Socially Responsible Investing: Frequently Asked Questions

1) What exactly do you mean by Socially Responsible Investing (SRI)?
Socially responsible investing is ensuring that our investments are reasonably consistent with our values. None of us want to make our financial returns at the expense of seriously harming ourselves, other humans, or our environment. Socially responsible investing can include:

• Negative Screens: trying to avoid doing unnecessary harm, such as by avoiding investments in companies that are serious polluters, employ sweatshops, or have racist or sexist policies.
• Positive Screens: preferring investments in companies that provide a societal good as well as a safe and attractive return, such as companies with good environmental records.
• Shareholder Activism: as a shareholder, proposing and representing resolutions at annual stockholder meetings to encourage companies to adopt policies consistent with your values.
• Proxy Voting using your shareholder voting power to vote on important issues of corporate governance and proposed shareholder resolutions through the annual proxy voting process.
• Community Investing: setting aside some portion of funds, often 1%, to be invested in local businesses that generate jobs and opportunities in addition to an attractive return. Many Community Development Financial Institutions exist for managing such investments for you.

2) We have never done this before, how common is it for congregations to worry?
Socially responsible investing has grown exponentially over the last five years, partly as a result of greater availability of information over the internet, and partly as a result of owners wanting to know that their investments represent the same values as they are employing in the rest of their lives. This is probably one of the most rapidly growing parts of our movement.

3) Are there other benefits we can expect from becoming socially responsible investors?
Knowing what you own and why is always a good thing for investors. Ten years ago many of our members hesitated to give money to church endowments that grossly under-performed financially; while that remains true, increasingly some members are also asking about a fund's SRI policy in deciding whether to make a substantial gift as well. Whether for the trustees that are asked to contribute their time, or the members who are asked to contribute their money, there is a positive benefit from knowing that we live our values however we are able.

4) Is it possible to start slowly and learn as we go?
Yes, that might even be the best way to proceed. This issue will become increasingly important over time so we might as well begin the learning process today. Please consult the Unitarian Universalist Association (UUA) SRI website, or contact the UUA Committee on Socially Responsible Investing or Unitarian Universaslist Ministers Association (UUMA) SRI task force to find an SRI advocate who can come and speak with you and your trustees about how to get started.

5) Do I need to change fund managers to begin to do SRI?
Generally not. Most portfolios can begin to move towards being more socially responsible by beginning to think about socially responsible alternatives when selecting new positions to add to their existing portfolio. Taking it in stages can be a good way to begin to move gradually in the direction of investing informed through our values. There are socially responsible mutual funds that provide balanced, diversified portfolios of socially responsible investments for most asset classes, and can also include shareholder activism and community investing as well. These funds often give superior returns, but you can begin with your existing fund manager as well.

6) Aren't I taking a bigger risk with my funds if I add additional selection criteria?
There is no need to and it is often undesirable to alter your existing risk profile. There are plenty of quality SRI alternatives in every asset class and risk category. The level of risk in your portfolio should be an overall investment decision independent of SRI. If you decide to include community investing to your mix, that may require additional work to maintain your target risk profile. Negative and positive screens, or small numbers of shares set aside for shareholder activism, need have no effect on the overall risk profile of your portfolio.

7) But isn't this a lot more work for our fund manager or our part time volunteers?
Prescreened stock portfolios are published by each of the major socially responsible mutual funds in their quarterly SEC filings. This can be an easy first screen. The UUA is increasingly also able to provide SRI stock guidelines. However yes, doing homework to arrive at your own conclusions does require some work, but knowing that we are collectively helping (and not harming) the attempt to make the world more just and equitable should be well worth the effort.

8) How do we know where to best leverage shareholder activism?
The UUA Committee on Socially Responsible Investing engages in shareholder activism on behalf of the UUA and would be happy to share its activities with your group.

9) Can the UUA help in any way with community investing?
Community investing, because of its local nature, can sometimes require the most time to investigate and evaluate, as opportunities in each community will be different. The UUA Committee on Socially Responsible Investing has set up a matching fund so that congregations that select a quality community investment can sometimes get their investment matched by the UUA, thereby doubling the impact.

10) How do socially responsible investments perform?
Financial returns are primarily driven by your mix of asset classes and the level of risk and diversification employed in your portfolio. Adjusted for asset classes, risk, and diversification, socially responsible investments generally provide financial returns commensurate with funds invested without regard to SRI. In some cases, the financial and societal impact of such investments yields a greater “total return” due to the inclusion of social and ethical objectives.

For example, an interesting study titled “The Eco-Efficiency Premium” published in the March/April 2005 issue of the Financial Analysts Journal found that environmentally responsible companies were superior performers and this differential could not be explained by differences in market sensitivity, investment style, or industry specific factors. Overall, academics studying the link between commonly used social criteria and stock performance haven't found a clear-cut relationship, positive or negative. To view the growing body of academic literature on the subject visit Studies of Socially Responsible Investing.

Two excellent sources of information on the field of social investing and investment options are the Social Investment Forum and Social Funds.com. These sites detail the historical performance record, the investment style and the social criteria applied to each fund. In recent years the number and type of SRI funds has grown significantly. Morningstar now lists 82 separate fund portfolios as socially responsible, available in 157 different offerings, with total assets of $24 billion. A recent Morningstar article published on May 31 st of 2005, noted that there are a “couple dozen large-cap SRI funds as well as a half dozen moderate-allocation (balanced stocks and bonds) SRI offerings that favor U.S. blue chips, so socially conscious investors have an array of choices for their portfolio anchors”. In the large cap group, Morningstar rated the following funds highly: TIAA-Cref Social Choice Equity, Calvert Social Investment Equity, Vanguard Calvert Social Index, Pax World Balanced, Citizens Value and Neuberger Berman Socially Responsive. Among smaller-cap SRI funds, Ariel Appreciation, Ariel Fund and Winslow Green Growth were top picks. Morningstar notes that there are still only a few international SRI fund options and their records are not particularly strong. As the SRI industry continues to grow, we expect that the international investment options will grow. We will continue to monitor the progress of these funds over time.