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January 05, 2007
Top Five Socially Responsible Investing News Stories of 2006
    by Bill Baue

Green investing booms, microfinance pioneer wins Nobel Peace Prize, shareowner democracy increases, resolutions receive record votes, and UN launches Principles of Responsible Investment


Socially responsible investing (SRI) experienced a landmark year in 2006 on so many fronts that any one of the SocialFunds Top Five SRI News Stories could have taken the number one spot in any of the previous seven years we published this list. The sheer number of green investing developments, combined with the gravity of the climate crisis they address, made this topic rise to the top of the list this year. On par with this, however, is the significance of Muhammad Yunus winning the Nobel Peace Prize. The launching of the Principles of Responsible Investment by the United Nations is numbered fifth, but clearly it is a development of global importance for SRI. So the number ranking is less important than the compilation and analysis of the most significant SRI events that transpired in 2006 to help project what 2007 likely holds in store.

1. Green Investing Booms

Green investing, which is old hat for SRI--the New Alternatives Fund (ticker: NALFX) launched in 1982 and the Winslow Green Growth Fund (WGGFX) dates back to 1994--caught on like wildfire in the mainstream this year. At least a half-dozen new green funds launched, including the Guinness Atkinson Alternative Energy Fund (GAAEX) and the Jupiter Green Investment Trust in the UK (JGC--in conjunction with Winslow). Other green funds were index-based. Tokyo-based Shinko Investment Trust Management launched the Global Warming Prevention Equity Fund based on the Global Climate 100 Index (GC100) from KLD Research & Analytics. PowerShares launched two index-based exchange traded funds (ETFs)--the WilderShares Progressive Energy Portfolio (PUW) and the PowerShares Cleantech Portfolio (PZD).

A number of green indexes also launched in 2006--most recently in December with the Jefferies Global Clean Technology Composite Index (JGCTC) and two sub-indexes--on clean tech energy generation (JGCTEG) and clean tech energy storage (JGCTES). Other new launches included the Merriman Next-Generation Energy Index (NGE.X) in May, the Ardour Global Alternative Energy Index (AGIGL) in March, and the WilderShares New Energy Global Innovation Index (NEX) in January.

At the institutional level, Pennsylvania Treasurer Bob Casey followed in the footsteps of California Treasurer Phil Angelides' 2004 Green Wave Initiative by launching the Keystone Green Investment Strategy. The four-pronged program, which leapfrogged over green investing initiatives in Vermont and Maine that are still in developmental stages, comprises private equity and venture capital investments in clean tech as well as green screening, among other measures.

Mainstream investment analysts issued a slew of green investing reports. The World Resources Institute (WRI) collaborated with Merrill Lynch (MER) on their second joint report on the impacts of climate change on the auto sector, as well as teaming with Citigroup (C) on a report recommending a dozen companies poised to profit from a carbon-constrained future. Wells Fargo (WFC), which recently became the largest corporate purchaser of renewable energy credits (RECs) in the US with a three-year commitment to buy 550 million kilowatt-hours of wind energy, issued a report on the alternative energy market. Piper Jaffrey (PJC) released a report on the solar energy sector that gives "outperform" ratings to Evergreen Solar (ESLR) and Energy Conversion Devices (ENER), and Bank Sarasin published a report identifying pros and cons of biofuel investments.

"A tectonic shift in investor consciousness--spurred in large part by widespread recognition of the dire implications of climate change--made 2006 the year of green investing," said Jay Falk, president of SRI World Group, which publishes SocialFunds.com. "Whereas investors previously viewed environmentalism as a drag on returns, they're now seeing green in all senses of the word when they look at windmills, solar panels, and biofuels."

SocialFunds articles on green investing:
Two New Indexes Help Wean Us From Oil Addiction Via Clean Energy and Cleantech
Japanese Fund First to Track KLD Global Climate 100 Index
Winslow and Jupiter Launch Global Green Fund Using Only Positive Environmental Criteria
Alternative Energy Revolution Fueled by New Fund Launches Despite Sector Downturn
Two New ETFs Fight Climate Change: One Bridges Shift to Cleaner Energy, One Pushes Cleantech
Launch of Three New Clean Tech Indexes Culminates Banner Year for Green Investing
Pennsylvania Treasurer Keys into Clean Tech Investing and Green Screens
Merrill Lynch and World Resources Institute Issue Second Auto Sector Climate Change Report
World Resources Institute and Citigroup Team Up to Report on Solutions to Climate Change
Wells Fargo Issues Alternative Energy Report to Join Ranks of Banks Advancing SRI Research
Evergreen Solar and Energy Conversion Devices Rated Outperformers in Piper Jaffray Solar Report
Biofuels May Not Be Sustainability Panacea, According to Bank Sarasin Report



2. Muhammad Yunus Wins Nobel Peace Prize, Shining a Spotlight on Microfinance

The granting of the Nobel Peace Prize to microfinance pioneer Muhammad Yunus and the Grameen Bank in December represented a similar shift by linking finance to social justice in the mainstream consciousness. Again, social investors have long seen the connection between access to capital and societal equity, but the Nobel committee took a step beyond asserting microfinance as a means of poverty alleviation by extending the impact of tiny un-collateralized loans as a means of achieving peace.

Even before the Nobel announcement, traditional financial institutions were showering microfinance with money at unprecedented levels this year. In September at the Clinton Global Initiative (CGI), Citigroup announced $100 million in loans to 132 microfinance institutions (MFIs) in 39 different countries. The week before, the huge academic retirement fund manager TIAA-CREF announced its new $100 million Global Microfinance Investment Program (GMIP), jumpstarted with a $43 million private equity investment in ProCredit Holding.

"Social investors helped establish microfinance in the US and spread it beyond its origins in Bangladesh, so the Nobel Peace Prize and the flood of funds from traditional financiers help validate microfinance as an important asset class under the SRI umbrella," said Mr. Falk.

SocialFunds articles on microfinance:
Nobel Prize Links Microfinance to Peace
Microfinance Crosses Continental Divide with $100 Million Commitment from TIAA-CREF



3. Shareowner Democracy Strengthens

The presumed demise of shareowner democracy--due to the Securities and Exchange Commission (SEC) letting its 2003 rule proposal allowing shareowners access to the proxy for nominating directors to die on the vine--proved to be a premature obituary. In September, the Second Circuit Court of Appeals issued its decision on American Federation of State, County, and Municipal Employees Pension Plan v. American International Group. The federal judges denied AIG the right to exclude AFSCME's shareowner resolution seeking proxy access to nominate directors.

The ruling was a slap in the face to the SEC for abdicating its regulatory role, and effectively requires the Commission to implement the decision across the board, as it would prove contradictory to apply the ruling only to companies registered in the Second Circuit's jurisdiction. In an ironic victory for shareowner activists, the court ruling provides investors more power than the 2003 proposal would have. The SEC seems hamstrung on how to save face, as it has twice postponed meetings scheduled to announce rule revisions to create consistency with the decision.

In addition to achieving a voice in nominating directors, shareowner activists are also finding success in further democratization with a campaign for majority-vote director elections to replace the current corporate system of Soviet-style contests requiring a mere single vote for election. The 88 shareowner resolutions seeking majority-vote elections received almost-majority support (48 percent) on average this season, up from 43.7 percent average support for the 62 majority-vote resolutions in the 2005 proxy season, according to Institutional Shareholder Services (ISS). The campaign has met significant success in implementation as well. Some 180 companies have adopted either the Intel (INTC) model of requiring majority vote elections or the Pfizer (PFE) model of requiring resignation of directors who receive a less than a majority of votes.

"The strengthening of shareowner democracy this year promises to further empower investors to address governance issues such as out-of-control executive pay as well as environmental and social issues such as climate change and human rights abuses," said Mr. Falk.

SocialFunds articles on shareowner democracy:
Court Affirms Shareowner Right to File Resolutions on Proxy Access for Nominating Directors
Majority-Vote Director Election Shareowner Resolutions To Top 100, Dominate Proxy Season



4. Shareowner Resolutions Receive Record Support

Of the nearly 180 shareowner resolutions on environmental and social issues that came to vote in the first half of 2006 (when the bulk of annual meetings occur), 27 percent received over 15 percent support from voting shareowners, according to ISS. This result almost doubles the percentage of resolutions surpassing the 15 percent threshold compared to the 2004 and 2005 proxy seasons, and represents a record high in support since 1973, when ISS's Social Issues Service first began to track this information.

While the strength of shareowner activism played a key role in this success, support for resolutions hinges largely on voting recommendations made by proxy advisory firms such as ISS, Glass Lewis, and PROXY Governance (PGI). Mutual fund voting, which now sees sunlight due to a 2004 SEC rule requiring annual disclosure of voting policies and records, also determines the fate of shareowner resolutions to a large degree.

"The success of social and environmental resolutions last year sets an encouraging trajectory for the 2007 proxy season," said Mr. Falk. "With a Government Accountability Office report on proxy advisors in the works and increasing attention paid to mutual fund voting, the pressure is on proxy advisory firms and mutual fund trustees alike to recommend and vote conscientiously."

SocialFunds articles on shareowner resolutions:
Votes for Social and Environmental Resolutions Rising, But Proxy Firm Support Still Lagging
Correlating Proxy Advisory Firm Recommendations with Voting Results
Counting Votes: Data Show Mutual Fund Proxy Voting Far From Conscientious



5. United Nations Launches Principles of Responsible Investment

SRI received the imprimatur of the United Nations with the launching of the UN Principles of Responsible Investment (PRI) in April, with more than 70 institutional investors from 16 countries representing over $4.5 trillion in assets joining as signatories in the first few months. The development grew out of existing support for SRI by the United Nations Environment Programme Finance Initiative (UNEP FI) and the UN Global Compact. In 2006 the UNEP FI Asset Management Working Group (AMWG) issued its second report on the materiality of environmental, social, and governance (ESG) issues. The Global Compact issued a similar report on the integration of ESG considerations into financial analysis in late 2005.

"PRI is the first broadly-defined effort to unify investors on a global basis around a core set of environmental, social, and governance principles that legitimize sustainable and responsible investment," said Mr. Falk.

SocialFunds articles on the UN and SRI:
United Nations Endorses SRI Strategies in Launching Principles for Responsible Investment
UN Advances Business Case for Materiality of SRI, Leaving Skeptics Little Wiggle Room

 

 
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