Ten Things All UUs Should Know About Socially Responsible Investing
From the Unitarian Universalist Association’s (UUA’s) Socially Responsible Investing Committee (SRIC)
1. Socially Responsible Investing (SRI) means making money and making a difference.
The SRI movement has been instrumental in achieving positive change at countless companies in the decades since it first emerged as a significant force in the 1970s. For example, socially responsible investors were instrumental in getting McDonald’s to reduce its use of styrofoam packaging, and in persuading Procter and Gamble to begin to sell Fair Trade Certified coffee. Social investors have influenced countless companies to adopt nondiscrimination policies on sexual orientation and gender identity. The UUA is the leading (and usually only) religious voice on these campaigns. The UUA also focuses on corporate disclosure of carbon emissions and efforts to reduce them. Some of the change social investors have fought for has gone far beyond a single company: SRI was one of the forces contributing to the end of apartheid in South Africa, and social investors have helped to raise awareness of human rights violations in Burma, as well as the public health dangers of tobacco. In today’s world of global capitalism, nearly every social and environmental issue has some link to the operations of publicly-traded companies—and social investors have worked tirelessly to connect those dots.
2. SRI is much more than just avoiding bad companies.
Many people think socially responsible investing means refusing to invest in problematic companies, like tobacco manufacturers or those doing business in Sudan. While this is one important SRI strategy, it’s not the only one—and many responsible investors (including faith-based ones) don’t screen at all. The three main strategies of SRI are investment selection, engagement, and community investing.
3. “Investment selection” in SRI means using social, environmental, and governance (ESG) criteria as you choose your investments.
This can be done in many ways. It can mean avoiding companies active in certain countries, like Burma, or entire industries such as nuclear power. Some investors also require the companies they invest in to meet minimum standards in a number of areas, such as labor relations, board independence, and environmental responsibility, even if that means they wind up excluding most of an industry, such as oil or coal, or most of a country like Russia or China. Alternatively, some investors use ESG criteria to choose among companies in an industry or region—for example, they might choose to hold a big box retailer that has better employee benefits than its peers, an oil company that is doing more than most to develop renewable energy sources, a bank with comparatively modest executive pay, or a Chinese company that leads its peers in transparency. Learn more about how the Unitarian Universalist Common Endowment Fund (UUCEF) applies SRI criteria to the selection of its investments, read this Q&A with past SRIC co-chair Glenn Farley.
4. “Engagement” means working to improve the ESG performance of the companies whose securities you own.
Socially responsible investors can engage companies in several ways. Some write letters to companies and hold meetings with them about issues of concern. In the U.S., they sometimes also file shareholder resolutions, short statements requesting action that may—if they meet certain strict requirements regarding subject matter and format—be published in the proxy statements companies send to all investors once a year. Because companies typically prefer not to air ESG issues in such a public forum, the simple act of submitting a resolution often motivates companies to enter dialogue with investors and make meaningful changes, in exchange for the resolution begin withdrawn. When resolutions do appear on the ballot, investors can also vote in support of them to encourage companies to change. Many institutions have proxy voting guidelines that ensure they cast their ballots in support of certain commonly-submitted types of resolutions. Learn more about the shareholder engagement work undertaken by the UUCEF.
5. “Community investing” means directing a portion of your investments in a way that helps to ameliorate poverty and social inequality.
For example, investors may hold certificate of deposit at community development finance institutions (CDFIs), which specialize in lending to low-income and minority communities in the US. The Unitarian Universalist (UU) Common Endowment Fund directs up to 5% of its total investments to support CDFIs. Part of this set- aside is a matching program for investments in CDFIs by UUA congregations. The SRIC will match your investment, $1 for $1, up to $10,000.
Another community investing option is to invest in microfinance funds, which provide small start-up loans to developing world entrepreneurs. To find out about community investments made by the UUCEF read the Q&A with SRIC member Marva Williams.
6. SRI is compatible with strong financial performance.
Conventional wisdom suggests that investing responsibly is detrimental to returns. However, as is often the case, the conventional wisdom is wrong. Responsible investing works. A wide range of academic studies have been conducted on the impact of SRI on financial performance. The overwhelming evidence demonstrates that these strategies do not harm investment performance, and under certain circumstances they may help it. For an overview of the academic research on the relationship between SRI and financial performance read the paper written by CSRI member Kimberly Gladman.
7. SRI is a growing movement.
The SRI movement has been growing steadily, and internationally, over the last decade. While terminology varies somewhat—with some people preferring to use the terms “responsible” or “sustainable” investment rather than “SRI”—there are now a wide range of investors incorporating social and environmental issues into their investment decision-making. The United Nations Principles for Responsible Investment, launched in 2006, had over 1000 signatories as of May 2012, presenting about $30 trillion in assets under management around the world. For more on the movement, see the website of U.S. Social Investment Forum (USSIF), the trade association for SRI in the United States. See also the website of the Interfaith Center on Corporate Responsibility, a network of faith-based groups working for social change and sustainability through their investment activities.
8. The UUA is a well-known leader in SRI.
The UUCEF has achieved excellent risk-adjusted returns compared with endowments of similar size over the past five years while engaging robustly in screening, shareholder advocacy, and community investing.
For decades, the UUA has been highly regarded for its SRI activities. For over a decade, the UUCEF has maintained over $1 million dollars invested annually in Community Investment. The UUA consistently pushes its managers and service providers to incorporate or more responsible investment practices. And our shareholder advocacy has had great success, particularly over the past five years. In coalition with other investors such as members of the Interfaith Center on Corporate Responsibility, the UUA has engaged companies on a wide range of issues related to human rights, social justice, and environmental stewardship.
9. Every UU congregation can do SRI.
Many UU congregations participate in the UUA’s SRI efforts by pooling their endowments in the UUCEF. As described above, the fund files shareholder resolutions and engages in company dialogues, devotes up to 5% of its assets to community investing (and matches congregational community investments up to $10,000), and applies significant social or environmental screens to a large portion of its assets. The Fund’s performance has also been strong over the last decade. Even if a congregation does not join the Fund, it can still direct its money managers to support the UUA’s shareholder resolutions, and can shape its own investment portfolio in a socially responsible way. Read more about how how to explore these issues in your own congregation.
10. Every individual can do SRI.
Individuals can invest in SRI retail funds from a number of mutual fund managers, and can also invest in community development financial institutions. The website of USSIF, the trade association for SRI managers and other service providers, is a good source for more information. You can also ask your financial adviser for advice on SRI. If you hold individual stocks, you can vote the proxies for them in support of the UUA’s resolutions, and if you hold mutual funds, you can write to them and ask them to do the same.