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Corporate Social Responsibility (CSR) is an idea that corporations have to consider the interests of customers, employees, shareholders, communities, and ecological considerations in all
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Socially responsible investing (SRI) describes an investment strategy which combines the intentions to maximize both financial return and social good.
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green@work : Magazine : Back Issues : Nov/Dec 2001 : SRI on the Rise

Feature Story
SRI On The Rise

The future holds exciting things for socially responsible markets.


Skyrocket Rise of Socially Responsible Funds
“Green” mutual funds have flourished in the three decades since the August 8, 1971 launch of the Pax World Balanced Fund, the first mutual fund in the U.S. to use broad-based social and financial criteria for screening purposes. A report, entitled “Socially Responsible Mutual Funds in the U.S.: A Look Back . . . and Ahead,” was recently issued by Pax World Funds, citing extensive Wiesenberger tracking data that shows, in part, that the assets of socially responsible mutual funds grew about five times faster than those of all other funds in its 30-year existence.

The report also notes that assets in socially and environmentally responsible funds reached the $100 billion milestone for the first time in mid-2001. The universe of 192 socially and environmentally responsible mutual funds tracked by Wiesenberger had total assets of $103 billion by the summer of 2001—the highest level ever. In addition to the Wiesenberger data, the Pax World Funds’ report includes the speculation of a worldwide team of futurists who were asked to outline the social and environmental issues that the investors of tomorrow are likely to face.

Pax World Funds president, Thomas W. Grant, said, “The world of today’s socially responsible mutual funds started in 1971 when no one was sending e-mail, Federal Express and Microsoft were yet to open their doors, a gallon of gasoline cost 36 cents and there were fewer than 200 mutual funds of any kind in existence. From the vantage point of 30 years later, it is apparent that socially and environmentally responsible mutual funds not only are here to stay, but they are also likely to undergo considerable expansion in the coming years.”

“Socially responsible mutual funds have earned the respect of hundreds of thousands of new investors in the past decade.”

“Socially responsible mutual funds have earned the respect of hundreds of thousands of new investors in the past decade,” commented Steve Schueth, spokesperson for the Social Investment Forum and president of First Affirmative Financial Network, a nationwide network of investment professionals that specializes in serving socially conscious investors. “With almost 200 socially and environmentally responsible funds in existence, a high quality portfolio can be developed to meet the needs of almost every socially aware investor. Today, socially responsible mutual funds are widely accepted as value-added investing tools.”

Understanding the Rise of SRI
To mark the 30th anniversary of socially and environmentally responsible mutual funds in America, Pax World Funds commissioned Wiesenberger, a division of Thomson Financial, to track the rise of the industry:

• Assets of socially responsible mutual funds grew about five times faster than those of all other funds. From the $150 million in assets in 1971, they reached a record $103 billion by mid-2001. This is a growth rate of slightly more than 68 times (68,581 percent) compared to the more than 13.5 times (13,685 percent) for the assets of all other mutual funds, which rose from $50.1 billion in 1971 to $6.9 trillion as of mid-2001.

• The ranks of socially responsible mutual funds grew more than twice as rapidly as those of all other funds. From 1971 to the emergence of a total of 192 such funds in mid-2001, the number of socially responsible mutual funds now tracked by Wiesenberger has grown by 9,500 percent (from two to 192). This compares to a 4,074-percent increase for all other funds in the same period (from 280 to 11,688).

• The surge in socially responsible mutual fund assets has remained relatively close to those of all other funds in recent years. Even with the unprecedented growth of the last decade in the mutual fund world, the growth rate in the assets of socially responsible and all other funds remained relatively close in the last 10 years (392 percent versus 410 percent).

• Assets in socially and environmentally responsible mutual funds reached the $100 billion milestone for the first time in 2001, reaching $103 billion by the first half of 2001.

• The total assets of socially responsible mutual funds could rise to $278.1 billion in just 10 years. That level, which is based on the growth rate over the last 30 years, would mean that, in one short decade, socially responsible mutual fund assets would grow to become 1.5 times larger than the amount it took the industry 30 years to accumulate.

SRI View from Futurists
What does the future hold for socially responsible investing? Although Pax World Funds has no ability to predict the future, it consulted with several futurists about what the world of tomorrow may look like. The futurists forecasted the following trends for investors:

• Infotech—Information is the primary commodity in more and more industries today. By 2005, 83 percent of American management personnel will be knowledge workers. Europe and Japan are not far behind. In the U.S., five of the 10 fastest-growing careers between now and 2005 will be computer-related. The emphasis of socially responsible funds on selecting “software” over “hardware” companies will position them well to participate in the worldwide growth in this sector.

• Health—Emphasis on preventive medicine will continue to grow. By the end of 2001, some 90 percent of insurance carriers in the U.S. will expand coverage or reduce premiums for policyholders with healthy lifestyles. Two-thirds of those answering a recent Louis Harris poll claimed to have changed their eating habits in the past five years. Americans today eat lighter fare than in 1970, consuming nearly twice as much chicken, 25 percent more fish and four times as much low-fat and skim milk per capita. Smoking is also in general decline. The avoidance of liquor and tobacco stocks by socially responsible mutual funds positions them well for a future in which consumption of such products will likely decline even further. Socially responsible mutual funds have an established record of seeking out companies producing healthy lifestyle products, having been quick to understand the future impact of this industry.

• Recycling—The long-feared “garbage glut” that threatened to fill the world’s landfills to overflowing has been stayed off by increased recycling, but the issue has not been resolved. Americans now produce 4.3 pounds of trash per-person-per-day, which is twice as much as they did a generation ago. Add in durable goods such as tires, appliances and furniture, and the U.S. waste stream has tripled since 1970. The “green” orientation of socially responsible mutual funds means that they are likely to grow with the emerging industries of tomorrow that will delay the growing pollution problem. Increased “tipping” fees and stricter environmental regulations will increase operating costs for companies that are not aggressively managing their waste streams.

• Sustainability—The world’s population will double in the next 40 years. However, birthrates below the replacement level mean that populations will decline significantly in much of the developed world, not counting the uncertain effects of immigration. To meet human nutritional needs over the next 40 years, global agriculture will have to supply as much food as has been produced during all of human history. Increasingly scarce resources will mean an even greater reliance on sustainability practices by major corporations. The encouragement of such wise-use measures is already a major focus of a number of socially responsible mutual funds.

FTSE Unveils Companies in New SRI Indexes
FTSE, the global equity index specialist, unveiled the first set of companies in its long-awaited FTSE4Good indexes for socially responsible investing. FTSE4Good is made up of four tradable indexes created by screening a wide array of corporations with the first standardized, transparent set of global criteria for corporate social responsibility. These indexes and the associated criteria will, for the first time, give money managers and individual investors a broadly agreed upon way to make investment decisions that reflect current thinking in corporate citizenship. Complete listings of companies in each index can be found at www.ftse4good.com.

The four tradable FTSE4Good indexes are the flagship FTSE4Good Global 100, the FTSE4Good US 100, the FTSE4Good UK 50 and the FTSE4Good Europe 50. In the flagship global index, six of the top 10 companies are U.S.-based, including Microsoft, AOL Time Warner, Intel, Johnson & Johnson, Merck and Verizon Communications.

For inclusion in the FTSE4Good indexes, corporations must meet specific criteria in three main areas: environmental sustainability, social and stakeholder relations and human rights. The criteria falling under each of these areas are based on a comprehensive set of measures developed by the FTSE4Good advisory committee in conjunction with FTSE and EIRIS, an independent research entity in the UK.

Dow Jones STOXX Launches
Dow Jones Indexes, STOXX Ltd. and SAM Group announced the launch of a new set of sustainability indexes for European portfolios. The Dow Jones STOXX Sustainability Indexes will track leading European companies in terms of economic, environmental and social criteria presented and introduced on September 17. Based on the sustainability assessment of SAM Research, the Dow Jones STOXX will be part of the family of Dow Jones Sustainability Indexes, which were launched as the first global sustainability benchmarks in 1999.

Detailed information about the Dow Jones STOXX Sustainability Indexes can be found at www.sustainability-indexes.com; also, call +41 1 395 2829 or +41 1 229 2302; or e-mail: alex@sustainability-index es.com or scott.stark@stoxx.com.

Religious Values and Money Overlap in Investing?
A national survey conducted by MMA Praxis Mutual Funds shows that the intersection of faith and money is hardly new. Thousands of years ago in biblical times, people of faith were guided by their religious beliefs on questions of wealth and how it was to be used. Today, how does belief in the divine influence the practical world of finance and investing? The results of this scientific survey of more than 1,000 investors lends new knowledge about how the spiritual lives of people affect their financial decisions.

• The respondents show great interest in combining their religious values with their financial decisions. More than 60 percent of those who describe themselves as religious say they either try now or would like to try to incorporate their religious values into their decisions about money.

• The potential for action is much larger. If they learned more about religiously oriented mutual funds, more than half of the religious respondents indicated they would be somewhat or very likely to invest in them.

• The five most important corporate ethical issues for religious respondents were identical to those most important to non-religious respondents. Collectively, respondents were most likely to avoid investing in companies associated with a poor product safety record, sweatshop involvement, a poor environmental record, a poor labor relations record or a poor equal employment opportunity record.

Domini Targets Global Warming
Domini Social Investments, manager of the Domini Social Equity Fund, has launched a campaign urging some 37,000 shareholders to sign and mail postcards to the U.S. Environmental Protection Agency (EPA) asking EPA secretary Christine Todd Whitman to take action against global warming.

The postcards urge Whitman to determine that carbon dioxide (CO2) and other greenhouse gases are pollutants under the Clean Air Act and request that the EPA use its regulatory authority to place limits on greenhouse gas emissions from new motor vehicles.

Amy Domini, founder and managing principal of Domini Social Investments, comments, “The Bush Administration’s unfortunate decision to sit out the Kyoto Protocol means that it is more important for consumers, investors, businesses and other citizens get involved and urge our nation’s leadership to adopt more sensible priorities.”

In launching the postcard campaign, Domini teamed with the International Center for Technology Assessment (CTA), a bi-partisan policy group working on science and technology issues, and Sustain, a non-profit organization working on environmental communications strategies.

The postcards are being submitted pursuant to a “request for comments” on a petition filed by the CTA and other groups asking the EPA to regulate greenhouse gas emissions from automobiles under the Clean Air Act (EPA Docket No. A-2000-04).

“One of the goals of socially responsible investing is to promote more sustainable business strategies and economic policies,” continues Domini. “Our shareholders are strongly committed to the environment, and Domini Social Investments will continue to make climate change a priority issue.”


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