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For Walden Asset Management, the big showdown came on May 8.
On one side was EMC Corp., the beleaguered Hopkinton-based data-storage giant, which had summoned shareholders to the company's annual meeting in Southborough. On the other were Walden and a flock of other EMC investors, representing more than 6 million shares and itching for change.
Walden had organized the shareholder revolt to demand that EMC shake up its insular board of directors, stacked with insiders and close friends of the company and consisting entirely of white men. Two nonbinding resolutions were afoot: to create an independent board and to diversify its membership. EMC management opposed them both; the proxy fight was on.
By the end of the day, the battle resulted in a split decision. Shareholders did vote down the call to diversify the board. But for the first time, a majority went against management's recommendations and voted in favor of an independent board. Walden executive Tim Smith called it "a piece of EMC history."
It was also one more battlefield victory in the long war for socially responsible investing.
A thriving scene
Socially responsible investing, informally known as SRI, is a thriving scene these days. Once a haven for environmental enthusiasts or investors who wanted to avoid the "sin industries" of alcohol or tobacco, SRI now addresses more practical topics such as corporate governance, labor relations and community development. The Social Investment Forum, an SRI industry group, said 230 mutual funds now apply some sort of social "screen" to their investments, up from 168 funds in 1999.
Skeptics dismiss SRI as misdirected finance, lofty in purpose but by definition limited in flexibility and therefore not always able to generate the best return. But SRI proponents, armed with their own statistics, argue the counterpoint: Socially responsible investment generates perfectly good returns, they say, so critics should prove that investing with a blind eye to social issues does better.
"We believe a company's environmental and social record is indicative of its overall management," said Anjali Gupta, spokeswoman for KDL Research & Analytics, a Boston firm that creates SRI screening devices and manages several SRI market indexes.
Crunching the numbers
That's tough to do in this market. According to data from the Lipper research firm, socially responsible mutual funds saw their assets increase by 3 percent in the first half of this year. At the same time, U.S. diversified funds experienced a 9.5 percent decrease in total assets.
The Boston-based Walden has $1.3 billion under management and operates two socially responsible mutual funds for institutions and wealthy individuals. The company has been at the forefront of socially responsible investing since its inception in 1975, only five years after the first known SRI fund was formed by a group of Methodist ministers. "We do it because there's a market there," Smith said.
Investors who come to Walden typically want to make investments that somehow resonate with their overall mission, Smith said. For example, a union might want to invest in companies that treat labor fairly, or a well-funded charity might want to support loans to other nonprofits. Individuals generally want to support companies in step with their personal politics.
"You'll hear that theme in various ways," he said.
The business potential
Smith said many people overlook the business potential of SRI. He cited the example of community-development loans, which generally have a low default rate but also relatively low rates of return at least, until the stock market tanked. "Ironically, those investments making 4 (percent) or 5 percent now look quite good," he said.
Wainwright Bank and Trust Co. in Boston has seized a significant piece of that market locally. Forty percent of its commercial loans are committed to nonprofits such as homeless shelters, domestic-abuse centers and AIDS clinics. Steve Young, Wainwright's senior vice president, said the bank makes about half the community-development loans in the Boston area.
"There's a business reason we do this," Young said. "These loans make money."
Young conceded that persuading financiers to underwrite the loans is an intensive task; of the bank's 12 employees in the commercial-lending department, four of them are devoted to pulling together underwriting for community-development loans.
But Wainwright has loaned $240 million to community-development organizations and charities since 1992 and not once has suffered a loan default. "There's no other bank that can boast that," Young said.
Mapping the process
Developing a socially responsible investment plan can be tricky; SRI funds monitor their investments closely, and sometimes drop companies that stray too far from their core beliefs. Some funds screen out undesirable companies, while others "screen in" acceptable ones in specific industries, such as alternative energy.
KDL Research develops screening tools for customers that prefer SRI. Clients are generally institutional investors, managing money either for socially responsible investors or for those who want to adopt their own SRI policies. The company has 16 researchers who follow companies' social policies, by poring over financial reports, examining media coverage and talking with nongovernmental organizations that also monitor potential corporate abuse.
Walden has about 150 companies on its buy list, Smith said. The firm has dumped or passed on promising companies because they don't measure up to Walden's criteria, he said, but has also encountered businesses that tout their socially responsible beliefs to woo Walden-type investors.
"We really see the whole range ... but we see increasing numbers trying to be good corporate citizens," he said.
And Smith is quick to say that companies under fire by SRI activists are rarely bastions of corporate evil. In the case of the EMC proxy fight, he said, Walden "proudly" owned its shares and supported many of the company's policies.
But still, some extra effort couldn't hurt, Smith said. "We felt there were areas of improvement." ^ back to top ^
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