By Marianne Sullivan
Monday, August 9, 2004
As corporate scandals mount, socially responsible investment funds are doing well. In the past year, one fund that watches out for women's workplace interests has outperformed those measured by a key stock-market gauge.
(WOMENSENEWS)--Shares in the Women's Equity Mutual Fund--which buys stock in companies it deems to be advancing the women's workplace status--are up almost 14 percent in the past year.
That's better than the Standard and Poor's 500 Index--the much-watched barometer of U.S. equities--which gained about 11 percent in the year ended July 31.
That kind of performance disproves the myththat "you have to sacrifice performance to invest in socially responsible funds," said Terry Lilienfield, who is in charge of marketing and shareholder services at the San Francisco-based Women's Equity Mutual Fund.
The fund takes what is known as a socially responsible approach to investing. The stocks it buys are in companies such as motorcycle-maker Harley-Davidson Inc., Hershey Foods Corp. and Microsoft Corp. The companies are driven, like any other profit-seeking enterprise, by shareholder demands.
Socially responsible funds demand that companies display what they consider to be commendable corporate conduct. Depending on the fund, that can mean managers pick companies that don't discriminate against workers on the basis of gender, that avoid war profiteering, that mitigate their effects on the environment, that don't run sweatshops and so forth.
While many funds in the socially responsible universe monitor the treatment of women in companies, the Women's Equity Mutual Fund, with $24 million under management, is the only one that shops for companies solely on the basis of their treatment of female directors and employees.
As corporate scandals mount and highly visible companies such as Wal-Mart Stores, based in Bentonville, Ark., are sued with discriminatory employment practices, it's an investment approach that, while still fairly rare, has been gaining significant ground.
More than 1-in-9 investment dollars under professional management in the United States are in the hands of socially responsible funds, according to a 2003 report by the Social Investment Forum, a Washington, D.C., trade group.
Total assets under management in portfolios with a socially responsible approach climbed to $2.14 trillion in 2003, up about 7 percent from $2.01 trillion in 2001. During the same period, the amount of money in the broader universe of professionally managed portfolios fell 4 percent. Overall, the number of mutual funds identified in the report climbed to 200 in 2003, up from 181 in 2001.
As corporate scandals establish these funds as appealing alternatives, managers are quick to promote their financial worthiness.
"Companies that aspire to high standards of corporate governance and ethics are better long-term investments," said Joe Keefe, senior advisor for strategic social policy at Calvert Group, Ltd. based in Bethesda, Md., which manages 16 socially responsible mutual funds. "They carry lower risk and are better positioned for long-term performance."
The Wal-Mart example, according to Keefe, shows how certain practices can hurt a company and its shareholders. In early July, a federal judge ruled that a lawsuit accusing the world's largest retailer of discriminating against female employees could proceed as a class action, covering about 1.6 million current and former employees.
The suit, the largest workplace bias suit in U.S. history, could at least nick the bottom line of the hardy company. Shares of the retailer have fallen 2 percent since the suit was granted class action status and are down 13 percent from a March peak.
Lilienfield, at the Women's Equity Mutual Fund, contends that a company that treats its female employees well is likely to treat all of its employees well and in turn is likely to do better financially.
"It will have more productive and happy employees and employees that are happier work harder."
If the strategy has its doubters among pure-profit seekers, adherents defer to market indices, which constantly measure the rise and fall of a certain group of stocks. One of the most notable, the Standard and Poor's 500, tracks the share prices of 500 large companies in leading U.S. industries.
For the past 10 years, socially responsible indexes have been running neck-and-neck with this index, according to the Social Investment Forum.
During 2003, the Domini 400 Social Index (DSI 400), which is one of the oldest and best known indices of socially responsible funds, advanced 28.47 percent, keeping pace with the S and P 500's gain of 28.66 percent last year. For the 10-year period ending Dec. 31, 2003, the DSI 400 gained 11.86 percent, in a photo-finish lead over the S and P 500's 11.07-percent gain.
The Domini, launched in 1990, monitors the performance of 400 U.S. corporations that pass multiple, broad-based tests of companies' records in numerous areas, including companies' promotion of women and minorities to positions of substantial responsibility.
The Women's Equity Mutual Fund is managed by Walden Asset Management, the socially responsive investment division of Boston Trust and Investment Management, Inc., a U.S. money manager and subsidiary of Citizens Financial Group, based in Providence, R.I.
Each year, Walden surveys the compositions of company board members and senior executives. It asks companies to supply it with detailed data--already required for any company with government contracts--on the gender and race of all employees. The fund only invests in companies whose director slates include women and minorities.
To make it a little easier for companies to meet the criteria of certain screens, Calvert, in June, launched the Calvert Women's Principles, a comprehensive code of corporate conduct to set standards for focusing on gender equality and women's employment.
The code covers such areas as wages and benefits; health, safety and violence; and discrimination in the workplace.
Calvert and the U.N. Development Fund for Women, UNIFEM, which is Calvert's strategic partner in the launch of these principles, plan to work with partners in the corporate, nonprofit and institutional investor arenas--such as Starbucks, Amnesty International and the state of Connecticut--to develop strategies for persuading companies to endorse and implement Calvert's Women's Principles.
Calvert also intends to integrate these principles into its social and environmental research and screening of companies for its own investment portfolios. It also intends to issue ratings--within the next year--on companies based in part upon their adherence to women's principles.
Engaging companies in a dialogue is ultimately one of the goals of all socially responsible funds.
"We are not looking just for perfect companies," said the Women's Equity Mutual Fund's Lilienfield, "because we want to help institute change."
Marianne Sullivan is a Boston-based freelance writer who writes frequently on economics and finance.
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