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May 23, 2001
Simulating the Triple Bottom Line
by Mark Thomsen
Fiduciaries try their hand at socially responsible investing at the innovative "Triple Bottom Line
Simulation Conference 2001" held in New York this week.
SocialFunds.com --
Some fallacies do not die easily. In the financial industry, perhaps the most tiresome and
troubling fallacy is that social investing yields lower financial returns than conventional
investing. Even with long-term evidence to the contrary, such as the Domini 400 Social Index
beating the S&P 500 on a total return basis and on a risk-adjusted basis since May 1990, cautious
investors have been slow to change their opinion.
 A conference held in New York City this week
intends to give institutional investors a firsthand look at how well socially responsible
investment products can perform financially. Almost 60 fiduciaries gathered to simulate the
investment of $100 million at "Triple Bottom Line Simulation Conference 2001: Practicing Social
Investing Without Committing Funds."
The conference was hosted by Capital Missions Company, a midwest-based firm
that offers a proprietary system for building investor networks.
"The conference was
designed for us by a foundation treasurer who told us this format would be most helpful to him and
his peers," said Susan Davis, founder and CEO of Capital Missions. "He wanted a way to learn the
actual social products and social investment companies in a quick but substantive way and then to
track the "returns" each quarter before committing real funds."
How did this treasurer
feel about the conference that resulted? "He told me he would use the fixed income products
because, with the market returns and the added social dividend, they were a 'no brainer,'" Davis
explained. "He was also interested in three of the equity products and was going to do more due
diligence on them," she added.
"But what made me smile was his comment about how we
condensed the product presentations to 3 minutes each," Davis continued. "He said that format gave
him a good snapshot of the products, and was he begrudging the untold hours he'd lost in the past
giving investment managers an hour for their presentations."
The conference was by
invitation only to substantial private investors and institutional treasurers, including private
and public pensions, foundations, endowments, religious groups and families of $100 million plus.
In addition to Capital Missions, 16 of the leading social investment companies were sponsors. Nick
Lopardo, Vice Chairman of State Street Corporation and Barbara Krumsiek, CEO of Calvert Funds,
joined Ms. Davis as co-chairs.
In the simulation, fiduciaries were broken into small
groups. Each group was charged with building a diversified socially responsible portfolio across
all asset classes with $100 million. In addition to traditional equity, bond and cash choices,
socially responsible venture capital and hedge fund options were also available to the investor
groups. The conference concluded with each group presenting its final portfolio to all
participants.
Over the next year, conference participants will receive simulated custody
reports every quarter to help them monitor their investments. Through these reports investors will
be able to ascertain whether there is any statistically significant differences between a socially
responsible portfolio and a conventional portfolio.
In addition to the financial
performance issue, conference discussions touched on other barriers to institutional investor
participation in socially responsible investing. Stephen Viederman, the conference keynote speaker,
suggested that "socially responsible," both the individual words and the term as a whole, may be
turning off some investors. He challenged the attendees to develop an alternative yet descriptive
term and suggested constructive investing.
"Whatever we call it - not SRI - we are talking
about an investment process that considers the positive and negative social and environmental
consequence that all investments have, as part of the rigorous financial analysis that as
fiduciaries we are obliged to engage in," he said. "This process identifies the opportunities, as
well as the risks and liabilities, facing companies that are often neglected when the investment
process focuses only on fundamental financial returns."
Viederman, a trustee of the
Needmor Fund and a consultant to foundations and non-profits, understands that many investment
committees may bristle at the thought of being viewed as crusaders. Yet, five case study examples
presented earlier in the conference demonstrated that institutions large and small have been
successful in achieving market returns plus social dividends.
Capital Missions' simulation
model may very well prove to be the right tool for erasing institutional investor doubts about
social investing. Investors interested in receiving the quarterly simulation reports can contact
Capital Missions Company through its website.
©
SRI World Group, Inc. All Rights Reserved.
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