January 08, 2002
Top Five Social Investing News Stories of 2001
by Mark Thomsen and William Baue
Among the major social investing news stories of the year, social mutual funds continued to bust
poor performance myths, and governments and shareowners pushed companies on sustainability and
corporate social responsibility issues.
While many investors have bade the passing of 2001 with a sound "Good riddance!", the year was
nevertheless one of accomplishment for social investing. A brief look at some of the top stories
from the past twelve months reveals how the industry has continued to gain support and expand.
1. Competitive mutual fund performance: The year's most compelling story was the
ongoing competitive financial performance of social mutual funds. According to percentile rankings
compiled by Weisenberger, mutual funds that utilize social or environmental criteria achieved
financial performance on par with their unscreened peers.
In 2001, 11 percent of the 57
social mutual funds (one share class per fund) tracked by SocialFunds.com were ranked in the top 10
percent of all mutual funds in their respective categories. In addition, 28 percent of social
mutual funds finished in the top quarter of all funds in their respective categories, and 60
percent of social mutual funds beat half of all their peers in their respective categories. These
financial achievements dispelled the predictions that social mutual funds would underperform the
market last year because they were heavily weighted with poorly performing tech stocks.
"Social investing continues to demonstrate that good financial managers are the most critical
factor in determining financial performance," said Jay Falk, president of SRI World Group. SRI
World Group, the operator of SocialFunds.com, provides socially responsible investing information
and consulting services to investors.
2. Shareowner proposals regarding social and
environmental issues surged to a 9-year high: With 158 resolutions up for proxy vote, 2001 was the
busiest year since 1992 for social shareowner action, according to the Investor Responsibility
The large number of proposals is notable considering the diverse range of
issues covered in last year's resolutions. Resolution issues included board diversity, labor
standards, and human rights. In 1992, on the other hand, the 169 proposals filed were primarily
related to the single issue of Apartheid in South Africa.
Support for social and
environmental resolutions also significantly increased last year. As of November 15, and therefore
with some of the results still outstanding, almost 28 percent of 2001 proposals received more than
10 percent of proxy votes. For all of 2000, only 17 percent of proposals received more than 10
3. A strong push for sustainability investing in Europe: Sustainability
investing, and socially responsible investing to some extent, took major strides across Europe last
A number of European countries are embracing legislation requiring public pension
fund trustees or their fund money managers to disclose how sustainable business practices are
accounted for in making investment decisions. In 2001, Belgium, France, Germany, and Sweden passed
or took under consideration such legislation.
These countries are following an example set
by the UK, which passed similar legislation in 2000. In 2001, the social investing torch was
picked up by major investors. In the spring, London-based Morley Fund Management announced it
would begin requiring large UK companies to publish environmental reports. And in October, the
Association of British Insurers (ABI) said its 400 members would begin asking companies to disclose
external social, ethical, and environmental risks and the policies for managing those risks.
The effect of these new policies was felt in the market, as Morley and ABI members account for
over £690 billion in UK equities.
In November, a pan-European organization dubbed Eurosif
(the European Sustainable and Responsible Investment Forum) consolidated prominent European nations
behind such socially responsible investment strategies as shareowner activism and public policy
"The combination of public demand and government requirements for transparency
will continue to make Europe a center of social investing activity," said Mr. Falk.
New Markets Tax Credit: The top story in community investing for 2001 was an impending federal
government plan to give tax credits for investing in community development. The New Markets Tax
Credit (NMTC), enacted by Congress in December of 2000, was crafted to generate $15 billion in new
equity investment in low-income urban and rural communities.
Implementation of NMTC
progressed throughout 2001. The U.S. Treasury Department's Community Development Financial
Institutions (CDFI) Fund, which is administering the NMTC, has begun taking applications from
organizations that wish to be designated as a community development entity (CDE). Only
organizations that are qualified CDEs can apply for allocations of the NMTC.
to community investing industry sources, NMTC allocation applications should become available by
the fall of 2002.
5. The launch of new indexes: Ten new indexes were introduced this
year by U.S. and European firms, giving social investors more tools to make like comparisons
between screened and unscreened investments.
In May, KLD Research & Analytics and
Russell/Mellon Analytical Services announced the introduction of the KLD Large Cap Social Index,
which is modeled on the Russell 1000 Index.
KLD's LCSI comprises approximately 700
companies selected from the Russell 1000 that have passed KLD's screens. Those screens exclude
companies that derive certain levels of revenue from alcohol, gambling, tobacco, weapons-related
contracting, and nuclear power.
Nine new indexes were also launched by European firms. In
March, UK-based FTSE introduced four new benchmark indexes collectively titled FTSE4Good. The
indexes are weighted by market capitalization and cover four geographical areas: the UK, Europe,
the U.S., and the world. FTSE also created a corresponding tradable index for each of the four
Dow Jones Indexes, SAM Group, and STOXX Limited launched four
sustainability indexes for the European market in October. The first of the new indexes was the
Dow Jones STOXX Sustainability Index, which is a subset of the 600 largest European companies.
The second of the new indexes was the Dow Jones EURO STOXX Sustainability Index. It is
also a subset of the 600 largest European companies, but is limited to companies based in Eurozone
countries. Eurozone countries are European countries that have adopted the Euro as a currency:
Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxemborg, The Netherlands,
Portugal, and Spain.
The other two indexes are the DJSI STOXX and the DJSI EURO STOXX,
which have been additionally screened for "sin" stocks. That is, the indexes are the same as the
above except they have been screened for companies that generate revenue from alcohol, gambling,
tobacco, and armaments or firearms.
ARESE, a corporate social, environmental, and
sustainability performance research firm based in Paris, introduced the ASPI Eurozone index in
July. ASPI is an acronym for ARESE Sustainable Performance Indexes, the name of the series. The
ASPI indexes will use corresponding Dow Jones STOXX indexes as benchmark financial universes, but
ASPI indexes will include only companies that have been rated highly in terms of sustainability.
In February, SRI World Group, Inc. will publish the 2001 edition of the Leading Social
Investment Indicators™ Report. The report will be a centralized source of information for
investors, offering summaries and analyses of developments, trends, new products, and relevant
statistics related to the social investment industry. For more details, please visit InstitutionalShareowner.com.