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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 investments.

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 non-SRI benchmarks.

"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.

The 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.


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