SRI: Socially Responsible Investing

1. SRI: Socially Responsible Investing This is a collection of the presentations on SRI funds and forums from the 9:30 class in Fall 2008 for Business 356 (Business Ethics)

2. Socially Responsible Investing Eric Grieser Brian Kooienga Alex Kron BJ Sullivan

3. Meritas SRI Canada based Investment Firm Invests 2% in community About 30 years old Created by church research group Considers ethics and environment in addition to financial outlook "...good product selection plus highly qualified and innovative management..."

4. Screening Techniques POSITIVE SCREENS NEGATIVE SCREENS International Labor Standards Environmental Impact Employee Relations Gender and Cultural Equity Policies Military/Weapon Development Alcohol and Tobacco Pornography and Gambling Nuclear Power

5. Fund Overview -Balanced growth approach with capital appreciation -Higher potential returns with fixed income securities -Long term growth through foreign investing -Canadian equity securities which comprise the Jantzi Social Index -Income from a short term, low risk investment through Canadian government -Income-producing Canadian Equity securities -Long term growth through undervalued securities of medium to large capitalization companies

6. Ethical Funds Company Corporate Vision To be the trusted leader and champion of socially responsible investing in Canada

7. Fund Selection Environmental, Social, Governance Policies

8. Screening Common Industries Banking Financial Oil and Gas Transportation Energy Exclusions Military Tobacco Nuclear

9. Focus List Climate Change Biodiversity Human Rights Fight Sweatshop Conditions Good Governance

10. Eurosif(European Social Investment Forum)

11. Eurosif Overview European Social Investment Forum was created in 2001 to cover socially responsible issues in Europe. It is a not-for-profit entity funded by affiliate membership and public grants Five original Social Investing Forum founding nations: France Germany Italy Netherlands UK

12. Continued Overview Board of Directors – appointed as board members from Social Investment Forums nations Decide the main activities and strategic initiatives of Eurosif Advisory Council – made up of member affiliates who guide strategy Mission: “Address Sustainability through Financial Markets”

13. Four Main Functions Lobbying European Commission and European Parliament Research Legislation, policies, and practices for ethical governance Initiatives Goals to advance socially responsible investing Event/Communication With member affiliates and board

14. Member Affiliates Pay an annual fee Join with the subscription of the morally responsible principles of Eurosif Member Affiliates include: KPMG, Greenpeace, Fortis Investments, Pioneer Investments, etc.

15. Socially Responsible Factors Eurosif does not directly invest, but promotes socially responsible investment Factors include: Corporate governance/board members Intellectual property Procurement policy and practice Environmental and social impact of products Compliance with regulations Worker’s Rights Community Involvement

16. Inhance Investment Management Canadian company 6 different funds Must be Canadian in order to purchase funds

17. Return on Responsibility Are the company’s practices environmentally sustainable? Do they comply with relevant laws and industry regulations? Is their workforce treated fairly? Do they have safe products? Are their corporate governance procedures thorough and transparent?

18. Spheres of Responsibility Shareholders Community Customers Employees

19. ESG Performance Criteria Employee relations Diversity Environmental commitments Community relations Corporate governance and citizenship Human rights Sustainable products

20. Financial Analysis Strong businesses Solid growth potential Reasonable stock price

21. SRI Funds Analysis by Bob Forrest, Alex Higbie, Laura Hund and Dan Sickle

22. A Fund Brief Green Century Equity Fund

23. Environment and Social Factors • Green Century chooses not to invest in companies with bad environmental and social records in: • Waste disposal • Toxic emissions • Environmental fines and penalties • Product/service performance • Waste and emissions reductions • Corporate citizenship • Recycling • Employee relations

24. So Where are the Investments?

25. Screens Green Century opts not to invest in companies who receive great amounts of revenue from the following: Tobacco Alcohol Gambling Nuclear Firearms This includes any company who receives 2% or more of their revenues from military weapons

26. TIAA-CREF A national financial services organization and provider of retirement services Introduced the TIAA-CREF Social Choice Equity Fund on July 1, 1999

27. Social Choice Equity Fund Founded to produce a “favorable long- term total return…while also giving special consideration to certain social criteria” Includes domestic and international investments Net assets of $602 million Largest socially screened portfolio nationally and internationally

28. Screening Process Invests 80 percent of net assets in equity securities Investments screened by KLD Research and Analytics Broad Market Social Index Companies struggling in a particular area are compared to industry peers

29. KLD Index Screening Fund Supports: Safe/Useful products Good employee relations Human rights Diversity in the workplace Corporate philanthropic activities Environmental performance Fund Declines: Manufacturing/Selling of alcohol or tobacco Revenues in gambling Manufacturing/Selling of firearms or ammunition Involvement in nuclear power plants

30. Northern Trust Global Sustainability Index Fund

31. Northern Trust Corporation Investment Management Based in Chicago Assets in custody: over $4.1 trillion

32. Sustainability Index Fund Mission The Fund seeks long-term performance by investing in companies selected for their projected investment and social returns.

33. Factors for Consideration The Funds include stocks from 24 different markets for firms that promote: Environmental Social Governmental responsibility “Sin stocks”

34. Norwegian Pension Fund

35. Fund Background Managed by Norway’s Ministry of Finance International assets managed by Norges Bank Investment Management It is a continuation of the former Petroleum Fund, established in 1990 Became the Norwegian Pension in Fund in 2006

36. Investment Strategy: 60% in equities and 40% in fixed income instruments Actuality: 51.8% in equities and 48.2% in fixed income instruments At the end of Q2 in 2008, fund was approximately $158 billion

37. Negative Screening for Investment Serious or systematic human rights violations Serious violations of individuals’ rights in situations of war or conflict Severe environmental damages Gross corruption Other particularly serious violations of fundamental ethical norms

39. Ethics Powerpoint “Section 1Katt,Moore,&Thomas”

40. CalPERS (California Public Employees’ Retirement System) By Ben Katt

41. CalPERS (The Basics) • Fund for California state employees to provide healthcare and retirement benefits • Largest Public Fund in the United States • Started in 1932 by state legislation • Nearly $236 billion in assets • 1.6 million members • Benefits based on: • Length of Employment • Age • Highest Attained Salary • Employees make monthly contributions, receive pension for life • Decisions influenced by socially responsible investments starting in the year 2000

42. CalPERS Philosophy • Mission Statement • “Our mission is to advance the financial and health security for all who participate in the System. We will fulfill this mission by creating and maintaining an environment that produces responsiveness to all those we serve.” • Social Responsibility Investments starting in 2000 • Investments in companies that provide affordable housing, create jobs, clean up inner city slums • Invest within the state, i.e. CA Real Estate • Dropped investments in countries that restricted free press, labor unions, and democracy in general ( criticized for dropping good companies in bad countries) • Dropped companies such as the tobacco industry

43. CalPERS Focus List • Annual list generated to identify the worst performing companies in the CalPERS portfolio • Process includes: 1. A quantitative screen 2. A qualitative review 3. An engagement process • Once identified CalPERS uses their size to reform the company’s governance practices with an emphasis on accountability, transparency, independence, and discipline to attempt to increase shareholder value • CalPERS generally uses shareholder proposals as a tool to reform poor performance • Typically successful in creating value for underperforming companies by encouraging change and improvement.

44. CalPERS Focus List Continued • The list serves as an embarrassment for the companies on the list • Poor Performance • Bad Corporate Governance • Encourages change and improvement • The 2008 List • Cheesecake Factory Inc. • La-Z-Boy Inc. • Hilb Rogal & Hobbs Co. • Invacare Corp • Standard Pacific Corp.

45. Ariel Investments By Joe Moore

46. Ariel Investments (The Basics) • Founded by John W. Rogers Jr. and his family in Chicago in 1983 as Ariel Mutual Funds. • Changed name in April to Ariel Investments • Nearly 100 employees. • 20% of employees let go on August 14th 2008 • Mainly invest in small and mid-cap stocks striving for long term gain “as a tortoise” not quick returns. • Over $8 billion in total assets (June 2008) • Ariel Fund lost 23% in the previous year ending August 19th 2008 and Ariel Appreciation Fund has lost 14% (total loss nearly $1 billion.)

47. Ariel Investments In earnest pursuit of excellent performance and outstanding client service, patience is our over-arching virtue. By taking a long-term view, we are able to build our firm around these core values: Focus By purchasing stocks that are undervalued, and patiently waiting for the market to recognize their true worth, we believe we can achieve long-term capital appreciation. Given our commitment to patience, it makes perfect sense that we have adopted the tortoise, the victor in Aesop’s timeless fable, as our symbol, and the fable’s moral – slow & steady wins the race – as our creed. Independent Thinking We are a team of independent thinkers, industry watchers and disciplined decision makers. We operate under the premise that financial success is achieved not by chasing the crowd, but by following our own convictions. Teamwork At Ariel, teamwork is how we get the job done. Everyone has the opportunity to put his or her best ideas forward, and leverage his or her expertise to create the best possible solutions for shareholders. Our employees share in the rewards and responsibilities of ownership in the firm. Everyone at Ariel is an owner – from our receptionists to our president. Moreover, by investing our own savings, profit sharing and retirement dollars in both our firm and the Funds, our personal financial success is squarely aligned with our clients and shareholders. Mission:

48. Ariel Investments • Focused specifically on: • Small & Mid-cap funds • American Focused • Quality • Leaders in industries • Need to have honesty and integrity throughout the management • Build relationship with competitors and peers in the marketplace who have bought the stock so they know independent prospective about the management • BIA associates who help them identify what is important • Sustainable competitive advantage • Above market returns over long periods of time • Expertise • Only invest in industries that they think they know more about than other people • Value • Buy companies at 40% discount to intrinsic value… • Buy company for $.60 when it is valued at $1. • Buy when they are not favored • Highly unpopular stocks are bought

49. Ariel Investments • My evaluation: • Company is solid in the evaluation of the “social” benefit of the company. • They do many background checks and other ways of identifying the companies that they will and won’t deal with. • I would not buy into this investment firm based on the fact that they are to specific on what qualifies a company to be able to be invested in, they will not buy a company if they feel that it is valued at the right price and not underpriced, and their history (now). • I do not feel it would be economical to suggest others to purchase into this investment firm, especially given the amount of money they have currently lost (nearly 12.5% of their total assets. Also have recently had other major corporations pull their money out of Ariel.

50. Walters Section 1 Tim Walters, Chris Schuler, Sabrina Linden and Steven Timperio