Does socially responsible investing help?

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Little fish in a big pond can still make waves. The same is true of individual investors who take the plunge in socially responsible investments.

Socially responsible investing, or SRI, refers to the attempt by investment firms to effect positive change from corporations or institutions. Also known as ESG, for environmental, social and governance issues, socially responsible investing involves various investment vehicles and approaches for steering corporations toward sustainable business practices.

Shareholder advocacy

One of those approaches is shareholder advocacy. In general, stock ownership comes with rights, such as the right to vote in proxy elections on shareholder resolutions.

“Shareholder advocacy is the act of using your shares in companies or your equity in companies to engage them on environmental, social and corporate governance issues, to ask them to reform or engage in better conduct,” says Peter DeSimone, director of programs at the Social Investment Forum, an association for professionals and organizations dedicated to socially responsible investing.

However, most individual investors eschew individual stocks in favor of mutual funds to diversify their portfolio. But that doesn’t mean they have no way to engage in socially responsible investing or shareholder advocacy.

Socially responsible funds

Mutual funds that focus on socially responsible investing have grown in popularity in recent years. In 2007, investors could choose from 260 socially screened mutual funds with assets of $201.8 billion. This compares to 55 such funds with $12 billion in assets in 1995, according to the Social Investment Forum.

These funds either screen out companies that don’t meet ESG criteria or they will “look at sustainability issues through a risk and opportunity lens and try to find the companies that are best-positioned to meet the sustainability challenges of the future,” says DeSimone.

But there has been some controversy about the screening criteria SRI funds use for their holdings.

For instance, by some measures, oil and gas companies have no place in a green fund, but the oil company BP was a component in the Dow Jones Sustainability Indexes until May 31, when it was removed following the explosion of the Deepwater Horizon well and the disastrous oil spill.

Screening is not the only measure of an SRI fund.

At Calvert Investments, for example, funds are organized by their shareholder advocacy strategies in addition to screening criteria. Only one of their approaches includes investments in companies that they consider questionable based on ESG criteria. But they engage with these companies differently and take a proactive advocacy stance, which involves frequent discussions with senior management.

For example, the funds in Calvert’s “SAGE Strategies” group have looser standards than its other groups.

“But we have a commitment to engage with a good number of companies. We list multiple objectives for that set of companies and … we’ve made a commitment to divest companies if we don’t think we are making progress on the issues we’ve identified for engagement,” says Stu Dalheim, director of shareholder advocacy at Calvert Investments.

Traditional mutual funds

Shareholder advocacy and engagement with company management are generally limited to mutual funds with an ESG bent. Most traditional mutual funds vote their proxies when it comes to voting for board members, but ignore environmental or social issues brought up by shareholder resolutions.

“It’s something that is largely confined to the (socially) responsible asset management sector. A lot of mutual funds don’t vote their proxies on concerns like climate change, labor issues or water-scarcity issues,” says Dalheim.

Research your funds was created to shed some light on the shareholder advocacy process of mutual funds, both traditional and SRI. Investors can uncover how active their funds are in the shareholder process — and whether they support and vote with management or if they tend to vote against management recommendations.

“In creating PD we wanted to provide a free service that would help individuals participate in corporate governance, while putting pressure on institutional investors to do a better job as representatives,” says the site’s founder, Andy Eggers.

“Institutions pay a lot of money to have research companies tell them how to vote. This system doesn’t work for individuals, clearly. Yet, there is free information out there that could help them — us, really — cast our votes and keep an eye on institutions like mutual funds and pension funds that supposedly represent us at shareholder meetings,” he says.

At PD, investors can find out how their mutual fund has voted in the past and find ballots for upcoming meetings and how large institutions will vote.

At, investors can find mutual fund performance charts for all open SRI funds and sort them based on financial performance, screening and advocacy, proxy voting, account minimums and fund profiles.

To find out more about your funds, request the fund company’s proxy voting guidelines. Many publish their guidelines online.

What can one person do?

Individuals have very little control over the actions of corporations. But corporations have a very large impact on the world. When people desire change, they can exert pressure by voting with their feet. Companies respond to money and pressure. The last thing they want is a falling stock price due to less demand for their stock.

Shareholder activism can have an impact. For instance, People for the Ethical Treatment of Animals, or PETA, works with companies on animal welfare issues. One of the most pressing issues they’re focusing their advocacy efforts on now involves the way chickens and turkeys are killed.

“Controlled-atmosphere killing is the least cruel form of slaughter available for chickens and turkeys today,” says Stephanie Corrigan, manager of corporate affairs with PETA.

“In 2007, we submitted a resolution to Safeway asking them to do a feasibility report on requiring their suppliers to phase in controlled-atmosphere killing, or CAK, and by 2008 they had purchasing preferences on CAK and have already started to serve some CAK turkey,” she says.

A new site called allows advocacy groups such as PETA and Calvert Investments to publish their opinions on corporate ballots or current shareholder resolutions and lets shareholders vote alongside the groups with whom they agree.

“It doesn’t solve the world’s problems, but you can’t step away from something just because you can’t solve it. It’s like voting: If no one does it, then we’re in a worse situation than we are now,” says Donald Cummings Jr., managing partner at Blue Haven Capital in Geneva, Ill.

When researching socially responsible funds, evaluate their screening criteria and shareholder advocacy to ensure their hierarchy of issues matches yours.

No one fund may be exactly right, but by ranking your priorities and investing accordingly, you could make a difference.

“Jump in the pool and see what you can do. A little bit of change is better than no change at all,” says Cummings.