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Socially Responsible Investing 101: A Fresh Approach

General Assembly 2001 Event 5010 (Transcript)

Presenters: Unitarian Universalist Association (UUA) Committee on Socially Responsible Investing (SRI)

My name is Jim Gunning. I am the Moderator for today's workshop on Socially Responsible Investing. Welcome, and thank you for coming.

Faith-based organizations are compelled to act in the marketplace for justice. Why?

  1. Because our religious heritage mandates us to work for social justice.
  2. Because global corporations have a profound impact on social and environmental issues around the world and, to be true to our mission, we need to address decisions by the corporate community.
  3. And lastly, because we "own a piece of the rock." Religious organizations, including the UUA and the UUSC [Unitarian Universalist Service Committee], are investors in companies and thus profit from decisions that a corporation makes.

We need to make our investments consistent with our values. What can a concerned religious investor do?

The short presentations you will hear today will set the stage for your questions and comments later in the session. We have left a substantial part of our time together today to hear your questions, and to respond to them.

Our first presenter is Chair of the UUA Investment Committee and a liaison member of the SRI Committee. In her professional life, she is an executive at Walden Asset Management. Lucia Santini-Field.

Lucia Santini-Field's Presentation

Two Techniques Employed by Social Investors

1. Screening

Portfolios of investment securities, both stocks and bonds, can be researched and reviewed for compliance or non-compliance with social criteria. Conceptually, this is little different from the research and review that takes place to determine if a security meets appropriate financial criteria to be included in an investor's portfolio. Social investment screening may take the form of positive screens, in which securities that meet specified positive criteria are eligible for investment. Negative screening involves the exclusion of companies based on a particular set of controls or reviews.

Examples of positive screens one might encounter are to include companies on Fortune's "100 Best Companies to Work For" or "America's Best Companies for Minorities":

  1. offering products or services that solve social or environmental problems (e.g. alternative energy).
  2. that are best in their industry on an important social or environmental dimension (e.g. banks with above average Community Reinvestment Act ratings).

The nature of positive screens is generally such that the financial research and review must follow the social research and review.

Negative screens are most readily and without complication applied to product concerns. Examples include:

  1. Tobacco
  2. Nuclear power
  3. Military Weapons/Handguns
  4. Gaming

Negative screens are also applied, but with much more ambiguity, to areas such as:

  1. pollution
  2. workplace safety
  3. fair labor practices

These areas generally require much more research and qualitative analysis.

More information about Investment Screening.

2. Proxy Voting

A proxy is a shareholder's ballot, used to exercise shareholder rights in matters of corporate governance and policy. Proxy voting typically occurs annually at a company's annual meeting. Originally, with rare exceptions, proxy issues were initiated by management and typically involved the items such as the election of directors, appointment of auditors and stock issuance. Over the past twenty years, investors have sought greater involvement in areas of financial and social policy. Shareholder groups have initiated increasing numbers of ballot items on proxy statements. Social mutual funds and institutional investors often have very detailed guidelines for voting proxies on a wide range of issues. The UUA CSRI is in the process of refining its guidelines.

Examples of high social impact proxy items that have appeared in recent years include:

  1. equal employment opportunity and environmental disclosure and public reports.
  2. policies pertaining to international labor standards and corporate codes of conduct.
  3. guidelines preventing predatory lending.

More information about Proxy Voting.

Jim Gunning's Presentation

I'm the next presenter. My name is Jim Gunning and I am the Chair of the SRI Committee, and also a Director of the UUSC and Chair of its Investment Committee. I retired a few years ago from a career as a business consultant.

Stockholder Activism

The principal objective of SRI is to change the behavior of the managers of companies in which we invest—change to be more socially responsible. To produce products that are safer to consumers. To be more careful of the environment. To be fair and equitable in the treatment of employees. To operate the business on an ethical basis.

So what should we do if the corporate managers fail to be socially responsible? Shall we just sell the stock? Or should we try to convince these managers to change their policies? Talk with them and show them why we think they should do things differently? After all, we are part owners of the company, and they should listen to us.

Twenty-five years ago the most prevalent way—to many, the only way—was to disinvest, to sell out and invest our money somewhere else.

But now there are other methods that have been successful in getting corporate managers to listen and change their behavior. Methods that use both moral suasion and hard bargaining to achieve these ends.

These newer methods use the rights that are part of stock ownership. Individual stockholders have these rights. Local churches with endowments have these rights. The UUA and its affiliates, and other denominations and religious organizations have these rights.

Methods of using these rights include talking with corporate managers, having meetings with them, and even filing formal resolutions to be voted on at annual meetings of stockholders. Use of these rights is regulated by the Securities and Exchange Commission of the Federal government for all companies whose stock is publicly traded.

What issues can be addressed? One of the earliest issues was Apartheid in South Africa back in the 1970's. What happened? Over several years more and more people got excited: more civil rights activists, more faith-based organizations, more customers and employees of corporations doing business in South Africa and thereby supporting Apartheid. This chorus became a deluge of public opinion, which then took the form of a boycott. And that's what convinced the businesses to get out of South Africa which, in turn, caused the whites to change their form of government. The use of stockholder rights to talk with the executives of global banks, manufacturing companies, retailers, and other corporations was a significant part of this public pressure.

Another example. Just last month the UUA convinced a major public corporation, Home Depot, to add sexual orientation to the prohibited acts in their policy on non-discrimination. At first we first tried talking with them. When they said such a change was unnecessary, we filed a formal resolution to be discussed at the annual meeting of stockholders and voted on. Filing the resolution caused some publicity, and discussion at the annual meeting would generate even more. At this point, the company executives reconsidered their stance and asked if we would withdraw the resolution. After two negotiating sessions, we agreed to withdraw on condition that they would not only change their written policy but also take immediate and substantial steps of implementation. A case study of this Home Depot activism is also available.

The UUA, through its stock ownership by its endowment and pension funds, and the UU Service Committee through its endowment investments, both have participated in a number of other stockholder resolutions in recent years. Our activity at the denominational level will be increasing in coming years.

The UUA and the UUSC both are members of an ecumenical group of religious-related organizations called the Interfaith Center on Corporate Responsibility (ICCR). Members of the ICCR originate many of the resolutions (called "proxy resolutions"), and other members join with the primary filers to accumulate more "clout" in discussions with companies.

Other resolutions are filed by investment firms that have specialized in socially responsible investing. Two are listed on the cards we provided today: both work with the UUA and the UUSC in their investment programs.

What issues will we address with this type of activism? We are choosing issues that are clearly in concert with UU values. The UU fundamental principles lead us to human rights issues and equal employment opportunity, and to concerns about our environment, among others. There have been clear issues adopted by recent General Assemblies. Still others are stated positions of the Board of Trustees. There is no shortage of issues that represent UU values.

Perhaps your congregation would join us in this process. Let's discuss it further in the question and answer portion of this workshop.

More about Stockholder/Shareholder Activism.

Ed Landreth's Presentation

The next presenter is a member of the UUA Board of Trustees from the Mass Bay District, and a liaison member of the SRI Committee. He is recently retired from a career as a consulting engineer. Ed Landreth. [Note: Mr. Landreth passed away in September 2001 after a short illness. We will miss him very much.]

Alternative Investments

Another approach to SRI by faith-based investors is alternative investments. What in the world are these?

They are opportunities to provide support to poorer people and their communities which do not have the kinds of financial institutions they need to better their lives, and can't get adequate financial capital to develop their own. Thus, religious investors can share some of their capital outside the mainstream of investing in traditional stocks and bonds, and consider alternatives that would help needy communities and to support their mission.

The process is to invest in organizations that are newer and do not have established track records. Many of these alternative investments are in the field of community development.

Some examples are: community development banks or other lenders, affordable housing projects, minority owned businesses. These are just some of the types of organizations that are candidates for alternative investing.

Aren't these types of investment riskier than traditional ones? Of course they are. If they weren't, the regular banks and other providers of capital would fulfill these needs.

Will alternative types of investment pay competitive rates of return? Probably not. Most organizations in their formative stages cannot.

These factors are the very crux of the matter. Investments such as these are very much needed to establish institutions in communities that sorely need help, but cannot get it from the traditional investors and lenders.

If you decide this approach is worthy of being considered, how would you proceed?

A number of religious institutions have been down this road already, and have extensive experience. And are willing to share it. Some of their experience has been domestic, some in Latin America and overseas. My own church for example, First Parish in Cambridge, is making interest-free loans to some affordable housing projects in the City of Cambridge. This has a cost to the Church for the interest given up so that these construction projects can gain our support.

The Interfaith Center on Corporate Responsibility, an organization that Jim mentioned earlier, has organized a clearing house on alternative investments where less experienced investors can go and look at what might be available. Several denominations, including the UUA, have established programs where local churches can participate. The UUA program currently deals with community development funds and with affordable housing projects, for which it matches dollar-for-dollar any investments made by local congregations in such ventures.

Some of these self-help types of organizations focus on different parts of the world, mainly third-world countries including, for example, a fascinating type of local lender that makes so-called micro-loans to individual entrepreneurs. The amount of these loans may be only $25 on a very short term basis, but are exactly what is needed for a seamstress, for example, to buy twice as much material and double her production each week. There are many interesting possibilities available for such alternative investments.

How much of your portfolio should you use in this manner? The portion will differ for each organization. A number of faith-based organizations set aside 2 to 3% of their investment capital for community development investments.

These are investments that provide money that we have to communities that really need help. Then your dollars are helping very directly in areas that need that help. And it feels really good.

For more information about Alternative Investments, visit our Community Development page!

For more information contact responsibleinvesting @ uua.org.

This work is made possible by the generosity of individual donors and congregations. Please consider making a donation today.

Last updated on Thursday, September 8, 2011.

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