August 13, 2004
How Do SRI Firms Walk Their Talk When It Comes to Corporate Social Responsibility?
by William Baue
Socially responsible investment firms take particulars such as scale and sector into account in
their CSR expectations at the companies they own and in their own operations.
Socially responsible investment (SRI) firms' raison d'Ítre, in addition to generating
healthy returns for their investors, is to promote corporate social responsibility (CSR) at the
companies they hold. At a recent SRI conference, a CSR executive from a prominent computer
producer who often interacts with social research analysts wondered aloud how SRI firms' internal
CSR performance stacks up. In other words, do they practice what they preach? Looking at the big
picture, the answer seems to be yes.
"Trillium Asset Management was founded to embark on a
mission--reforming capitalism," said Joan Bavaria, founding president of Trillium, which differs
from many SRI firms in that it offers individually managed accounts instead of mutual funds. "We
have believed from the beginning that we must walk our talk--hold ourselves to the same standards
we ask of other companies."
For example, Trillium has filed shareowner resolutions asking
companies to reign in
executive compensation and to prepare
sustainability reports. According to statistics posted on the
Trillium website, corporate CEOs make between 411 and 531 times what average workers make, while
Trillium limits the ratio of CEO to median employee pay to approximately 4:1. However, Trillium is
not necessarily asking corporations to apply the same ratio as it does, as there is a huge
differential in scale between a small investment firm and a huge corporation.
Trillium has issued its own sustainability report, and other SRI firms, such as the Calvert Group and Citizens Funds, are preparing such reports. However, many
SRI firms find the preparation of sustainability reports prohibitively labor-intensive and
expensive. Does this mean they should not ask major corporations, which enjoy economies of scale,
to prepare sustainability reports unless they do so themselves?
"Overall, Domini seeks to
align its internal practices with the standards it advocates for publicly traded companies, but it
should be noted that a small, privately held company such as Domini is very different than a
large-cap publicly traded company," said Adam Kanzer, general counsel and director of shareholder
advocacy at Domini Social Investments. "Our
impact is significantly smaller, and our ability to undertake certain tasks--such as regularly
reporting our greenhouse gas emissions--is significantly less."
Others in the SRI
"In a sense, all companies are held to different standards, but that is
more a matter of their industries than their affiliation with social missions or investing," said
Julie Gorte, director of social research at Calvert. "For example, we would not hold ourselves (or
any other asset manager) to the same standards for environmental performance and disclosure that we
do for, say, a manufacturer, where the environmental impact is far greater."
most SRI firms support the splitting of corporate CEO and board chair positions. Some SRI firms
pursue shareowner action on the issue, dialoging with companies to promote change or filing
shareowner resolutions when dialogue stalls, while other SRI firms register their support simply by
voting in favor of such resolutions on their proxies. Some SRI firms, such as Pax World Funds, MMA-Praxis, Citizens Funds, and Trillium,
split the position of CEO from fund board chairs, while others do not.
"We do not hold
ourselves to a different standard than the companies whose social and environmental impacts we
examine as investments, nor do we ask companies to do things we do not believe we should do, or be
asked to do," said Ms. Gorte of Calvert. "For example, we have not taken a position, in our
screening or advocacy, on splitting the CEO and chair position."
According to Calvert's
proxy voting guidelines, it
determines how to vote CEO/Chair separation resolutions on a case-by-case basis.
Securities and Exchange Commission (SEC)
regulations prohibiting mutual fund firm CEOs from chairing boards of funds are taking effect.
"Persuant to the new SEC rule, the funds' board will be appointing an independent chair in the
near future," said Mr. Kanzer, referring to the fact that Domini CEO Amy Domini currently chairs
the board of trustees for the two Domini mutual funds.
Diversity is representative of
the many issues where SRI funds' internal CSR practice dovetails with their advocacy for CSR best
practice at the companies they hold.
Said Ms. Gorte of Calvert, "We have asked many
companies to diversify their boards, and all our own fund boards include women and minorities."
The Domini funds' eight-person board consists of six women or minorities, exemplifying
diversity best practice. Similarly, Pax World places a strong emphasis on diversity, specifically
focusing on recruiting and promoting women.
"Half of our portfolio managers are women,
three women sit on our fund boards, our CFO is a woman, as is our vice president of social
research, vice president of marketing, and the heads of our capital management and shareholder
services departments," said Anita Green, Pax World's vice president of social research. " There is
one secret formula that we're trying hard to give away, which is that we think the prevalence of
women on our boards and in upper management gives us a competitive advantage over all-male firms."