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Sun, May 11, 2008
Investing with conscience
Socially responsible funds aim for mix of passion, profits
NANCY STANCILL. Charlotte Observer. Sun, May 11, 2008
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March 10, 2008
Assets jump 18% in socially conscious investments
A growing desire among investors to align their portfolios with their personal and political beliefs is transforming the financial services landscape and creating opportunities and challenges for financial advisers.

NOTE: This article includes a typographical error. The Social Investment Forum reported that separately managed accounts for socially conscious investors actually totaled $1.9 trillion in 2007 (not $1.9 billion).
By Jeff Benjamin. Investment News. March 10, 2008
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Sunday, February 17, 2008
Guided by Conscience And Keeping Pace
Planners and investment advisers are supposed to care about their clients' goals. So how come so many of them mouth off when someone asks about socially responsible investments?
Jane Bryant Quinn. washingtonpost.com. Sunday, February 17, 2008: F01
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December 2007
Investing tips: Save the planet, make a buck
Here's how to think smarter about socially responsible ways to increase your money. Do you want to make a better world? You have in your possession a tool that can do exactly that. It's your money.
Ann Monroe. MSN Money. December 2007
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December 4, 2007
More `Green' Financial Advisers Coming To Street
"Green" financial advisers are sprouting up on Wall Street and Main Street.

Though still small in number, they are blossoming in traditional firms as well as those focused on socially responsible investing. The reason: investor demand and investment opportunity. Clients want their money to have a positive environmental impact, and many feel that global warming can't be ignored as a factor in investing.

"There's a growing trend toward green investing and aligning people's values with their investments," says Craig Metrick, U.S. head of responsible investment at Mercer LLC's investment consulting business.

Some financial firms are responding with "green" mutual funds and exchange-traded funds. They are also identifying companies well positioned for global warming, either because they are devising new technologies or taking advantage of changes in markets. But beyond these products, a self-selected group of advisers are specializing in "green" investing, just as some brokers focus on clients who are athletes or doctors. While this group is only a tiny percentage of the thousands of financial advisers, their numbers are rising in response to investor demand.

"Business is booming, especially since Al Gore's movie, people want to do the right thing," says Jon Ellenbogen, a financial consultant at A.G. Edwards & Sons Inc. in Washington, referring to the documentary "An Inconvenient Truth." Mr. Ellenbogen says he is working with others because he is so busy and adds that "green investing is here to stay. There is money to be made in it if people are interested."

To be sure, not all green investments will pan out. Some alternative green investments are risky because of their small size, unproven technology and dependence on high prices for oil. For instance, it now appears that investors overestimated the prospects for ethanol.

Some financial firms and advisers entering the field don't have sufficient expertise. And simply selecting a green managed or indexed mutual fund from a well-established firm doesn't guarantee a sound green portfolio. "Investors need to be wary," says Truman Semans, director of the Business Environmental Leadership Council at the Pew Center on Global Climate Change, a nonprofit, nonpartisan organization. "The rapid growth of products and advisers has led to a wide range of quality."

Indicative of the interest, the 2007 SRI in the Rockies Conference -- the annual meeting of the socially responsible investment industry -- sold out a month early with more than 650 participants, 100 more than in 2006. "I think the growth potential is fabulous," says Steve Schueth, president of First Affirmative Financial Network LLC, a nationwide network of financial advisers who specialize in social investing. "More and more folks are finding out that you can do well and do good at the same time."

He says: "The vast majority of advisers won't bring it up because they don't understand it," but clients are raising the issue because of "awareness of climate change, awareness of the need of alternative energy strategies."

The network, which designs socially responsible and green portfolios for traditional advisers, saw assets increase in the past year by $100 million, to $700 million.

The Social Investment Forum, a national association for the social investment industry, says total SRI assets rose to $2.29 trillion in 2005 from $639 billion a decade earlier. "Socially responsible investing is the fastest-growing segment of the market we see," says John V. Carberry, president of F.L. Putnam Investment Management Co., based in Wellesley, Mass. "Environmental issues are at the top of the list."

Copyright (c) 2007 Dow Jones & Company, Inc.
Jilian Mincer . DOW JONES NEWSWIRES. December 4, 2007

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December 1, 2007
A Very Convenient Truth
New research shows SRI performance rivals that of conventional investments.

Nice guys finish last, the good die young, the road to hell is paved with good intentions and socially responsible investments generate fewer profits.

Well, maybe not. On balance, when it comes to investing, a clear conscience may well be the best pillow. Although the prevailing sense among many advisors is that SRI investment performance lags conventional, non-SRI performance, there is little evidence of a difference. "You can go back to 1993 and you will find no statistical difference between social and non-social fund performance," says Lloyd Kurtz, senior portfolio manager at Nelson Capital, a wealth management firm in Palo Alto, Calif. Indeed, the debate over SRI or sustainable investment performance tends to focus more on whether there is an alpha associated with SRI returns rather than a penalty. And even on that front there is cause for optimism.

SRI Performance in a Well-Oiled Economy
"Conventional wisdom dies a hard death," says Joe Keefe, chief executive officer of Pax World Management, explaining that early SRI was greeted by Wall Street with skepticism in part because it defined itself in terms of negative screening what it didn't invest in instead of what it did. "People said, Isn't this going to harm performance because you are reducing the opportunity set?' That didn't happen, but it was counterintuitive to say you could reduce the opportunity set and still get market performance," he adds.

A plethora of academic and industry studies have defied the conventional wisdom by concluding that SRIs offer comparable returns to other investments. For instance, a recent report from the United Nations Environmental Programme (UNEP) Finance Initiative, "Demystifying Responsible Investment Performance," which reviewed key academic and broker research on environmental, social and governance factors (ESG), found that only three of twenty academic studies showed any negative effect on returns from social investing. Ten of the studies showed a positive effect on returns and the rest a neutral effect. The report states that, "there does not appear to be a performance penalty from taking ESG factors into account in the portfolio management process."

Still, there have been some hiccups. The nature of conventional SRI funds is that they will sometimes be over- or underinvested in a sector that is doing well such as technology, which gave SRI funds a boost in the late 1990s, or oil, which has contributed to their lagging performance in recent years. "It's really tough for a company in the business of international oil production to be in a social portfolio," says Amy Domini, CEO of Domini Social Investments and codeveloper of the Domini 400 Social Index, the SRI equivalent of the S&P 500. Kurtz agrees that the energy-dominated market has hurt the performance of SRIs. "The last few years have been pretty rough, but that really boils down to oil. Modern risk models don't take that into account. They look at value versus growth, they look at size, but oil weighting is not something they take into account."

From SRI to Sustainability
Concerns about global warming are causing the tide to change. SRIs, which have been ahead of the curve on this issue, are beginning to see both better returns and, perhaps not coincidentally, more interest. "People understand that with all the venture capital going into alternative energy and with all the new government subsidies and tax incentives around climate change, this might be a really good time to be involved with companies that are doing the right thing," says Paul Hilton, director of social investment strategy at Calvert.

Sue Hansen, a financial advisor and owner of Hansen's Financial Services in Fayetteville, N.Y., senses that SRI funds performance has improved, in part, because of a maturation of the industry. Now, she routinely asks new and prospective clients if they are interested in SRI, and 85% to 99% of her clients indicate that yes, they are. "I have moved a lot of money out of mutual fund companies with no SRI fund to the SRI world," she says.

Keefe contends that another part of the reason for the growing interest in SRI is that the focus has moved from negative screening to sustainable investment. "We don't even use the term SRI anymore; we define our approach in terms of what we do invest in," says Keefe. "The materiality of environmental, social and governance issues on financial performance is becoming more and more apparent every day, so there is a movement toward integrating those factors into investment analysis."

It's a movement that is gaining steam from UNEP's Principles for Responsible Investment Initiative (PRI). PRI, which was formed at the behest of the UN to "mainstream responsible investment globally," sets forth six best practices for incorporating environmental, social and governance factors into investment decisions. One indication of the growing importance of these factors is the speed with which the PRI initiative has attracted signatories to its principles: Since its inception in 2006, nearly 200 signatories worldwide have signed on.

Fiduciary Risk Revisited
Although the PRI has attracted some large US pension funds, American organizations make up only 25% of PRI signatories?a situation Keefe and others attribute to fears about fiduciary liability. "Even five years ago fiduciaries who ran pension funds were told by their lawyers that they could not look at extra factors or they would be breaching their fiduciary responsibility," Keefe says. That perception is changing, especially since a report released by the London-based law firm Freshfields Bruckhaus Deringer turned the issue of fiduciary liability on its head. The Freshfields report suggests that, given the demonstrated link between ESG factors and financial performance, fiduciaries may have a responsibility to incorporate ESG into all investment performance. "Fiduciaries are beginning to understand that they breach their responsibilities if they don't look at these factors," says Keefe.

Alpha Bets
Clearly, the fiduciary risk of not incorporating ESG into investments would be more significant if it could be proven that there was some alpha associated with SRI investing. Patrick Geddes, president and cofounder of Aperio Group, which offers a custom-screened SRI index fund for high-net-worth individuals, does not believe there is. "SRI funds tend to conflate alpha with screening there is a funny sentiment that my belief system will earn me superior returns. As indexers, we don't believe there is any alpha anywhere," he says, explaining that in the absence of alpha, indexed funds are the way for SRI investors to go since they avoid the high fees associated with active fund management.

But for others, the nonexistence of an SRI-based alpha is not so clear. Alex Edmans, an assistant professor of finance at Wharton, recently released a study that showed that Fortune's "Best Companies to Work for In America" in 1998 earned more than double the market's return by the end of 2005 after adjusting for factors like size, market sensitivity and past performance momentum. A fund screened for employee satisfaction is not technically an SRI fund, and Edmans observes that most SRI studies show that SRI screening has no effect on returns. However, the study does suggest that the market may not fully value intangibles in the short term. "Social responsibility is very hard to quantify and observe," he says. "We may be moving toward a different way of valuing companies."

Kurtz suggests it may be that SRI managers have an edge in factoring in a firm's reputation when they consider its value. "I wouldn't say that social investors have mastered the art of reputation pricing or predicting problems but I do think we have valuable things to say to the rest of the profession," he says. "Our system depends on trust, and in a free market your reputation is your most important asset. The winners in the future will not just be managers who can crunch numbers; they will be managers who can make good qualitative judgments that is something computers can't do."

The takeaway for financial advisors? A confluence of factors increasing investor interest, no evidence of diminished returns, the tantalizing possibility of an SRI alpha and a changing definition of fiduciary risk seems to be pushing SRI into the mainstream. As SRI enthusiasts might see it, good things come to those who wait.

Kathy Gevlin is a freelance writer based in Dobbs Ferry, N.Y., and a frequent contributor to Financial Planning.

(c) 2007 Financial Planning and SourceMedia, Inc. All Rights Reserved. http://www.Financial-Planning.com http://www.sourcemedia.com
Kathy Gevlin. Financial Planning. December 1, 2007
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