In August 2006 the Sierra Club partnered with Forward Funds to continue to provide a financial product to its environmental focused membership. The Sierra Club established environmental and social guidelines that companies must meet in order for the Forward Fund investment managers to invest in them. Forward Fund operates two mutual funds under the Sierra Club name. The Sierra Club Equity Income (SCFLX) fund is in the moderate allocation category. The index that it is measured against is the Dow Jones Moderate Portfolio. The Sierra Club Stock (SCFSX) fund is a large-capital growth fund that is measured against the S&P 500.

The Seattle Times ran an article Friday, May 25 on “green” investing that screams for scrutiny. Their claims in the article are simplistic and unsubstantiated. This quote sums up the piece:

But while ‘green’ investing may be good for the conscience, it’s not always good for the wallet. Nor does socially conscious investing necessarily lead to changes in corporate behavior the way consumer-product boycotts might.

Investing in stocks and mutual funds is not a financial vehicle that guarantees a return and “green” investing is no different. The fact that there is a possibility that an investment will decline in value is inherent in the system. To pull “green” investing out of the universe of investment models and claim that an individual could lose money is misleading and vague.

Great article in the Herald Tribune about investor activism becoming more effective.

My mutual fund and stock trading practice is not generally affected by short-term changes in the Dow, NASDAQ, or S&P 500. I do, however, watch these markets daily. By watching the markets I feel I have a better view of the environment when I do buy or sell at a particular time. This last week was relatively bumpy and this coincided with a recent sale and purchase of two mutual funds.

On Tuesday, May 7 I sold a large percentage of my stake in the mutual fund FBR Small Cap. (FBRVX). This sale was initiated by the weak performance of FBRVX. It has been lagging its index, the S&P 500, when compared to 1-month and 3-month benchmarks. This has been a strong fund for me, however. I bought my initial stake on January 9, 2004 at $33.31. Since then I have balanced my portfolio a couple of times. The first rebalancing required a sale of a portion of my FBRVX holding at $40.94 on March 21, 2005. Since then I have increased my stake twice purchasing more shares at $44.54 on August 2, 2005 and on February 17, 2006 I purchased additional shares at $45.32

Value increase from the dates of purchases of FBRVX:
January 9, 2004 to present: 69.6%
August 2, 2005 to present: 26.9%
February 17, 2006 to present: 24.7%

Compared to the increase in the S&P 500:
January 9, 2004 to present: 33.0%
August 2, 2005 to present: 21.8%
February 17, 2006 to present: 16.8%

FBRVX is a no-load, no commission purchase for me through Charles Schwab. My net returns are not as high as the increase in the Net Asset Value, but the relatively high expense ratio of 1.38% still allowed me to beat the index. This performance is not as strong as the performance of Alpine International Real Estate (EGLRX). This no-load, no-commission mutual fund has done much better than FBRVX and the S&P 500 this year-to-date. EGLRX’s return for the year is up10.24% while FBRVX is up 3.83% the S&P is up 5.14%. I couldn’t pass up this performance by EGLRX that has a total expense ratio of 1.17%. I moved a large portion of my stake in FBRVX into the smaller stake I had in EGLRX.

This wasn’t done because of rebalancing. It was done because I want my savings to grow faster. It was primarily done without utilizing my trading principles, though the year-to-date returns support my move. This was a risky decision. I feel protected from the current bumps in the major indices because of the size of the mutual funds. I will be watching the change closely so as to determine if this practice comes back to haunt me.

The NYT has a great article about the monetary value of a tree. The bottom line: for every dollar spent on trees, New York City receives $5.60 in benefits (impact on local property values, absorptions of carbon dioxide, reduction in energy consumption as a result of additional shade cover, etc).

Shareholder Push Results in Apple Inc.'s Aggressive Computer 'Take Back' Program - Its nice to see shareholder pressure in action. Apple's web page about it provides a nice overview, as well as another page about how they've adopted some metrics from Dell. HP and Dell have similar initiatives.

Why Warren Buffet can't stop the Darfur genocide - Interesting take on shareholder activism.

Carbon trading overhaul increases green incentives - The stakes are higher for EU firms looking to trade carbon credits.

KLD ANNOUNCES US GLOBAL CLIMATE INVESTMENT - A new index of top 100 companies, "...whose activities demonstrate the greatest potential for mitigating immediate and long-term causes of climate change."

Social Conscious Investing is of interest to many people, but is a complicated and there are many perspectives to consider. This post was initiated by a thought provoking comment from yesterday’s post, Does Investing in Stock or Mutual Funds Matter?

I grant that an individual purchase of a company’s stock is not going to change the profits, losses, debt or amount of cash on hand for that company. But this is not the direct intention of Socially Conscious Investors or any investors for that matter. SCI is a means to put dollars behind companies that are doing the “right thing.” Those dollars are going to investment companies, not to the companies in which the S.C. Investor is purchasing stock. The value of the stock in a company is affected in part by the demand of investors.

Companies that roll out a sustainable business plan are looking out for their bottom line. Socially conscious investors care about the company’s bottom line and the business plan also. I believe that companies that see that sustainable business practices help their bottom line will increase their efforts to expand those types of practices. An increase in these business practices creates expanded demand for the socially conscious investments.

Managers that watch their net worth increase based on the increase in their company’s stock value will stand behind pro-social and pro-environmental business decisions. If their socially conscious plans meet with financial failure, then they will abandon that path. SCI principles are going to prosper or decline based on these business decisions. These investment principles will be affected by how a company reacts to its stock value. I believe that the four tenets supporting that a company cares about its stock price are sound.

In the end, this is not about partial ownership of a company through stocks, mutual funds or ETFs for socially conscious investors. S.C. Investors want to be able to have their “voice” heard. They are given the possibility for a stronger voice when they buy into SCI mutual funds. S.C. Investors are given a voice when they describe their investing principles to other people. S.C. Investors provide themselves a solid inner voice by acting on their principles. The strengths mention here are factors outside of how a stock affects the immediate bottom line of a company.

The question of whether S.C. Investors should put their collective voice behind companies that continue unsustainable business practices in order to get them to change is an interesting contrarian argument. I will ruminate on that and try to develop a response to that idea in the future.

A number of friends are starting their IRAs and discussing investing as a means of financing their retirement. Much of that discussion has revolved around the want to purchase shares in socially conscious companies. The most accessible vehicle to achieve this goal appears to be investing into mutual funds that screen for environmentally and socially responsible companies.

I highlighted my comments and concerns in previous posts (Fidelity Investments and Lessons from the Forum) in regards to this topic. After further thought and reading I have come to a deeper understanding of socially conscious investing. Owning a share of a company can have an impact on their business practices. The level of that impact by an individual is so small as to be almost immeasurable however. That does not mean that you should abandon socially conscious investing.

I strongly suggest reading the article Why Do Companies Care About Their Stock Prices? from Investopedia. The four reasons that the article highlights makes sense to me.

• The managers of the company are shareholders: If the price of the companies stock decreases then the individual stakeholders within the company will see a decrease in their net worth. Therefore, they have a truly vested interest in the stock price increasing.
• Investors are partial owners of the company: As owners of stock in a company we have a legal right to use shareholder meetings to initiate changes in the business practices of the company. The level and amount of organization that is required to make this effective appears to make this practice unusable for an individual. However, managers of mutual funds that hold large percentages of shares in companies have a higher ability to steer the company towards better practices.
• The stock price is a measurement of a company’s financial health: A healthy company is able to obtain funds to continue or expand beneficial business practices. Sustainable business practices have a cost and a company has a stronger ability to invest in the practices if their stock price is growing.
• Weak companies can be purchased more easily: A low stock price may allow another company the opportunity to make a bid to control the business. There is no guarantees that a business will continue similar social or environmental practices if purchased by a new company.

My feeling is that we have the least amount of influence on a company’s behavior as individual investors when we purchase stocks in a company on the secondary market. This is based on our not providing funds directly to the company selling the stock. Individual investors are also hampered in their influence on the company by their limited percentage of ownership.

I do believe that companies care about their stock price for the reasons that are outlined in the article. These reasons are influenced by stock ownership and therefore we have some impact on this complex financial system. Literally, buying into a companies sustainable business practices is showing support for their decisions.

More importantly, as an investor you should feel comfortable with your purchases and for that reason alone, purchasing stocks and mutual funds utilizing socially conscious investing practices is a good idea. My conclusion is that investing in the stock market is not the primary vehicle to promote sustainable development. Investing with an environmental and social purpose demonstrates support for this ideal, however. The greatest impact we can have on society is in our direct action, not stock purchases on a secondary market. I believe that my purchasing Greenpower and highlighting KIVA are more important steps towards sustainability.

I have been reading and posting at Get Rich Slowly’s forum section recently. One of the forum topics was Socially Responsible Investing? the other was Personal Finance to Save the Planet. Both are great Green Capitalism topics. I believe that investment and finance decisions CAN have an affect on our planet.

How do we create a positive affect on the planet through our investments and personal finance behaviors? One of the greatest contributions to the planet can found in making positive personal decisions that leave us feeling empowered. If we feel that we are in control of our finances then we will take the time to dig deeper into the reasons and consequences of our financial decisions. For example, a person burdened with $20,000 of credit card debt that they are not managing is unlikely to feel that saving money to invest in a socially conscious mutual fund is important.

For those people that have developed a balanced personal finance routine and are planning for strong financial future at the age of retirement, investing in the planet can be a challenge. However, having sound financial skills is liberating. There are many financial goals that can be established and met with an amazing short period of time. My partner and I paid off over $10,000 of consumer debt in about 18 months, which now allows us to contribute a larger amount of our income to savings. This liberation has led to us trying to figure where to put the new funds. The balance between our financial goals and our social and environmental principles has not been established.

The Capitalist in me allows me to invest in companies and mutual funds that are not green. The Green in me pushes me to wash my used tin foil in rainwater. I will not be able to purchase the most environmentally and socially responsible products if I don’t have the money to do so. Fortunately at this time I am in a dual income household. At retirement we won’t have an income. We will have to utilize the nest egg that we incubated for a lot of years in order to meet our financial needs. If that nest egg is too small, we will forced to make financial decisions without the flexibility of using green products and services.

My plan is that my current investments will provide a strong return on investment so that I can start to use investments in socially responsible companies and mutual funds to meet my long-term financial goals. This follows a game plan in investing that has investors being more risky when they far from retirement and becoming more conservative with their investment style as the get near their goal. My investments will get more green as I progress towards my retirement goal.

Fidelity Investments is a highly rated, online investment company. I manage my Roth IRA through Charles Schwab, but my partner Susan has started her account with Fidelity. I have logged on to Fidelity a few times to help her screen for socially responsible mutual funds. Unfortunately Fidelity lacks a specific screening mechanism to find such funds. I resorted to culling through the list of mutual funds listed at Social Investment Forum to compare mutual funds. I found that a wide variety of Calvert funds were available to purchase. The Large Capital Value Neuberger Berman Socially Responsible Fund was also available. These mutual funds were a few the funds that met Susan's investment rules. However, I have stumbled across a tough issue while looking at another family of funds that Susan was interested in, MMA Praxis Mutual Fund's company holdings. ConocoPhillips is a worldwide energy company and is listed as a company held by MMA Praxis. Susan does not want to invest in "oil companies", but MMA reports that they only invest in companies with proactive environmental practices.
In making investment decisions, MMA strives to invest in companies that:

The natural environment is a finite resource, the inheritance of future generations and a gift from God. We expect companies to respect the limits of our natural resources and to work toward environmental sustainability. Companies should “reduce, reuse, and recycle,” pursue cleaner and more efficient production methods and bear a deep concern for the welfare of animals, minimizing animal testing, wherever possible. We value a company’s involvement in the environmental technology and services arena. We expect companies to engage in honest, transparent environmental reporting, to support respected environmental principles and to publicly promote the value of the environment.

This is a stumbling block in finding an investing practice for her. By utilizing the mutual fund list provided by Social Investment Forum, I was able to establish criteria that appeared to offer Susan a small universe of mutual funds in which to invest. However, now that I found that one of these mutual funds holds a type of company that Susan doesn't want to invest in, I am at a loss as where to look for acceptable investment options. If I found a mutual fund that wasn't holding an "oil company" currently, their screening process may allow a purchase of that type of company at a later time. It appears that Susan's principles are too narrow to allow for investment in socially conscious mutual funds based on the amount of time it would take to do continuous research in the funds holdings. We will have to go back to the drawing board and define a new screening procedure. Another option is to get out of shopping for mutual funds, but I haven't discussed that possibility at all with her.