks, companies that treat their employees poorly, or firms that disregard the environment.
She belongs to a growing number of Americans involved in social responsibility investing (SRI), using both their conscience and financial criteria to choose stocks.
Assets in SRI portfolios have risen from $640 billion in 1995 to more than $1.2 trillion in 1997.
"Americans understand that they can meet their financial goals and sleep at night, knowing their values are reflected in their portfolios," says Elizabeth Elliot McGeveran of the Social Investment Forum, a Washington, D.C.-based organization devoted to socially responsible investing.
SRI covers a broad range of values - some familiar, some not. Some investors, for example, shun companies that extend benefits to partners of homosexual employees, while other SRI investors specifically look for companies that do extend such benefits.
Today, the industry most often excluded from SRI portfolios is tobacco, with gambling, weapons production, and alcohol close behind.
Allegiance Fund (800-385-7003) of Boston excludes companies related to tobacco, liquor, gambling, pharmaceuticals, and medical services industries. For the 12 months ending March 31, it beat the stock market, rising 52 percent.
Elizabeth Laurienzo of the Calvert Group in Bethesda, Md., which offers five SRI mutual funds, finds that environmental and labor issues are becoming more important for investors. "Sweatshop labor is becoming a hot topic, especially for companies using child labor," she says.
Portfolio managers following an SRI strategy must do extra research to find suitable investments.
Managers speak often with company management and employees about corporate policy. Government reports receive close scrutiny, with special emphasis on those from the Environmental Protection Agency and the Department of Labor.
Calvert Group even maintains a staff of "values analysts" to make sure that the groups' investments meet the right criteria.
It's not enough for companies to do well. They must also "do good," says Ms. McGeveran. And that can better the bottom line.
She says studies show that a good environmental policy, for example, results in good business. Energy-conservation programs, along with fewer lawsuits and EPA fines, show up in increased profits.
The catalyst for SRI can be political activism, or religious beliefs. Religious groups were probably the first to use this style of investing, but charities, unions, and individuals are now involved.
"The critical point is a recognition that any choice that is made in a free society has consequences," says George Gay, president of First Affirmative Financial Network, a Colorado-based network of financial advisers specializing in SRI. "And investments have consequences. Most people aren't willing to accept them, but socially responsible investors are."
Can one investor affect corporate policy?
Probably not. But groups of investors with similar values have made a difference. President Nelson Mandela credited disinvestment in South Africa by major pension funds with helping to end apartheid.
And individuals now find it easier to increase their clout with the proliferation of SRI mutual funds - from 55 in 1995 to 144 in 1997, according to the Social Investment Forum.
SRI funds follow different routes to advance their goals. Some simply exclude companies that don't meet their values. The funds also cover a range of investment objectives, from aggressive-growth and small-company equity funds, to fixed-income and international funds.
This year's top performing, socially responsible funds.
year-to-date 3-yr. annualized
Citizens Global Equity 29.6% 20.2%
Citizens Index 23.7 30.8
Bridgeway Social Responsibility 22.5 24.6
Women's Equity 21.6 24.5
Calvert World Values Intl. Equity A 21.1 13.9
Citizens Emerging Growth 20.9 22.4
Source: Morningstar Data as of 7/24/98