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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 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, 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 Research Center.

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 percent.

3. A strong push for sustainability investing in Europe: Sustainability investing, and socially responsible investing to some extent, took major strides across Europe last year.

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 advocacy.

"The combination of public demand and government requirements for transparency will continue to make Europe a center of social investing activity," said Mr. Falk.

4. The 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.

According 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 benchmark indexes.

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


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