March 06, 2002
Institutional Investors Try Their Hand at Socially Responsible Investing
by William Baue
The Triple Bottom Line Simulation tracks hypothetical investments to demonstrate socially
responsible investment performance.
Increasing evidence demonstrates that socially responsible investing generates returns at least
comparable to traditional investing that does not take social and environmental considerations into
account. Then why are not more investors shifting their portfolios toward socially responsible
investments? The answer may be that old habits die hard. Statistical evidence may not be
persuasive enough; investors may need to actually try it before they are convinced of its merits.
Institutional investors are especially reluctant to experiment with socially
responsible investing, given their fiduciary responsibilities. Their caution is understandable;
they are not investing their own money, after all.
The Capital Missions Company, a Midwest-based firm that
creates networks among social investors, asked institutional investors what they would need to
consider socially responsible investing more seriously. Education, they replied. Capital
Missions' founder and CEO Susan Davis gathered a group of such investors--treasurers of pensions,
endowments, foundations, and religious groups, as well as families with $100 million or more to
invest--to discuss socially responsible investing. These treasurers realized that they would need
hands-on experience in addition to education, and they came up with an ingenious solution.
"Let us pretend to invest $100 million across all asset classes in social investments," they
said, according to Ms. Davis. "Then, let us track the quarterly results as if we'd invested, and
then we can compare that to our existing portfolios."
Ms. Davis and Capital Missions
transformed this idea into the Triple Bottom Line Simulation, a program that creates portfolios of
socially responsible investments and tracks how they would actually perform in the real market.
The term "triple bottom line" refers to the application of financial, social and environmental
considerations in investment decisions.
On May 21, 2001, more than 40 institutional
treasurers and investors met in New York City to learn about and participate in this program as
part of the Triple Bottom Line Simulation Conference. Five of their peers, institutional investors
like themselves, presented case studies on actual social investments of more than $100 million.
Next, socially responsible investment firms presented the products to be considered for the
simulation. Finally, the large investors sat down and created five portfolios of social
Each portfolio focused on a different aspect of socially responsible
investing: social screening, shareholder activism, community development, and social venture
capital, while one portfolio followed general SRI investing guidelines. Groups then divided the
funds in each portfolio, allocating percentages to equity, fixed income, alternative investments,
and cash. Once they chose the actual investments comprising their portfolio, they were ready to
commence the simulation.
Capital Missions' Triple Bottom Line Simulation
website posts quarterly results, allowing treasurers to compare these results to their existing
portfolios that do not employ triple bottom line criteria. The website also lists both SRI and
"All five simulations so far are outperforming the financial
benchmarks," noted Ms. Davis. The financial analysis is provided by the First Affirmative Financial Network, a leading
consulting firm for socially responsible investment.
Yearly results will be available by
June 10, 2002, when the Triple Bottom Line Conference convenes again in New York City. The
portfolios will then be reorganized by investor type, allowing treasurers of religious groups, for
example, to decide with their peers how to reallocate resources in their portfolio. This
organizational principle also encourages networking amongst like-minded investors.
ultimate goal of the simulation is to illustrate how investing by triple bottom line criteria can
reap returns that equal or even surpass investing by financial criteria alone. Ms. Davis trusts
that participants will share their experiences with their professional and social networks,
spreading the word on socially responsible investing organically.