Social Investing Blog

On the one hand, you have to ask yourself, what took them so long? Now that Anheuser-Busch has rolled out a new marketing campaign in which it is packaging cans of Bud Light in the team colors of various college teams, it seems like an obvious idea. Other marketers of just about everything from stadium chairs to caskets put their product in the colors of the local team. Way back in the 1980s, when Doug Flutie was the star quarterback for Boston College, I saw a dog wearing a maroon and gold sweater with the words “Dog Flutie” on it.

But at the same time you can see why adults who run programs that involve young people pull their hair out after the moves of certain consumer product companies. R.J Reynolds promoted Joe Camel, a cigarette-smoking cartoon character for years. Abercrombie & Fitch produced a catalogue of 20-somethings one year that reviewers called soft-porn. Now college administrators are worried that beer cans emblazoned with the colors of their schools might promote binge drinking among underage students.

Anheuser-Busch’s vice president of corporate social responsibility, says the “fan cans” are aimed at people of legal drinking age. But obviously alcohol marketing campaigns are bound to be noticed by students under the age of 21, particularly around college campuses. That’s why the administrators are worked up. At least 25 colleges have formerly asked Anheuser-Busch to drop the campaign near their campuses. To its credit, Anheuser-Busch says it will do so near any college that makes a formal complaint.

Anheuser-Busch is no longer a public company, having sold out to InBev NV of Belgium in 2008. And alcohol is one of those products most socially responsible mutual funds screen out anyway. But these are the sorts of business decisions that draw the attention of socially responsible investors. Anheuser-Busch says it is committed to stopping underage drinking. Coloring their beer cans in school colors creates some doubt. Another company may be committed to product safety. How well it reacts when a problem is spotted would prove it. Yet another firm might talk about its commitment to the environment, but it’s unwilling to spend the money to reduce its impact.

Marketing is often about gimmicks and gimmicks lead to impulse buys. Heck, if someone put a Red Sox logo on a reasonably priced bottle of cabernet, I might give it a try. But I’m not 19 and I won’t be an undergrad hanging with the dudes on Saturdays this fall, laughing about my cool-colored brewsky can.

I've never confirmed this but it would seem reasonable to assume that products sold by Whole Foods are grown or made by socially responsible companies. And we can probably assume that companies that are included in Fortune's 100 Best Companies to Work For list would be good employers. And firms on Business Ethics 100 Best Corporate Citizens list are likely models of corporate governance.

Now a small group in Los Angeles wants to tie all those things together with a single seal of approval for consumers. The Good Company Seal would judge companies by examining its conduct in five areas: employees, the environment, their consumers, the community and their suppliers. If they pass the group's review they'll be awarded the Good Company Seal, which they can display on their products and in their advertising and marketing materials, providing assurance to consumers that they are socially responsible firms.

The idea was conceived about 13 months ago by Jeffrey McKinney, a marketing and advertising professional who says he was frustrated that there wasn't a comprehensive and simple way to assess whether or not the products you're buying are in step with your personal politics.

McKinney says he and three others drew up their principles and are assembling an "integrity committee" of people who are expert in social responsibility in those areas. They'll be the group who will judge companies when they apply for the Good Company Seal.

Except that this is where McKinney's idea, while a good one, still has a long way to go. He's not a well known non-profit or the federal government. He has not brought in any other established groups in social corporate responsibility to lend credibility. He's working to convince companies that his group has the expertise to judge them by its criteria and that this seal of approval from his group will have meaning. At some point he'll also need a PR campaign to raise awareness among consumers.

Then there's the question of value to the company. Firms that apply for the Good Company Seal will be asked to pay a $1,000 application fee. If they make the grade, they're then offered a three-year licensing agreement to place the seal on their packaging and elsewhere. That costs $150,000.

McKinney says he's gotten good feedback since he went public earlier this month and that the licensing fee really isn't the big concern for companies. Rather, it's whether or not he and his group have the resources to do the work that establishes with certainty that a company is socially responsible. He says they do. The last thing he wants to have happen, he says, is to award a Good Company Seal to a company that doesn't deserve it.

So why am I blogging about something that is still in the very early stages? I have no connection with Jeffrey McKinney. The whole project may be a way for him to make a living. But it's also in line with what we're discussing on this site. Companies that are considered socially responsible are of interest to socially responsible investors. If the Good Company Seal turns out to be another way to find those companies, all the better.

Have we gone through the looking glass? Is up down and black white? Forbes magazine has named ExxonMobil its “Green Company of the Year.” Yes, the company that environmentalists love to hate, the largest oil producer in the world, one of the black hats to climatologists, has been cited for the steps it has taken to help reduce carbon emissions.

Specifically, ExxonMobil has been honored for its increased investments into natural gas, a cleaner-burning and more plentiful source of energy than petroleum. ExxonMobil is about to finish a $30 billion project to develop the world’s biggest natural gas field in the Persian Gulf state of Qatar.

According to Forbes, “all the big oil companies” are drifting away from petroleum to natural gas. If it has the numbers right, there's good reason to cheer. The magazine reports that per unit of energy delivered, methane releases 40 percent to 50 percent less carbon dioxide than coal and a quarter less than petroleum. “Coal fuels half of U.S. power generation. Replacing all of it with methane would cut CO2 emissions by 1 billion tons a year.”

The story really leaves a different impression of ExxonMobil and its environmental concerns than an article last November in the New York Times that was headlined “Green is for Sissies.” The thrust of that piece was that demand for ExxonMobil’s product continues to rise, leaving us with the conclusion that the company wasn’t about to change until its customers changed.

But in fact, it would probably be difficult to find a major corporation in the U.S. that isn’t taking steps to improve its environmental impact. They may still not be virtuous enough to make any “Buy” lists among managers of socially responsible funds, but they are changing. General Electric is a major player in solar energy. Wal-Mart may still have labor problems, but it has lightened its environmental impact by reducing packaging from suppliers and changing is delivery systems. It’s not because the managers of those companies are all environmentalists or social activists. They realize taking such steps is good for business in the long run.

Forbes' endorsement probably won’t change the poor opinion hard-core environmentally responsible investors have of ExxonMobil. But it would suggest the company is headed in the right direction from their point of view.

There’s an article in today’s New York Times about the Citigroup oil trader who is due to make about $100 million in compensation this year, after earning a similar amount last year, and how that fits in with the whole debate about compensation on Wall Street. It’s a story I blogged about recently after a report on National Public Radio.

The trader’s name is Andrew Hall and he heads up Phibro, a commodities trading firm owned by Citigroup, which is one of the big banks that received federal bailout money last year. Because it received those taxpayer dollars, Citigroup is subject to a review of compensation by Kenneth Feinberg, the Treasury Department’s new “pay czar.” The question is what will Feinberg do about Hall’s $100 million?

Citigroup says Hall’s pay package should be exempt from government review, because his contract was signed before that review process was created. The Obama administration and Congress view bonuses and Wall Street pay like raw meat and Hall’s $100 million package is an easy handle to grab when debating the entire compensation issue.

Does anyone really need to be paid $100 million – and two years in a row for that matter? Perhaps if they’ve got annual bills totaling $99,999,000 or so. Otherwise they could probably get by with a little less. But that’s really beside the point, as much as social investors might see that sort of a payout as an enormous red flag in terms of corporate governance. It may seem excessive, ridiculous and even obscene to some, but to Citigroup it made sense. According to the Times, Hall is the top performer at Phibro, which has provided about $2 billion in revenues for Citigroup during the past five years. They had a deal: Hall would get a certain percentage of what he earned for the company. Earn a lot, get paid a lot. That’s capitalism.

The issue is risk. While Hall apparently took big chances and they paid off, others in the financial services industry were not so skilled. The consensus is that the financial crisis that has hit the U.S. was caused by encouraging excessive risk for enormous potential rewards, but not installing enough safety if plans flop. Traders such as Hall have much to gain, but the burden of failure falls on the company, the financial system and – in the extreme – the taxpayers. The question is how can that change?

I can't help but think that community investing and religious groups have gone hand-in-hand since before Jesus  first swung a hammer. Community investing is all about helping low-income areas and providing opportunity to the disadvantaged. The payback for investors is seeing those areas and populations rise up while making a good return on their investment.

Community investing also happens to be the fastest growing area of socially responsible investing and faith-based investors are one of the fastest growing subgroups among socially responsible investors. Now the Social Investment Forum has produced a new guide that brings the two together.

The Community Investing Toolkit for the Faith Community is intended to encourage religious investors to become more engaged in community investing, in which capital from investors and lenders is directed to communities that are underserved by traditional financial services institutions. It includes mini-case studies of religious groups and their community investment experience, as well as recommendations on how to do it better.

The guide grew out of a 2007 roundtable discussion that the Social Investment Forum organized which brought together 25 experts from various religious institutions. It provides a range of first-hand experiences from religious investors in the field and documents the opportunities, challenges and outcomes of their investment decisions. The Social Investment Forum (SIF) is a national nonprofit organization dedicated to promoting socially responsible investing.

According to SIF, during the past decade, community investing has grown more than 540 percent, from $4 billion to $25.8 billion in assets.  Community investing provides access to credit, equity, capital, and basic banking products that these communities would otherwise lack. In the US and around the world, community investing makes it possible for local organizations to provide financial services to low-income individuals and to supply capital for small businesses and vital community services, such as affordable housing, child care, and healthcare.

I’ve written about faith-based mutual funds in the past. They’re funds based on Christian or Islamic principles and a couple such as the Amana Funds,  posted some fairly impressive numbers during the financial crisis and market collapse.

If you missed it this morning there was an excellent interview with David Wessel, economics editor at the Wall Street Journal, on NPR about Wall Street bonuses ("Bonus, Is It Still A Dirty Word") – which have returned with gusto. Specifically the conversation focused on one oil trader with Citigroup who will receive a $98 million bonus this year. According to Wessel the trader had a contract with Citigroup that said if he bet correctly on the price of oil and made the company a lot of money, he’d get a slice of it. Evidently he did and he will.

But Wessel also pointed out that there apparently has been a change in thinking among Wall Street firms about risk and reward. The country’s financial system was nearly brought down last year because of a preponderance of risk-taking without appropriate safeguards should investments go badly. Wessel explains the fundamental problem that existed – investment professionals took large risks because of the potential for extraordinary individual gains. When they flopped in the extreme all the risk fell on the company, the financial system and ultimately the taxpayer – but not on them. That’s an arrangement that is changing, he says.

Of course a $98 million bonus is exactly the type payday that critics of Wall Street say needs to change. At a time when nearly 10 percent of the workforce is unemployed it just shocks people. But a deal is a deal. If that Citigroup trader was offered a contract that would pay him that much money if he did well, then that’s what he should get. My guess is he probably wouldn’t have signed that contract if it also stated that he’d be liable for $98 million if his bets went south.

Every year the Center for Responsible Business at UC Berkeley’s Hass School of Business gives out the Moskowitz Prize, an award recognizing outstanding quantitative research in the field of socially responsible investing. That might sound a little dry, but it means there are people out there applying hard numbers to what critics would call the soft investment criteria of SRI, such as whether or not companies pollute or how they treat their employees.

This is the 14th year of the awards and more than 30 research entries were accepted, the most ever, according to First Affirmative Financial Network. First Affirmative is the co-sponsor of SRI in the Rockies, the annual conference on sustainable and responsible investing during which the award winner is announced.

The award winner last year was a study entitled “The Wages of Social Responsibility,” which demonstrated that socially responsible investors can do well by adopting the “best-in-class” method for their portfolios, rather than relying on negative screens. In prior years the winning entries have looked at whether or not the stock market fully values intangibles; examined the economic value of corporate “eco-efficiency;” and asked the question “Does virtue pay?” by studying corruption and international valuation.

None of that is light reading at the beach. But it’s all useful to investors who are committed to having their money work in positive social ways while earning the best return possible.

"The questions academics are considering today are much more specific than just four or five years ago,” says Lloyd Kurtz, Moskowitz Prize administrator and senior portfolio manager at Nelson Capital Management, an investment advisory affiliate of Wells Fargo. “We have moved well past simply wondering whether socially responsible investing makes sense, to carefully examining specific linkages."

The Moskowitz Prize is named for Milton Moskowitz, an investments writer and one of the first investigators to publish comparisons of the financial performance of screened and unscreened portfolios. He also developed "The 100 Best Companies to Work for in America," a list that is published annually in Fortune magazine.

This year’s SRI in the Rockies Conference, the event’s 20th anniversary, will be held Oct. 25-28 in Tucson, Arizona.

The surge in stocks during July has breathed new life into the rally that began back in March. During the past three weeks markets on Wall Street have climbed more than 10 percent. Surprisingly strong earnings reports and some promising economic news in housing, for example, have optimists believing this bull will continue to run.

But don’t expect the same from the fixed income rally that has also occurred this year. The iBoxx investment grade bond price index, an independent benchmark of bond performance, is up more than 11 percent since the beginning of the second quarter, while the iBoxx high-yield index is up more than 26 percent.

Gregory Habeeb, senior vice president and head of taxable fixed income investments at Calvert Investments says the rally that has taken place during the first half of this year is historic, but largely over.

“There’s a lot less opportunity to five or six months ago,” says Habeeb. “It’s not over, but you’ve missed a lot of the opportunity at this point. It’s still there but more mildly so.”

Three factors were behind the bond rally, according to Habeeb and his team at Calvert. First, when the economy tanked and credit markets slammed shut last year, bond investors focused their buying on safe U.S. Treasuries. But gradually they’ve become more willing to purchase riskier debt such as high yield bonds.

The rally has also been fed by a boom in the issuance of corporate bonds after nearly reaching a standstill last year. More than $600 billion in corporate high grade and junk bonds were issued during the first six months of the year, nearly one-third more than the same period last year, according to the financial news website breakingnews.com.

Finally, in a report Calvert says “signs of recovery and government intervention are helping sectors of the fixed-income markets return to good health.” One example of that government intervention that Habeeb points to is the Federal Deposit Insurance Corporation’s “Temporary Liquidity Guarantee Program,” in which the federal government said it would guarantee certain debt issued by banks to strengthen the nation’s banking system and build confidence among investors.

“No one is talking about bankruptcy among the banks anymore and that’s huge,” says Habeeb.

Socially responsible investors looking for bond funds among SRI firms can consider the Ave Maria Bond Fund, the Calvert Social Investment Fund, the CRA Qualified Investment Fund, the Thrivant Core Bond Fund and the Pax World High Yield Bond Fund. Those are only mentioned as available funds and not recommendations.

You can get my updates on socially responsible investing on Twitter. Follow me at billdonovan78.

If you're into social investing you try to follow where your companies put their money (which is technically your money as a shareholder). Here's a short article about Microsoft and an investment it has made in the National Center for Women & Information Technology, which is a group of more than 170 businesses, universities, government agencies and non-profits helping to expand the participation of women in IT.