Assets in the sector are up 13% since 2007

November 26, 2010 — 4:30 AM UTC by S. David Bue, Thatch Moyle and Jim Frazin

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Editor’s note: Thanks to three contributors blogging from the SRI in the Rockies conference in San Antonio, Texas: S. David Bue, Thatch Moye and Jim Frazin. They fanned out, reporting on the general energy of the burgeoning movement. This year, nearly 600 people attended the conference, up about 200 from last year. SRI in the Rockies is owned by RIA First Affirmative Financial Network, which has a nationwide network of financial advisors specializing in the area.

SRI in the United States is growing at a faster pace than the universe of conventional investment assets under professional management, according to the “Social Investment Forum”:http://socialinvest.org/resources/research/. At the start of 2010, professionally managed assets following SRI strategies stood at $3.07 trillion, up 13% from the beginning of 2007.

This piece was updated to include Jan Schalkwijk’s blog post.

How the SRI movement has changed

S. David Bue, First Affirmative Financial Network

The SRI community has come a long way from its infancy in the late 80s. I started in the business in 1986 and I was at the first SRI in the Rockies conference at the Lost Valley Ranch behind Pikes Peak in Colorado in 1990. There were about 40 of us in total at that first conference—and we could all fit in one hot tub. We called it the SRI Hot Tub Index.

Today, we can barely fit into a single conference hall. There were about 580 people at this year’s conference and this tiny movement of a few idealists has become a global force for change. The 2010 report by the Social Investment Forum (SIF), “Socially Responsible Investing Trends in the United States,” found that more than $3 trillion is invested in SRI strategies which use environmental, social and governance (ESG) criteria, shareholder advocacy and community investing.

From my perspective as a small fish in an ever-expanding pond, here’s what is driving the growth in sustainable and responsible investing and the demand from investors for “responsible returns” on their investments:

A professional community: In the early days, a handful of labor unions and religious organizations made up the bulk of SRI investors. Today, those groups still play a crucial role in sustainable and responsible investing, but investment choices and the investment audience have grown dramatically. There are mutual fund companies—PAX, Calvert and Portfolio 21, to name a few—that have brought SRI to the mainstream. The SIF report also noted that the industry is seeing “impressive growth in new sustainable investment vehicles and strategies across asset classes, from ETFs to alternative investments in venture capital, ‘double-bottom-line’ private equity and responsible property funds that promote environmental sustainability and positive community impact.” Many of those companies were well-represented at the conference.

Greater Influence: We are now at a point where corporations, decision makers and investors of all stripes are listening to the SRI movement. Through the years, the SRI community has brought new shareholder advocacy and community investing strategies and investors have engaged with corporations to advocate for good corporate governance policies and greater transparency and disclosure on the issues. This year, representatives from several corporations—from Dell and Intel, to Coke and Campbell’s Soup—participated in panels at the conference. Corporations are listening to our concerns, we are having a great dialogue with them—and a greater impact on policies.

Youth and diversity: When I looked out at the crowd at this year’s conference, I felt a great sense of hope. This is not your average investing conference, with a bunch of middle-aged white guys in starched shirts. We have a great young crowd of people—equal numbers of men and women—who are bringing their energy, skills and a global perspective to sustainable and responsible investing. And they will carry the torch into the future. But for all its changes, SRI in the Rockies remains a tight-knit community and there is a real camaraderie among participants that I believe is unique to the financial services industry. And in the face of huge problems—from climate change to resource depletion—this community gives me hope for the future.

How do you handle oil companies, like BP?

Jan Schalkwijk, JPS Global Investments

SRI in the Rockies, organized by First Affirmative Financial Network in conjunction with the Social Investment Forum, is viewed by many in the responsible investing community as their premier annual conference.

In recent years, environmental sustainability has occupied an ever greater and more urgent space in the collective consciousness of the SRI community, spawning multiple sessions on the challenges that economic growth places on the ecosystems of our planet. Our current energy system is neither sustainable nor secure, yet it is undeniable that the world’s energy demand is unrelenting in its growth.

One of the plenary sessions of SRI in the Rockies – “Energy: Can’t Live Without It. How Do We Live With It As SRI Investors?” – dealt head on with the question of what role the energy sector should play in a diversified investment portfolio. Amy Domini of Domini Social Investments, Michael Jantzi, of Jantzi Sustainalitics, Bruce Kahn of Deutsche Bank, and Tim Smith of Walden Asset Management, tackled the issue in a panel discussion moderated by Doug Arent of the Joint Institute for Strategic Energy Analysis.

The general consensus of the panel was that the traditional energy sector could not be dismissed entirely from a diversified portfolio. However, there was difference of opinion as to how these companies should be evaluated from a responsible investing perspective.

Amy Domini seemed to have the strictest interpretation, suggesting that the bar should not be lowered relative to other sectors, and as such a best-in-class approach would not be appropriate. As none of the oil majors would qualify strictly on the basis of environmental criteria, Domini’s focus is on evaluating companies in relation to criteria such as human rights and worker safety. Even then, only one major oil company makes their list at present; a larger mostly state-owned Brazilian oil company.

Tim Smith took a client-centric approach, stating that ultimately the clients’ direction informs their approach to the sector and difficult choices have to be made, as the pros and cons of individual companies are weighed. The resulting set of investee companies can currently be described as “less offshore and more natural gas producers & equipment providers.”

Michael Jantzi added an interesting dynamic by suggesting that it is not responsible investing to not engage the oil companies, as the issues we face are far too critical. Though some engagement might be done without holding shares, active engagement as a shareholder can be a powerful driver of change. It is also undeniable that we create demand for fossil fuels – consider for example that the US consumes virtually all of the oil coming from the Canadian tar sands – so we have ownership in the production of oil whether we like it or not.

Bruce Kahn echoed Michael’s sentiments, suggesting that to ignore energy is to ignore the opportunity to hold oil companies to the best standards. Addressing climate change is a trillion-dollar-per-year investment, which will come largely from the private sector. Large energy companies will play a big role. Bruce went on to suggest that a switch from coal to natural gas would get us close to our greenhouse gas emission reduction targets. Certainly, we have seen several examples of oil companies buying natural gas companies, signaling their understanding of the inevitable transition to a lower carbon economy. Both Michael and Bruce also stressed the importance of looking not just at the policies and systems that companies have in place to ensure worker and environmental safety, but to assess the results of these policies and systems at the ground level.

Of course, this conversation could not be complete without spending some time talking about BP in light of the worst oil spill this country has ever seen. Amy highlighted that any review emphasizing worker safety should have brought to light the many violations BP committed in Russia, Canada, and the US; the exposure of workers to asbestos and benzene; and the work place fatalities. Moreover, BP received fines for not having adequately corrected past safety issues, even if those led to deaths.

In summary, Bruce, Michael, and Tim stressed that investors should “engage, engage, engage.” Certainly, this engagement is bearing some fruit; a specific example being the recent defeat of Proposition 23 in California that would have reversed AB 32, the state’s Global Warming Solutions Act. A lot of Silicon Valley money was spent, overwhelming the funds raised by the Texas refiners Tesoro and Valero. Amy, on the other hand, placed a bigger emphasis on doing thorough research to screen out companies with negative records on social issues.

Regardless of approach, responsible investors today have some measure of power to affect change. This new found power will eventually be a key factor in getting a price on carbon, moving the externalities associated with fossil fuel production & use onto the balance sheets of companies. In the meantime, as risk adverse investors we might assume that a cost on carbon would affect certain companies more than others, positioning our portfolios accordingly.

The rookie view

Thatch Moyle, RIA

I don’t know if I should call it a post-SRI hangover, but my head is still throbbing from the content overload, as I am still processing the incredible sessions, great and inspiring speakers and the wonderful opportunity to connect with the greater SRI community. This kind of momentum could carry me through the second quarter 2011!

The theme at Summit Camp kickoff was succession planning and the need to implement a business continuation plan. With a large portion of the adviser sphere nearing retirement age, this session was critical for both the torch-bearers and those looking to set up a model for business/client recruitment.

As SRI and ESG (environmental, social and governance) investing gain a larger piece of the investment capital pie, the need for due diligence and shareholder advocacy will only become more critical. FAFN is at the forefront of this push, with screening and analysis tools in place to begin the conversation with advisers and managers to apply regular screening reviews to their folios.

In the wake of the ShoreBank “restructuring” uncertainty (Ed. – ShoreBank was the large community development bank headquartered in Chicago that in August was declared to be insolvent) and the under-performing bond market, the community investment world must look to Calvert and other funding vehicles to make change on the local and regional level.

The conference hit the ground running Thursday afternoon with the annual meeting of the Social Investment Forum. The 2010 Trends Report showed an increase in SRI investments in the U.S., while our Eurosif brethren showed a growing network of SIF support and marketplace presence in Europe.

The lovable Mel Miller, executive vice president and chief investment officer of Heartland Financial USA, presented his annual economic forecast with general predictions for a limited or stagnant recovery. All was not gloomy, though, as Mel entertained with charts and slides that would generate a chuckle even from the venerable Ben Bernanke… the Fed’s confusing stance on the economy notwithstanding.

As we’ve generally known, the SRI performance myth was debunked by an afternoon panel from Morningstar, MSCI, and the world of academia. SRI portfolios perform or under perform on par with traditional portfolios and the view that SRI investors have to sacrifice gains for values was emphatically put to rest by Lloyd Kurtz. An apology from the SRI naysayers is pending:)

Friday morning we were enlightened by Maude Barlow, the National Chairperson with the Council of Canadians, with her commitment to promote water rights for all while spreading the alarm on our global water crisis. Favorite quote of the conference from a 95-year old Canadian woman via Maude…“social responsibility is like taking a bath…if you don’t do it daily you stink!”.

There are limited options in the area of SRI fixed income, but there is change afoot, with efforts on both a regional and global scale. The World Bank has released a new “green bond” with $1 billion in assets, aimed at supporting on-the-ground projects in developing countries. And out of California, but with expansion to multiple U.S. markets, the PACE program for renewable energy funding may prove a valuable option for municipal bond-like investment.

Friday afternoon presented a full host of options, with great discussion panels focused on emerging markets and corporate campaigning. Public radio rock star David Brancaccio moderated a lively discussion between Chris Flavin of the Worldwatch Institute and Geeta Aiyer from Boston Common Asset Management.

With emerging markets in China, India, & Korea, the roles of innovation and cleantech have shifted from the States and Europe to the emerging countries.

As I set to depart San Antonio Friday evening, I couldn’t help but smile at the thought of engaging and applying the thoughts and efforts I gleamed from this year’s conference. I can’t wait for New Orleans next year!!

The water footprint

Jim Frazin, First Affirmative Financial Network

_Editor’s note: One of the subjects that caused a lot of buzz at the 21st annual SRI in the Rockies Conference in San Antonio, Texas was water—the policies, scarcity and investing opportunities surrounding this basic human need. California RIA Jim Frazin of First Affirmative Financial Network, LLC, filed this report from “Protecting the Water Commons – Everyone’s Business,” presented by Maude Barlow, author of Blue Covenant: The Global Water Crisis and The Coming Battle for the Right to Water.

We already have a future where individual genes of plants, animals, and humans can be patented. So stretch your mind a bit further to imagine a future when every individual water molecule is identifiable and tagged for leasing and purchase.

Who will own those molecules and, given the nature of property rights, and who will pay to lease them? Or if they are owned, what will be the mechanism by which the ownership rights be transferred? And, more importantly, what will be the economics of this new paradigm? Our bodies are 98% water. Imagine a scenario in which family planning comes to mean saving up money to buy/rent/lease enough H2O molecules to have a child and raise her.

Writing from the 21st SRI in the Rockies conference, I listened intently to Maude Barlow, National Chairperson of the Council of Canadians and an executive member of the San Francisco-based International Forum on Globalization, talk about the emerging global water crisis. _This crisis is one of accessibility where the ostensible cause is diminishing fresh water resources, not only in the developing world but in the developed world as well. But the underlying cause, says Barlow, is the increasingly privatized access to water and the delivery mechanisms for citizens across the globe. This human right — access to substance as well as delivery — has only recently been recognized by the UN. It is complicated by the developed world’s sense of water entitlement and bad design, for example flushing perfectly good water down toilets and sprinkling golf courses, which is then being emulated by the developing world.

I owned a home in Rio Rancho, New Mexico, for 15 years. The Southwest became legendary for its water wars of the 19th and early 20th centuries. Scarcity causes people to do stupid things. I noticed that about every two years water rates increased dramatically. Being on the very sandy west side of the Rio Grande Valley south of Albuquerque, I assumed these increases related to the high desert where the town was situated and the cost of pumping water from the enormous Rio Grande Aquifer.

I noticed something more. Every couple years the ownership of the water company changed hands. And I noticed that six months or so before this change in ownership, the water price increased. On doing some research, I determined that the utility would apply for a rate increase to fatten its own wallet in preparation for the exit. This price increase also served to make the sale to the next owner more attractive and to justify the ever-increasing sale price of the utility for the new owner. Ultimately, presaging the present time when municipalities are buying back essential services previously privatized, the City of Rio Rancho bought back the utility because it determined that it could, after all, provide water on a more cost-effective, long-term basis than private ownership that was free to sell itself at a profit every couple of years.

But municipal ownership in the absence of a universal water commons standard is not enough. We people, and especially corporations, need to understand that water belongs to us all. Our bodies are 98% water. Water is the universal pre-condition for life on this planet. No one should be allowed to own or control this vital resource at the expense of the vitality of our communities and the commonwealth. Social investors would be well advised to seek and demand opportunities to invest in projects that promote the water commons and avoid private water.

Information about the contributors:

Jim Frazin is a representative of Independent Registered Investment Advisor, First Affirmative Financial Network LLC. First Affirmative specializes in socially responsible, sustainable, and transformative investing, and supports a nationwide network of investment professionals who work with socially conscious investors. First Affirmative also produces the annual SRI in the Rockies Conference. Mr. Frazin has previously written on water issues in New Mexico.

S. David Bue, from Westport, Conn., is a member of the First Affirmative Financial Network. He has been to 20 out of 21 SRI in the Rockies conferences. A Green Party candidate in 2010 for Connecticut State Treasurer, David has seen the SRI community grow significantly over the years.

Thatch Moyle is an RIA from Portland, Ore.

Editor’s note: The names of Thatch Moyle and David Bue were corrected Nov. 30.



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