SRI Notes

sristudies.org - New and Improved

This blog has been in suspended animation for awhile because I have been hard at work on another project:  revamping sristudies.org. 

I started sristudies.org in 1999, as a way to make available online citations and notes on the (then) small number of studies of socially responsible investing.  Nine years on, the number of studies has grown exponentially, and I have to set aside more and more time each year to try and keep it reasonably up-to-date.

The job is already too hard for one person to do well, so I have begun to take the first steps to make sristudies.org a more collaborative project.  The big changeover is now almost complete - I've moved the site to a wiki platform (hosted by the nice people at wikispaces.com), and updated most of the links so they refer to the new site.  You can see the new site here.  On the new platform I'll be able to give the database more consistent attention, and, I hope, will be able to put some structure around a database that now numbers several hundred studies. 

I know, it doesn't look like much...we'll fix the graphics, it's on my list. 

What I have done is update the new site with all the strong studies I saw in 2007.  The simplest way to see these is to click the 'Bibliography' link and use your browser's search function to find all instances of '2007' on the page.  Another way is to type '2007' in the search box.

I won't even attempt to summarize the class of '07 - the studies were uniformly thoughtful and challenging.  You could start with Alex Edmans' Moskowitz Prize-winning piece, but I'd strongly recommend that you also have look at what Al Goss has been up to, and you should probably give Derwall's latest study a close look, too, and I don't know how to classify Christine Arena's book but you should look at it...and so on.  A lot is happening, not just at the conferences and investment firms, but also among academic researchers around the world.

With the new platform, I hope it will be easier to keep up, and, ultimately, make this a collaborative effort.  For now I'm leaving the old site up, but ultimately the sristudies.org web address will redirect to the wiki.

On the SRI Beat

I mentioned him last year, but I just wanted to put up a fresh endorsement for the work Jeffrey MacDonald is doing at the Christian Science Monitor.  In the past two years the Monitor has probably interviewed more social investment practitioners, and written more articles on social investing, than any other publication.  As number of practitioners explodes, with many of them trying new approaches, MacDonald's stories are a great way to keep up.

KLD Blog

I'm happy to report that the SRI research firm, KLD, is starting a firm blog that will offer insights and commentary on SRI.  Peter Kinder, CEO and co-founder of the company has the first post. 

Some Weekend Reading

Thanks to MIT's remarkable OpenCourseware project, complete lecture notes for the school's course on behavioral economics and finance are here. 

The Motley Fool on SRI

Back in the early 70s there was a significant surge in interest in socially responsible investing.  There was lively debate with articulate advocates like Milt Moskowitz (book plug here) writing in the New York Times, and smart people like Milton Friedman and Burton Malkiel (see his speech in this anthology) raising concerns about the emerging practice.

And that was really the high-water mark for a long time.  The general interest in social investing sharply tapered off as the energy crisis hit and the Nifty 50 era came to a crushing end with the 1973-74 bear market.

The present era bears a lot of similarity with those days.  Oil prices are through the roof, and with the $100 forecast now looking kind of plausible, the hot new forecast is for $200 oil.

And yet interest in SRI has never been stronger.  You see SRI in places it has never appeared before, like The Motley Fool and Value Line (thanks to Lorne Abramson for the tip on that one).

I suspect some of this has to do with the sophistication of the tools available today - social investors can manage portfolio risk in ways they couldn't in the 1970s.  Also, there are more funds in different styles, including some good value and and contrarian choices, so performance hasn't been universally poor during the energy bull market of the past three years, despite the weak recent returns of the social indexes.

Rating the Energy Companies

I wrote last year about the energy problem - the underperformance of some social indexes as energy stocks took over the market in recent years.  It is not just an energy problem, it's a utility problem, too.  Here are the returns to the S&P 500 by sector for the three years ended 8/6/06 (source: Bloomberg):

Energy	131%
Utilities	66%
Materials	43%
Industrials	39%
Financials	33%
Telecom Serv	32%
Cons Staples	25%
Cons Disret	20%
Health Care	14%
Info Tech	14%

Many social investors avoid both energy companies and utilities - energy companies because of their environmental problems, and utilities because most are involved in nuclear power.  Whether these restrictions make sense can be debated.  A financial academic once asked me why we excluded stocks that will outperform with higher energy prices when they are the best thing that could happen to the alternative energy sector (they create a subsidy to development of cleaner energy).  And some influential people are arguing that, given our climate issues, nuclear could be part of the solution (Socialfunds covered this very well last summer).

Anyway, it's hard to outperform when you're underweighted the two best-performing sectors in the market.  The Domini Social Index is still ahead of the S&P 500 from inception and over the past ten years, but its three year record has been well behind the broader market as of 7/31/06 (annualized +8.5% vs. +10.8% - full performance details here).  The Calvert Social Index is in the same boat, up 8.0% over the same period (performance details here).

There are a couple of points I'd like to make about this:

• Social investors as individuals need to think hard about how they're going to handle these issues.  Energy matters a lot, not just in financial markets, but in the real world.  Economist James Hamilton has written intelligently about both the possibility we are near peak global oil production, and the impact of higher oil prices on the economy.  WSJ Online has a good online piece with contributions from both Hamilton and Robert Kaufman of Boston University.
• There are energy investments that are palatable to some social investors.  There are both ETFs and mutual funds focusing on clean energy.
• Nothing lasts forever.  Lee Raymond recently said "the seeds are being sown right now for another turn in the cycle of the oil industry.  For those people who think there will not be a day of reckoning on the other side, and I hope I live long enough to see it ... it just takes a long time in this industry for supply and demand to react. This isn't like going out and producing a few more semiconductors."  I have no idea if he's right, but it's something to think about.

And finally, I get a chance to mention the Canadia social research firm Jantzi Research on this blog.  Founder Michael Jantzi has been involved in social research since 1990, and knows what he's doing.  They have just published a report reviewing the sustainability records of 23 large energy companies.  BP comes out at the top of the heap, which is consistent with other research I've seen.

Center for Responsible Business Website

The Center for Responsible Business at Haas has updated its website, and it now includes information on the Moskowitz Research Program and the Moskowitz Prize, including a section on the volunteer judges who make the prize possible.

BC's Best MBA Paper Award

Boston College has been very active on the corporate social responsibility front through its Center for Corporate Citizenship.

For the past 11 years, BC has awarded a prize for the best MBA paper on corporate citizenship. This year a Haas student won the prize - Douglas Young, for a paper on non-financial reporting by U.S. banks.

An archive of recent award winners is here (under "Document Type" select "MBA Award Paper", then click "Go").

Now With RSS Goodness

Socialfunds, the leading SRI news service, now has an RSS feed.  If you use an application like Bloglines to pull together your blog reading, you can now include the Socialfunds news feed.

I also want to put in a plug for Philosophy Talk, the radio program that questions "everything... except your intelligence."  Their blog is here.

Some Useful Blogs

Here are some blogs I've found useful, some SRI-related and some not. One good way to organize your blog reading is bloglines.com, which also allows convenient access to news services like the BBC.

• I wonder when the folks at socialfunds.com are going to be recognized for their outstanding efforts over the years. Where else are you going to read about Pax World's decision on Starbucks, or Adam Seitchik's move from Deutschebank to Trillium? No RSS feed, unfortunately, so you can't use bloglines, but you can get their news e-mailed to you.
• From time to time I visit Socialedge, which is sponsored by the Skoll Foundation. The signal to noise ratio can be low, at least for me, but there are also interesting things there that I don't see anywhere else.
• For electronic privacy issues and the Microsoft/open-source battle you can't beat Slashdot, the preferred news source for nerds everywhere.
• He's not a social investor, but Andrew Tobias knows a lot about money and has a good running conversation with his readers on both financial and social topics.
• I've looked for a decent economics blog, and haven't found many - odd, since there are so many economists. I like this one from an economist at the University of Chicago, which gives strong daily commentary on the most important data.