October 17, 2008
Sustainable Investment Strategies Earn Respect in Aftermath of the Financial Crisis
by Robert Kropp
Having sounded warnings for years about the causes of the economic crisis, sustainable and
responsible investment may be embraced by more mainstream investors.
“The lessons of the current financial crisis clearly benefit sustainable investing.” So says Joe
Keefe, CEO of Pax World, a leading mutual
fund company specializing in sustainable investing,
"Some of the major causes of
the crisis—predatory lending, excessive CEO compensation, corporate governance—have been SRI issues
for years. I expect the mainstream market will come to embrace long-term investment strategies and
stability. Sustainable investing has answers to why the breakdown happened, and lessons for the
economic future," said Keefe.
"For most of the year, the net inflow of our mutual funds
indicated that we were outperforming the market. Now, everyone has outflows, but I believe
sustainable portfolios continue to do better," he added.
Lloyd Kurtz of Nelson Capital Management, an investment management firm
with extensive experience in socially responsible investing, agrees with Keefe. "SRI has earned
attention because of the warnings it has given over the years, especially pertaining to corporate
governance and CEO compensation." Viewing what he sees as the "carnage" in the market, Kurtz said,
"I'm astonished at the lack of oversight at a number of companies who maintained relationships with
shareholders that were harmful and dangerous. The dishonesty of management was supported by the
many Boards of Directors that accepted at face value the word of management, when a little research
often would have revealed otherwise."
"Because you can't do social investing without
consideration of corporate governance," Kurtz said, "The SRI funds we manage at Nelson have
outperformed the market. We look carefully at such issues of governance as the quality of a
corporation's management. Rewards will accrue to the fund manager who looks deeply," he said.
Kurtz believes that other SRI funds, particularly those that rely primarily on negative
screening for such corporate activities as alcohol, tobacco, and defense, have performed no better
than the market at large during the current crisis. Furthermore, as the price of oil plummets to
below $70 a barrel, solar stocks and exchange-traded funds that focus on clean energy have taken a
beating as well.
When positive screens such as those for corporate governance are
employed, Kurtz finds that "A case can be made that there is a benefit to investing in SRI funds.
Much depends on the fund managers themselves; whether or not they possess the knowledge to come to
a holistic understanding of the relationships that companies have with their stakeholders."
Socially responsible lenders point up their consistent profitability during the current crisis,
and attribute it to practices that set them apart from the predatory lenders that largely
Jean Pogge, Executive Vice President of Consumer and Community Banking
for ShoreBank, a community development
bank headquartered in Chicago, told SocialFunds.com, "The world has never been in this economic
situation before, but we 'stick to our knitting' by continuing to provide good old-fashioned
Pogge added, "I drive through sections of Chicago today, and because
of foreclosures the number of abandoned buildings rival that of the days of redlining practices.
This situation can only be avoided when banks have confidence in the community as a business
partner. Banks must act as partners for the good of its customers."
performance record over its 35-year history includes loans totaling $213 million to low- and
moderate-income individuals, as well as small businesses. Pogge observed, "Despite the fact that we
lend to the same low income, often minority groups that have been exploited by predatory lenders,
we continue to be profitable, with a capital base that continues to grow."
Greenspan is Senior Vice President and Portfolio Manager of Community Capital Management (CCM), the registered
investment advisor to the Community
Reinvestment Act's, CRA Qualified Investment Fund, one of the largest community development
investment vehicles. She told SocialFunds.com, "Relative to market conditions, the fund had its
best performance ever during the third quarter of 2008." As of September 30, 2008, the CRA Fund’s
one year total return was a positive 4.6%.
Todd Cohen, President and CIO of CCM, added,
"One reason for our current success is that we did not invest in corporate bonds, which have been
hit especially hard by the current turmoil. Our agency-backed fixed-income loans to low-income
single-family and Section 8 multi-family housing have outperformed the market."
noteworthy for investors that both Pogge of ShoreBank and Cohen of CCM attribute their success to
their social mission of providing affordable housing loans to underserved markets in low-income and
However, Cohen of CCM did warn that "The further tightening of the
credit market in a deteriorating economy could lead to reduced performance by our investment
But Keefe of Pax World prefers to see the glass as half-full. "The next
administration will have to tackle alternative energy and the rebuilding of the nation's
infrastructure. These are core SRI values, and will lead to more sustainable investing."
Responsible investors who are following the presidential campaign will have noted that among
Barack Obama's plans for addressing the current economic crisis is a plan for investments in
renewable energy industries that will, he says, create "five million new, high-wage jobs."
Investment in alternative energy could be rewarded by clauses in the recent federal bailout
bill that extend tax credits for companies that produce and invest in solar and wind energy. Tax
credits for solar have been extended for eight years, and for wind energy for one year. For the
first time, the bailout bill extends credits to utility companies as well.