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March 06, 2002
Institutional Investors Try Their Hand at Socially Responsible Investing
by William Baue
The Triple Bottom Line Simulation tracks hypothetical investments to demonstrate socially
responsible investment performance.
SocialFunds.com --
Increasing evidence demonstrates that socially responsible investing generates returns at least
comparable to traditional investing that does not take social and environmental considerations into
account. Then why are not more investors shifting their portfolios toward socially responsible
investments? The answer may be that old habits die hard. Statistical evidence may not be
persuasive enough; investors may need to actually try it before they are convinced of its merits.
 Institutional investors are especially
reluctant to experiment with socially responsible investing, given their fiduciary
responsibilities. Their caution is understandable; they are not investing their own money, after
all.
The Capital Missions
Company, a Midwest-based firm that creates networks among social investors, asked institutional
investors what they would need to consider socially responsible investing more seriously.
Education, they replied. Capital Missions' founder and CEO Susan Davis gathered a group of such
investors--treasurers of pensions, endowments, foundations, and religious groups, as well as
families with $100 million or more to invest--to discuss socially responsible investing. These
treasurers realized that they would need hands-on experience in addition to education, and they
came up with an ingenious solution.
"Let us pretend to invest $100 million across all
asset classes in social investments," they said, according to Ms. Davis. "Then, let us track the
quarterly results as if we'd invested, and then we can compare that to our existing portfolios."
Ms. Davis and Capital Missions transformed this idea into the Triple Bottom Line
Simulation, a program that creates portfolios of socially responsible investments and tracks how
they would actually perform in the real market. The term "triple bottom line" refers to the
application of financial, social and environmental considerations in investment decisions.
On May 21, 2001, more than 40 institutional treasurers and investors met in New York City to
learn about and participate in this program as part of the Triple Bottom Line Simulation
Conference. Five of their peers, institutional investors like themselves, presented case studies
on actual social investments of more than $100 million. Next, socially responsible investment
firms presented the products to be considered for the simulation. Finally, the large investors sat
down and created five portfolios of social investments.
Each portfolio focused on a
different aspect of socially responsible investing: social screening, shareholder activism,
community development, and social venture capital, while one portfolio followed general SRI
investing guidelines. Groups then divided the funds in each portfolio, allocating percentages to
equity, fixed income, alternative investments, and cash. Once they chose the actual investments
comprising their portfolio, they were ready to commence the simulation.
Capital Missions'
Triple Bottom Line
Simulation website posts quarterly results, allowing treasurers to compare these results to
their existing portfolios that do not employ triple bottom line criteria. The website also lists
both SRI and non-SRI benchmarks.
"All five simulations so far are outperforming the
financial benchmarks," noted Ms. Davis. The financial analysis is provided by the First Affirmative Financial Network, a leading
consulting firm for socially responsible investment.
Yearly results will be available by
June 10, 2002, when the Triple Bottom Line Conference convenes again in New York City. The
portfolios will then be reorganized by investor type, allowing treasurers of religious groups, for
example, to decide with their peers how to reallocate resources in their portfolio. This
organizational principle also encourages networking amongst like-minded investors.
The
ultimate goal of the simulation is to illustrate how investing by triple bottom line criteria can
reap returns that equal or even surpass investing by financial criteria alone. Ms. Davis trusts
that participants will share their experiences with their professional and social networks,
spreading the word on socially responsible investing organically.
©
SRI World Group, Inc. All Rights Reserved.
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