Social Investing Sector Moving Forward, Coming Together:Report on SRI in the Rockies Conference

by Rona Fried

Blue jeans are common attire at the SRI in the Rockies conference, the annual gathering of the U.S. socially responsible investment (SRI) industry, but don’t let their casual appearance fool you – they mean business. This passionate, activist crowd is bent on transforming the mainstream investment industry from Wall Street’s typical “profit at all costs” analysis to one that places environmental and social considerations on a equal plane. They have made a lot of progress and are proud of having created and nurtured an industry that counts two-plus trillion dollars in portfolios that utilize one or more socially responsible investment strategies.

About 500 people gathered in gorgeous Keystone, Colorado for this 15th annual conference, October 7-10. The conference has consistently grown by about 5% per year over the past decade. The Social Investment Forum, the SRI industry trade association, and First Affirmative Financial Network, a SRI financial advisor network, co-produce the conference. Among its many big name sponsors are Calvert, Domini Social Investments, Pax World Funds, Sierra Club Mutual Funds, Citizens Funds and Green Century Capital.

Today, the full array of investment options are available for socially/environmentally aware investors: sophisticated stock indexes, mutual funds, bonds, and financial planners/portfolio managers.

While Wall Street remains skeptical, the SRI industry has proven through academic research and empirical practice that incorporating social and environmental values into investment decisions is a value proposition – no small feat.

In fact, the winner of the Moskowitz Prize is announced at SRI in the Rockies each year. This prize recognizes excellence in academic research on topics related to SRI. This year Marc Orlitzky of the University of New South Wales in Australia received the award for his seminal research study, “Corporate Social and Financial Performance: A Meta-Analysis.” After analyzing over 50 studies on the subject, he found there is a statistically significant relationship between excellence in corporate social performance and financial performance, across industries.

As the field continues to move forward, SRI in the Rockies offers pre-conference continuing education for SRI professionals as well two-and-a-half days covering a plethora of topics from shareholder advocacy initiatives and community investment strategies to diversifying portfolios beyond the stock market. About 100 people attended a special session with senior officials from the World Bank for a dialogue on how the Bank needs to change to meet its mission of alleviating poverty.

What struck me most about the conference was observing how the various sectors of sustainable business are coming together and the evidence of the evolution of the field as a whole.

Although the socially responsible investment industry is primarily focused on investing in publicly traded companies, Dominic Kulik from Investor’s Circle was there to connect the field with private equity investing. Investing in privately held sustainable companies is just taking off with new sources of capital beginning to blossom.

He spoke about the need to expand the capital available for emerging sustainable businesses. How? By including private equity investments in SRI portfolios. A perfect match! SRI investors and institutions want to invest in companies making a positive impact. It’s difficult to do that by investing in publicly traded companies because there are few outstanding large public companies and the few “pure plays” are small and volatile.

Investing in private companies is a great way to diversify portfolios and enables people to make truly social direct investments while infusing much needed capital into emerging companies. But financial advisors know how to do due diligence on public companies, not private ones, thus the need to create a bridge. Investor’s Circle is working on projects to help overcome these constraints, and looking for ways that portfolio managers can put clients into sustainable and responsible private equity, such as a possible Fund of Funds.

Another stream is the evolution of the SRI Brand. What kind of messaging does the SRI community need to reach beyond the “choir” and attract mainstream investors?

Even though academic research and on-the-ground performance of SRI portfolios shows portfolios can achieve the same financial goals through SRI or conventional investing, the perception persists that investing with your values means automatically sacrificing performance. This is true for individuals, but is an even more difficult perception to overcome with institutional investors who have a fiduciary responsibility.

A recent survey commissioned by Pax World Funds, found the SRI myth still prevails: people perceive SRI investing as a “feel good” thing to do, but not a way to maximize a portfolio’s performance. Yet, 93% of investors surveyed agreed with the statement that financial advisors should investigate ethical as well as financial company performance before making investment recommendations, evidence of a vast untapped potential market for SRI investing.

Because of the risks of investing in companies with poor environmental and/ or social records, using this criteria is a fiduciary responsibility.

Joe Keefe from Calvert suggested the industry position itself to attract the mainstream by changing its message from “investing with your values” to emphasizing that it is “a prudent, smart way to invest.” Rather than discussing the “three legs of the stool of screening, activism and community investing,” discuss the impact of SRI investing – creating corporate change and mitigating risk.

A third way the field is evolving is in the level of the conversation. When the word “sustainable” was coined about 10 years ago, the conversation was about rapidly transforming industry — a sweeping movement toward environmental and social responsibility. When it became clear the well established industry practices weren’t going to change in a day, people settled for incremental improvements and rolled up their sleeves to work with corporations to make it happen.

Now that many incremental improvements are being made and the sustainable field is gaining a foothold, I can feel rumblings from some of the leaders about wanting to go for much more dramatic changes.

“Why, after 20 years, are we still having a drop in the bucket impact? [on the damage being done to the Earth],” asked co-presenters Bill Reed and Gil Friend of Natural Logic. “We need to move past ‘limiting the damage’ to true restoration – our ‘best’ right now isn’t good enough.”

They pointed out that what passes for sustainable practices not only doesn’t make much of a positive impact but it also doesn’t enable the company to take advantage of the opportunities available by making sweeping change. Should a company that pledges to reduce greenhouse emissions by 2% pass SRI screens and be held by SRI mutual funds? DuPont, for example, made zero emissions the goal. They became so good at managing waste that they developed a waste management service to help their clients do the same – now it is a $200 million business for them!

In another presentation, Frank Dixon of Innovest Group asked, “Why is no company “sustainable” yet?” Although the corporate social responsibility (CSR) and SRI movements have driven large improvements in corporate environmental and social performance, he s
ays, our society remains grossly unsustainable largely because economic and political systems do not hold organizations responsible for their negative impacts. System change is the most difficult challenge facing management, but it is necessary for sustainability to be achieved. He is currently pilot testing his Total Corporate Responsibility (TRC) model with a Fortune 500 company; it adds the system change component to CSR. He proposes that SRI funds consisting of TRC leaders (rather than the ‘incremental leaders’ we see in the funds today) will outperform because of the visionary management required.

Next year’s conference will be held in Snowbird, Utah from September 25-28.

++++

www.sriintherockies.com

Rona Fried, Ph.D. is president of SustainableBusiness.com, the online community for green business: daily sustainable business and investor news, Green Dream Jobs, Business Connections and the sustainable investing newsletter, Progressive Investor. Contact her: rona@sustainablebusiness.com