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April 07, 2004
Socially Responsible Investment Runs the Gamut on Animal Welfare and Testing
    by William Baue

Investors who prioritize respect for animals have a range of options, from funds that use shareowner action alone to specialty SRI firms with stringent animal welfare screens.

Socially responsible investor concern for animal welfare and tolerance of animal testing span a wide spectrum. Some investors favor humane guidelines and limits for the use of animals in scientific experiments or product tests, while others cannot abide any animal testing. Socially responsible investing (SRI) options similarly practice varying degrees of engagement on corporate practices regarding animals, ranging from shareowner action, to "soft" qualitative screens, to "hard" exclusionary screens. This continuum allows investors to match their personal priorities to those of different SRI vehicles.

Shareowner action with regard to animal rights can include active proxy voting, dialogue with management, and filing shareowner resolutions. The proxy voting guidelines for several SRI firms, including Domini Social Investments, Pax World Funds, and Walden Asset Management, indicate that they support shareowner resolutions asking companies to report on their animal testing and welfare policies.

However, even these policies exhibit variance. Take, for example, Walden's proxy voting guidelines:

"Walden votes generally FOR shareholder proposals that ask management to report on animal testing, and votes generally AGAINST shareholder proposals that ask management to end consumer product safety tests with animals," the guidelines read.

Investors can take a somewhat stronger stance by using qualitative screening, which assesses degrees of involvement and sets thresholds of tolerance for animal testing. Consider, for example, the policy of Citizens Funds:

"We avoid those [companies] that test on animals in excess of legal requirements," reads the Citizens policy. "We avoid companies with a pattern of violations of the Animal Welfare Act."

The Calvert Group has a more detailed animal welfare screen that similarly sets thresholds of tolerance for animal testing, and maintains more stringent requirements for companies involved in animal husbandry. For example, Procter & Gamble (ticker: PG), which won a 2002 Humane Award from the Humane Society of the United States (HSUS) for advancing alternatives to animal testing, passes Calvert's screen.

However, some investors bridle at the notion of investing in companies such as Procter & Gamble that do a significant amount of testing on animals, no matter how responsibly they do so.

"That's the difference between a hard and a soft screen," said Brad Pappas, president of Rocky Mountain Humane Investing (RMHI), an SRI separate accounts management firm with much more stringent and wide-ranging animal welfare screens. These screens exclude not only in companies that obviously employ animal testing, such as pharmaceutical companies like Pfizer (PFE) and Merck (MRK), but also in less obvious connections, such as the tobacco and extractive industries.

Mr. Pappas illustrated the connection to tobacco with an historical example.

"When the tobacco versus Congress wars were raging in the mid-'90s, tobacco companies were using information supplied by the Tobacco Institute to justify that cigarettes were not addictive using laboratory animals to do that," Mr. Pappas told

As for the extractive industries, exploration and extraction often displace important animal habitats.

However, even RMHI's screens are not absolute. For example, Patterson Dental (PDCO) distributes veterinary medicines tested on animals.

"We frequently find ourselves in these gray areas, where there's really no right answer" said Mr. Pappas. "I defer to clients to decide whether or not to reject it."

Mr. Pappas thus also operates within the constraints of thresholds of tolerance. However, as a separate accounts manager, Mr. Pappas enjoys the latitude of individualized decision-making, whereas mutual funds must implement policies with pre-set thresholds. Some investors may not have the luxury of investing with RMHI, which suggests minimum account balances of $100,000.

Other options do exist. One creative solution is the American Trust Allegiance Fund (ATAFX), which does not screen animal testing, but as a fund based on Christian Scientist beliefs, does screen out health care industries. This screen effectively limits exposure to the majority of companies practicing animal testing.

Unfortunately, one option for animal welfare screening no longer exists. The HSUS launched the Humane Equity Fund in January 2000, but the bear market prevented the fund from gaining a stable enough asset base to survive.


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