...nuclear power may help solve the climate crisis.
...we need weapons to prevent humanitarian disasters like the Darfur genocide.
...Wal-Mart's sustainability efforts are making the world better.
...A cold beer at a summer ballgame is a wonderful thing.
Reasonable people will differ about those assertions (except, perhaps, for the one about beer, which is inarguable). But until recently, most socially responsible mutual funds -- funds designed to appeal to people who want their portfolio to reflect their mostly liberal values -- screened out companies that provided nuclear energy, manufactured weapons or brewed beer. As for Wal-Mart, forget about it.
That's changing, and it's about time. Calvert Investments, a leader in social responsibility investing (SRI), has introduced new funds that -- are you sitting down? -- own shares in oil and mining companies, in a utility that sells nuclear power and in Wal-Mart. Calvert also has modernized its screen against weapons and some of its funds are now permitted to invest in so-called sin stocks that profit from alcohol and gambling.
I've argued before that SRI's traditional negative screens don't make sense. They reflect the SRI industry's roots in 1960s activism (not that there's anything wrong with that) and liberal religion (nothing wrong with that, either), but they don't reflect the complexities of today's corporate America, as well as the mainstreaming of the corporate social responsibility movement. So when I heard about the changes at Calvert, which is based near my home in Bethesda, Md., I arranged to sit down with Bennett Freeman, Calvert's senior vice president for sustainability research and policy, to learn more.
Social investing funds like Calvert's, he noted, date back to the 1920s and connected during the Vietnam War era with investors who did not want their money going to companies that supported the war. "We very much drank from the stream that emerged in the 1970s that melded a religious and moral point of view with a political one that lent itself easily to declaring what we were against," Bennett told me. "It was not only alcohol and tobacco but weapons and nuclear power." These funds were mostly defined by what they were against, with war as the dominant issue.
Since then, of course, we've had the 2001 terrorist attacks as well as humanitarian crises in the former Yugoslavia in the 1990s and Darfur in the 2000s. So Calvert has revised its weapons screen to exclude companies that make purely offensive weapons as well as weapons such as land mines and cluster bombs that violate international law. But other military hardware is no longer barred. "We don't like any weapons," Bennett said, "but many of us associated with Calvert unfortunately have concluded that there are legitimate uses of military force."
More significantly, Calvert now offers three categories of values-based funds -- Calvert Signature funds, which are SRI funds that retain the old-fashioned screens; Calvert Solutions funds, which invest in companies that help solve water and energy problems (including a utility, FPL, that operates nukes), and Calvert SAGE funds, which invest in a broad array of companies and push them to improve their practices.
SAGE stands for Sustainability Achieved through Greater Engagement. The idea here is that Calvert will buy stock in imperfect companies (a category that includes every company I know) and then push them to do better. Investors get a "rock-solid commitment from Calvert to do intensive, indeed, aggressive engagement and advocacy with those companies," Bennett said.
What companies? The first SAGE fund, called the Calvert Large Cap Value, owns shares in Wal-Mart, BP, Conoco Phillips and Newmont Mining, among others. Those firms "may not meet all of our investment criteria but are open to positive, progressive change," Freeman said.
With each company, Calvert has a specific "ask." Some examples:
Wal-Mart is being asked to adopt international labor standards, including the right to bargain collectively, as well as to be more open about its global ethical standards for suppliers.
GE is being asked to provide regular updates about PCB cleanup in the Hudson and Housatonic Rivers, as well as to adopt a risk framework around nanotechnology.
BP is being asked to keep its commitment to stronger safety practices, assess the risk of its investment in the Canadian oil sands and invest more in renewable energy.
Kraft Foods is being asked to disclose its animal welfare policy and address risks and problems in its palm oil supply chain.
Calvert meets with company executives to push its agenda, coordinates with other activist shareholders and files shareholder resolutions when that seems to make sense. Freeman says it will report back to investors on progress. (You can read more here about the advocacy process.) Over the years, I've been told by numerous companies -- Coca-Cola, Dell, and Wal-Mart among them -- shareholder advocacy has an impact by bringing real and reputational risks to the attention of senior management.All of this, it seems to me, is welcome news. It reflects a shift away from a style of investing that was mostly about making people feel good -- because their money wasn't being used for weapons or oil wells or to build big-box stores -- to one that is designed to make a difference. Below is an excerpt from my conversation with Bennett.