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October 22, 2003
American Library Association Takes a Pass on Socially Responsible Investing
    by William Baue

The ALA recently decided not to employ SRI on its endowment, though it may allow portions of its portfolios to be invested in SRI mutual funds.

At its 2003 Annual Conference in June, the American Library Association (ALA) Executive Board voted not to employ socially responsible investing (SRI) strategies to its endowment portfolio, the Long Term Investment Fund (LTIF). The association’s Finance and Audit (F&A) Subcommittee determined that applying SRI screens consistent with ALA members’ values, specifically diversity, human rights, and the environment, “will negatively impact portfolio performance.” The board left the door open to investing a portion of the endowment in SRI mutual funds.

The ALA is a nonprofit organization with 64,000 members who are primarily librarians and other staff members at libraries. The ALA advocates for the public’s right to a free and open information society.

The issue of SRI has hounded the ALA for the last half-decade. In 1998, ALA Councilor at Large Mark Rosenzweig, co-founder of the Progressive Librarians Guild, filed a resolution calling on the association to apply SRI to its investments. Since then, the issue has been discussed, deferred, defeated, and defibrillated back to life time and again.

Most recently, the F&A Subcommittee developed screening criteria based on KLD Research & Analytics’ Socrates database and the PortfolioScreener tool from the Investor Responsibility Research Center (IRRC). ALA’s portfolio managers then tested the three screens by applying them to their portfolios.

“Each test resulted in more than 10 percent--between 16 percent and 86 percent--of all portfolio holdings being screened out of the portfolio,” said Teri Switzer, ALA’s treasurer. “Independent of the SRI discussion, it was previously decided that if 10 percent or more of the portfolio's holdings were screened out, there would be a negative impact on the overall performance of the portfolio and the ability to meet stated performance objectives.”

Michael Gorman, an incoming member of the ALA Executive Board, expressed concern that the F&A Subcommittee based its recommendation on a very limited view of SRI. Dr. Gorman pointed out that other associations and institutions have employed SRI strategies that reflect their constituents’ values while fulfilling the fiduciary duty of capital preservation and enhancement.

For example, many institutional investors practice shareowner action, an SRI strategy that doesn’t limit the investment universe at all, but rather engages with portfolio companies to advocate for improved social and environmental performance.

Although Ms. Switzer acknowledged ALA’s awareness of empirical research that correlates SRI with neutral or positive impacts on investment returns, she told that “no other SRI strategies have been considered,” to her knowledge. The Executive Board did, however, leave open the possibility of investing portions of the LTIF in SRI mutual funds.

“There are SRI mutual fund options available that might possibly fit within the current asset allocation strategy,” said Ms. Switzer. “However, when using the values of diversity, human rights, and environment, it was found that there is no SRI mutual fund in the market today that is designed specifically to screen for these three values exclusively.”

The ongoing discussions regarding SRI have not been completely unproductive, according to Dr. Gorman, who spoke with not in his capacity as a board member but from his personal perspective on the situation.

“ALA has agreed to strengthen its communications with the fund managers about our commitment to SRI values, to ask that they avoid companies that do not match our values, and to use their performance in this area as part of the annual evaluation of the fund managers,” said Dr. Gorman. “Further, ALA has agreed to make ALA's investments transparent to ALA members and to simplify the process by means of which an individual member can challenge any specific investment.”

“Personally, I think this is progress and the most that is politically feasible,” he concluded.


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