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Figuring Out Socially Responsible Investing

Socially responsible investing is not the same to all investors


Matthew Zuck, a fund manager and equities analyst with SKBA Capital Management in San Francisco and manager of the AHA Socially Responsible Equity Fund, keeps a simple thought in mind when investing: “There are no perfect companies.”

It’s an important point to remember when trying to act as a socially responsible investor. A company that makes it through the screen of an environmentally responsible mutual fund, may violate principles of a morally responsible fund. A company that clears screens on tobacco, gambling and pornography, might still flunk the test to some because of its military operations. Yet believers in a strong national defense might not see that as a problem.

Socially responsible investing is about personal principles, which means it can be hard to find a one-size-fits all model. Consider General Electric Co., an industrial giant that has so many flaws from a socially responsible investing perspective it’s unlikely to be in any SRI-oriented fund.

When the market plunged in February of 2009, many investors considered stocks to be generally oversold, including GE. The share price for GE was down about 40 percent, despite the fact it was still hugely profitable. There were worries that GE Capital could become another banking albatross, though the company argued that its portfolio mix was different from the big losers. GE had cut its dividend, painful to investors but a prudent measure to conserve cash. Finally, its AAA bond rating was had been downgraded, but not as severely as many feared.

A traditional investor might have looked at GE to see if there was an opportunity to get a blue chip stock at a discount. A social investor would do the same and then apply screens. Social investors would find that GE has a military equipment division. Environmental investors would note that GE is involved in nuclear power and fossil fuel production. Faith-based investors would object to the content of some of the programming from NBC Universal.

But here’s where shades of gray arise. GE makes military engines, which is different from making handguns. Granted the Apache helicopters powered by GE engines could be involved in combat. But can you believe it is important for a country to be able to defend its people and also be socially responsible?

GE has been building nuclear power plants since the 1950s. That’s a lot of nuclear waste being stored somewhere. But if a crisis exists from global warming and people are serious about reducing carbon emissions, many people argue that there is a place for nuclear energy. Would supporting that position make someone an environmentally irresponsible investor?

Morally based investing is somewhat different. The Timothy Plan mutual fund family, for example, won’t invest in GE because of the content of programs such as “30-Rock” or “Ugly Betty,” which founder Art Ally considers “pornography.” It also avoids GE because the company is “very active in the homosexual agenda” according to Ally. Those are non-negotiable views based on morals, not political or scientific positions.

Ally is quick to mention that while he disagrees with a fund such as Meyers Pride Value Fund, which only invested in firms with stated policies in support of gays and lesbians, he would defend its right to invest in that fashion. Meyers Pride was once run by Meyers Capital Management and eventually ended up incorporated in the Sentinel Investments Sustainable Core Opportunities Fund.

GE flunks the SRI test in a lot of areas. But it provides a lot of handles to argue different points about this form of investing.

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