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August 05, 2003
The Needmor Fund Utilizes a Muscular Definition of Fiduciary Responsibility
    by William Baue and Mark Thomsen

Susan Stranahan, treasurer of the Needmor Fund, discusses socially responsible investing as a fiduciary duty and tier A money managers who have a social mission.


Institutional investors account for the bulk of the $2 trillion in socially responsible investments (SRI) in the United States. One such institution is the Needmor Fund, a Boulder, Colorado-based foundation that encourages people to work together to change the social, economic, or political conditions that bar their access to participation in a democratic society. Needmor, which has about $22 million in assets, made almost 70 grants ranging from $12,000 to $120,000 in 2002. SocialFunds.com spoke with Susan Stranahan, Needmor's treasurer, earlier this year.

SRI: Why does Needmor engage in SRI?

Sarah Stranahan: Because we are a charitable foundation. Our grantmaking mission is community organizing in low-income communities, for political and economic justice. Our commitment to mission-related investing comes out of an interpretation of our fiduciary responsibility that all the funds we receive are charitable dollars with tax benefits, and therefore the funds need to work for the public good as a whole. We have "muscular" definition of fiduciary responsibility.

SRI: What aspects of SRI does Needmor practice?

SS: Needmor does screening, shareholder activism, and some community investing.

SRI: What's the history behind Needmor's involvement in SRI?

SS: It was gradual transition process that took 15 years. We have been screening since 1987. We started with a small portion of our investment because we had skeptics on our board. We put some money into an SRI manager and watched that manager for a couple of years. That manager performed competitively with our other managers, and with benchmarks, so we put more money with this manager. Finally, in 1993, we established a rule that all new managers would screen. We pulled out of our last non-screened portfolio in 1998 or 1999. So we've been fully screened for about 5 years.

SRI: How has your involvement with SRI affected financial performance?

SS: Over the last 5 years, our managers have outperformed the market benchmarks. However, we were under our internal targets earlier this year (we made 8 percent, but our target was 10 percent.) Our performance is not caused by our commitment to SRI but our commitment to equities--we have an aggressive allocation of 80 percent of our portfolio in equities. We also have screened bond portfolios. If we had had a higher allocation to bonds, we would have done better through the bear market.

SRI: What screens do you employ?

SS: We have a set of screens that we developed internally--negative screens around the military, nuclear power, as well as AFL-CIO labor issues, human rights, and strong screens around emerging markets.

SRI: What kinds of shareholder activism do you practice?

We do a lot of co-filing on shareholder resolutions. We have worked with our managers to find resolutions where we can take a leadership role in co-filing in addition to voting our proxies. We co-filed about 15 resolutions last year.

SRI: What's more important, screening or shareholder activism?

SS: That's a false dichotomy. At Needmor, we take the position that they are both really beneficial and valid forms of mission-related investing. The community of SRI managers that do screening, such as Domini, Walden, Trillium, and Pax World, also provide a lot of research and support for shareholder activism. We see it as an interdependent universe.

SRI: What are your criteria for choosing money managers?

SS: We have a commitment to invest in what we call tier A socially responsible investment managers. Tier A social investment managers screen, conduct dialogue with companies about corporate responsibility and how to improve social and financial performance, and are also active in proxy voting and in lobbying, for example on SEC regulations and NYSE rules. We look for managers who do their own research, who are committed to shareholder activism, who see their social mission as a core part of their management--managers that have internalized their social mission.

SRI: How do you identify tier A managers?

SS: We have an asset consultant advisor who we trained to research for SRI managers. The Asset Consulting Group in St. Louis, Missouri, developed a database and search capacity and benchmarking tools to run really good comparative evaluations between SRI asset managers.

SRI: Why aren't more foundations such as Needmor practicing SRI?

SS: My sense is that lot of people feel that SRI invests in a hippy-dippy, loosey-goosey way that's emotion-driven and not discipline-driven. But that's not the way it has to be. We take a very disciplined, professional approach.

 

 
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