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December 19, 2003
Top Five Social Investing News Stories of 2003
    by William Baue

The major social investing news stories of the year include SEC reforms, stock exchanges mandating social, environmental, and corporate governance practices, and climate risk assessment defined as a fiduciary duty.

A few socially responsible investing (SRI) mutual funds performed incredibly well this year, and most SRI funds performed competitively as well. For example, the Winslow Green Growth Fund (ticker: WGGFX) generated a year-to-date return of 90.95 percent as of November 31, according to data provided by Thomson Financial Network. However, this good news pales in comparison to the significance of the policy and practice reforms and developments that deemed the top five SRI news stories of 2003.

1. SEC Reforms Mutual Fund Proxy Voting Disclosure, Shareowner Nomination of Directors on the Corporate Proxy

The US Securities and Exchange Commission (SEC) announced two major reforms in 2003, both of which advance fundamental tenets of SRI.

On January 23, the SEC enacted a new rule that requires mutual fund companies to disclose their proxy voting policies, procedures, and actual proxy votes. This reform was set in motion by a November 2001 rulemaking petition filed by Domini Social Investments founder and managing principal Amy Domini (the AFL-CIO and the International Brotherhood of Teamsters also filed similar petitions.) The SRI community also submitted thousands of public comment letters recommending specific changes. The SEC cited many of these specific recommendations as influential in helping shape the final rule.

Then on October 8, the SEC approved a rule proposal to allow shareowners to nominate candidates for company boards of directors. A public comment period on the proposals runs through December 22, 2003, after which the SEC will finalize the rules. While some corporate interests are filing letters in opposition to the proposal, an overwhelming majority of comment letters supports the proposal, and urge for deeper reform by identifying shortcomings of the proposal in its current form.

“Investors drove these SEC reforms by demanding both mutual fund transparency and a voice in nominating board of director candidates,” said Jay Falk, president of SRI World Group. is a network site of SRI World Group. “Management’s stranglehold on proxy votes and board member candidacy is finally loosening.”

Related SEC Reform Articles:
SEC Tells Mutual Funds To Disclose Their Proxy Votes
SEC Opens Proxy to Shareowner-Nominated Directors, Critics Bemoan Triggers, Thresholds

2. Johannesburg Securities Exchange Requires Compliance with King II and Global Reporting Initiative Guidelines

As of September 1, 2003, the Johannesburg Securities Exchange (JSE) now requires all listed companies to comply with the second King Report on Corporate Governance. King II, as the report is more commonly known, stipulates the use of Global Reporting Initiative (GRI) Sustainability Reporting Guidelines. JSE is thus the first market in the world to mandate thresholds of social and environmental reporting practice.

“JSE is setting a precedent by requiring corporate adherence to GRI social and environmental reporting guidelines,” said Mr. Falk. “Its move challenges other stock exchanges around the globe to follow its lead.”

Related JSE/King II Articles:
Johannesburg Securities Exchange Requires Compliance with King II and Global Reporting Initiative

3. Climate Risk Assessment Acknowledged as Fiduciary Duty

On November 21, 2003, Connecticut State Treasurer Denise Nappier and the Coalition for Environmentally Responsible Economies (CERES) convened the Institutional Investor Summit on Climate Risk at the United Nations Headquarters in New York City. Attendants representing the investment, financial, and corporate communities concurred that greenhouse gas emissions, global warming, and climate change risks are material matters that warrant the attention of those with fiduciary responsibilities. Social investors have filed shareowner resolutions at more than a dozen companies asking them to report on their assessment of climate risk and plans to mitigate it.

The Summit resulted in the formation of the Investor Network on Climate Risk (INCR), a coalition of ten state and city treasurers and comptrollers and labor pension funds that collectively manage over $1 trillion in assets. INCR issued a ten-point “Call for Action” that commenced with a recommendation to support the Rose Foundation’s rulemaking petition for the SEC to enforce and enhance its environmental liability disclosure rules.

“The corporate and financial communities are reaching consensus that it is indeed a fiduciary duty to at least assess and report on the risks associated with climate change and greenhouse gas emissions,” said Mr. Falk. “Spurred by active investors, proactive companies are taking the next step of mitigating these risks, which often costs little and, in fact, provides opportunities to create competitive advantages and profits.”

Related Climate Risk Articles:
Institutional Investors Send Wall Street Wake-Up Call to Address Climate Risk
UN Institutional Investor Summit Considers Opportunities of Addressing Climate Change

4. Corporate Governance Continues to Strengthen

On November 4, 2003, SEC approval allowed the New York Stock Exchange (NYSE) to release its final rules on corporate governance standards for listed companies, which strengthen corporate transparency and accountability. Most prominently, the rules tighten the definition of director independence and require boards of NYSE-listed companies to have a majority of independent directors. The rules also require that nomination and compensation committees consist solely of independent directors.

Interestingly, the NYSE was concurrently embroiled in its own corporate governance woes exemplified by departing CEO Richard Grasso’s obscenely lucrative retirement package. The SEC has since approved a series of corporate governance reforms at the NYSE itself. Meanwhile, social investors and corporate governance advocates alike continue to file increasing numbers of shareowner resolutions addressing key corporate governance issues. For example, some resolutions seek to reel in excessive executive compensation packages by tying them to environmental and social performance.

Related Corporate Governance Reform Articles:
Huh?!?: CEO Pay Goes Up in 2002 While the Stock Market Goes Down

5. Community Investment Assets Nearly Double Over the Past Two Years

Community investment is the fastest growing component of SRI in the US, with assets in community development financial institutions (CDFIs) nearly doubling over the past two years. According to the Community Investing Program, a project of the Social Investment Forum (SIF) and Co-op America, total assets held by CDFIs in the US grew 84 percent during that period, from $7.6 billion in 2001 to $14 billion in 2003. Community investing offers financial services to economically disadvantaged people in U.S. and overseas communities who are underserved by traditional financial institutions.

“Expanding community investment goes beyond simply generating sound returns for investors. It extends the benefits of SRI to individuals and communities who need and deserve fair economic opportunities,” said Mr. Falk.

Related Community Investment Articles:
US Community Investment Assets Nearly Double Over the Past Two Years


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