Investing With Cash, Hearts and Souls
Retired stockbroker Virginia Laddey closely watches the $15,000 she has invested in companies that promote women. The discrimination that she endured decades ago in a small trading office in Long Beach makes the 78-year-old determined to avoid “good-old-boy” companies when it comes to investing her nest egg.
Sister Jane Harrington, who invests $30 million for the Catholic Sisters of St. Joseph of West Virginia, keeps an eye out for companies with women in senior management. That shouldn’t be surprising, explains her financial advisor: “Nuns are working women too.”
The rise in investing by and for women is a leading factor in the surge in socially responsible investing--in which an investor considers the potential impact on society as well as profit possibilities.
While not new, socially responsible investing has quietly evolved into a huge field with far more varied options and sophistication than ever before--and besides any moral dividends, it’s starting to pay off financially.
“This is a revolution happening,” said Tracy Gary, founder of Resourceful Women, a San Francisco nonprofit that helps educate women with at least $50,000 to invest. “And the revolution is women being very intentional with their money.”
A total of $639 billion was held in socially responsible investments in 1995, a tenfold increase from 10 years ago, according to the most recent figures released by the Washington-based Social Investment Forum, which tracks such data.
The group estimated that $1 of every $10 invested in stocks, bonds or community development in America is invested based on socially responsible beliefs. In addition, there are an estimated 50 new socially responsible funds seeking approval from the Securities and Exchange Commission.
“This whole area is exploding, not growing,” said John Schultz, head of Ethical Investors, a Minneapolis firm that helps individuals tailor their investment portfolios. Two-thirds of his clients are women. “We’ve discovered you don’t lose your butt if you invest socially.”
For example, one benchmark measure designed to track the performance of socially responsible companies--the Domini 400 Social Index--has beaten the S&P; 500 for the last two years. (The S&P; index is based on the performance of 500 widely held company stocks.)
Ethical investing is expected to become even more common in the years ahead as wealth transfers to younger, better-educated investors, many of them baby boomers who came of age in the politically active 1960s and ‘70s. Further, a large number of these investors are women in their 30s and 40s who have substantial earned income of their own to invest.
Many are businesswomen and professionals with nest eggs large enough that they can afford to take unusual chances with their money. While critics say it may be smarter to invest aggressively and donate part of the higher returns to charity, many socially responsible investors prefer the more holistic approach.
“It’s such a personal choice,” said Jack D. Schwager, president of Wizard Trading in New York and author of “Market Wizards,” a collection of interviews with America’s top traders. “ . . . If someone wants to make that moral choice, you can’t judge them.”
A Question of Definition
Even Vanguard Group Chairman John C. Bogle, head of the nation’s second-largest mutual fund company, has considered creating a socially responsible fund.
“But we’ve rejected it so far because to me it smacks of marketing rather than good investing,” said Bogle, who has spent his career advocating low-cost investing at his Valley Forge, Pa., firm. “I know it’s a growing area, but we believe in an unfettered approach.”
Another problem, said Bogle, is that defining “socially responsible” can be problematic. One person could consider a gambling company socially responsible, while another might find it morally outrageous, he said.
Still, Esther Berger, a Beverly Hills financial planner who specializes in women’s investment concerns, said that because of client demand, she often screens out companies that clients find offensive. “Women invest with their souls and their hearts rather than their pocketbooks alone,” she said.
According to a nationwide survey by the Oppenheimer Group of Funds in New York, 90% of women now make their own investment decisions at some point in their lives. While American women on average still have lower salaries than men, they earned more than $1.2 trillion in 1995--six times what they earned in 1975, government figures show.
Some have encountered discrimination as they climbed the corporate ladder and now want to ensure that they give nary a penny to companies with chauvinistic policies, planners said.
Ann Kusumoto is one of those women. After working for years at a major oil company in Los Angeles and finding her prospects unsatisfying, she started her own consulting firm designed to help promote diversity in the workplace.
She hired Percy Bolton, a Los Angeles financial planner, to invest her $100,000 in companies that include women and minorities in senior management, have women on their boards or develop mentoring programs for women.
“Sure, I’m concerned about nuclear war, the environment and all those things,” said Kusumoto, 48. “But I’m more concerned about how corporations treat women. My philosophy is that one drop has a lot of ripples and the dollar is a vote.”
Roots in Religion
The roots of socially responsible investing date back centuries to religious movements. In the 17th century, Quakers refused to support major industries that contributed to war or slave trading.
In the modern era, South Africa, tobacco and the environment have prompted investors to steer billions of dollars into a few socially responsible investment funds. While those still are important issues, socially responsible investors increasingly are looking to support a single cause nearer to their hearts.
Advisors and managers are rushing to create new investment funds, including the Timothy Plan in Orlando, Fla. (fundamentalist Christian); the Cruelty-Free Value Fund in McClean, Va. (animal rights); the Pride Fund in Los Angeles (gay and lesbian issues); the Mennonite fund in Goshen, Ind. (reflects beliefs similar to those of the Amish) and the Islamia Growth Fund (Islamic issues).
“What we are seeing now is the sectorization of the socially responsible investing industry,” said analyst Suzanne G. Harvey at Prudential Securities. She began screening South African investments for a few clients 10 years ago and now follows industry trends. “There are just so many new products. People want to go to bed at night and know they’re not investing in the one thing that is bothering them.”
Take Laddey. Although the 74-year-old widow lost nearly half of her lung capacity after 38 years of smoking, giant tobacco makers don’t anger her nearly as much as companies that fail to promote women into top management.
She carefully monitors the $15,000 she has invested in the Pro-Conscious Women’s Equity Fund in San Francisco, a rapidly growing mutual fund that screens companies based on female-friendly issues.
“For a while, I wrote all the companies letters here on my own little computer asking why they didn’t have more women on their boards,” said Laddey, who lives in an Irvine retirement home. “I got no action. I finally decided I needed to put my money where my mouth was, so to speak.”
Innovative Concept
The Women’s Equity Fund looks for companies that have a significant number of women on their boards, such as Fannie Mae and Avon Products. The tiny fund had a rough start its first two years--even holding 50% of its assets in cash at one point--but today has about $4.5 million in assets.
Its 1996 results significantly lagged behind the S&P; 500, but the concept has nonetheless spawned two women’s funds--in Maryland and Texas. The fund has attracted some male investors as well.
Jeff Griffin, a 39-year-old property manager in Beverly Hills, said he has about $30,000 in socially responsible investments, including $7,000 in the Women’s Equity Fund. He says women’s rights are an important part of human rights--but he also thinks there may be a financial upside.
“The idea that companies which treat their employees like human beings do better in the long run makes sense to me,” Griffin said. “I see it as voting with my money.”
So does Harrington, who directs investments for the Catholic Sisters of St. Joseph in West Virginia.
She hired Geeta Bhide Aiyer, a portfolio manager for Walden Capital in Boston, to manage a portion of their funds. Aiyer’s stock pick for the nuns: OneOK Inc., an Oklahoma natural gas utility that has two women, one of them African American, on its 12-member board of directors.
Despite the traditionally conservative stands taken by the Roman Catholic Church and perhaps because of its rigid hierarchy, nuns such as Harrington have been a strong force in support of investing in companies that promote women.
“Nuns encounter sexism in their own lives as much as secular women workers do. I think that’s part of the reason” they focus on these investments, said Aiyer.
Derek J. Hoggett isn’t that concerned about women’s rights, but he is starting a mutual fund that will buy stocks only from companies with women in charge. The British investment advisor turned fund manager believes that “men have gone a little soft.” Firms that promote women will do better, he says, because “women work harder.”
“Our goal is simply to outperform the market--not rally for women,” he said.
“If a company promotes more women, I see it as a smarter company that will do better over the long haul and make more money,” added Hoggett, who plans to run his fund through his company in Houston.
Inroads by Executives
While women have made recent inroads into the corporate halls of power, the gains have been slow. Only 2% of senior executives at large American corporations are women, according to a study released last year by the New York research group Catalyst. Only 4% of directors on corporate boards are women and minorities, while 95% are white men, according to figures from the Interfaith Center on Corporate Responsibility.
“These guys in these companies are pretty hardheaded. It’s going to take some very aggressive efforts--women are going to have to demand that things change,” said Gary Bose with the ICCR in New York. “Significant changes--I haven’t seen that much.”
There is little evidence to show that simply investing in a socially responsible fund will change the status quo. And some wonder whether funds that invest with only one issue in mind could weaken the socially responsible movement just as so-called identity politics, which tends to define issues mainly in terms of race, ethnicity or sex, weakens the liberal movement.
This continuing specialization in the socially responsible investing arena “brings up the whole issue of identity politics--do we only care about ourselves or do we care about the community?” said Sophia Collier, president of Citizens Advisors, a firm that manages the Citizen’s Trust, a socially responsible index fund.
“For women, in general, one of their wonderful strengths is caring for everybody,” Collier said. “As they continue to invest their money, they will invest for a broad number of issues.”
But Shelley Meyers, one of the few female portfolio managers, is hoping that individual issues will continue to be important. She started the Pride Fund, which invests in companies that have benefit packages and written antidiscrimination policies for gays and lesbians, in June. She hopes it will be the first in a growing family of funds, including one devoted to women’s issues.
Funds managed by Meyers may one day attract investors like Emma Earnshaw.
Rory Earnshaw, 31, a San Francisco photographer, put $6,000 in the Women’s Equity Fund for his 4-year-old daughter. He wants to make sure she grows up knowing she is part of a larger community.
“We want Emma to be aware of social issues--to know there are companies that have 8-year-old kids making tennis shoes,” he said, alluding to reports of child labor abuses in foreign countries. “I want her to know that’s just not right. This kind of investing is one way to teach her.”
* DOMINI ON HER FUND
The creator of the Domini Social Equity Fund explains her investment philosophy today in the Wall Street, California pages in Business. D4
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Responsible--and Profitable
Socially responsible investing is growing more sophisticated and posting better returns, industry watchers say. Here are the 10 best-performing mutual funds that screen companies based on ethical or moral grounds, ranked by their 1996 annual returns. Still, only half out-performed or did as well as the S&P; 500, a benchmark index of some of the most widely held stocks. The S&P; 500 posted a 23.07% annual return in 1996.
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Annual return Total return Net assets for 1996 over 3 years in millions GREEN CENTURY BALANCED 24.91% 12.42% $8.8 (Environmental, tobacco, weapons) DREYFUS THIRD CENTURY 24.33% 17.59% $562.4 (Environmental, equal employment) ARIEL APPRECIATION 23.72% 12.38% $146.3 (Environmental, tobacco, nuclear energy, weapons) ARIEL GROWTH 23.51% 11.72% $120 (Environmental, tobacco, nuclear energy, weapons) CITIZENS INDEX 23.07% N/A $161.9 (Environmental, alcohol, firearms, nuclear weapons, tobacco) AQUINAS EQUITY GROWTH 22.90% 14.38% $22.6 (Socially responsible) DOMINI SOCIAL EQUITY 21.84% 19.77% $115.3 (Tobacco, environmental, gambling, alcohol, weapons) CALVERT SOCIAL INV EQUITY A 21.68% 9.00% $108.8 (Environmental, tobacco, product safety, animal welfare, labor, weapons) MFS UNION STANDARD EQUITY 20.46% 17.32% $54.7 (Labor rights) AQUINAS EQUITY INCOME 20.43% 16.65% $54.2 (Socially responsible)
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Source: Morningstar Inc.
