3 Approaches to Sustainable, Responsible Investing

May 20, 2014

daffodils1. Divestment

Stanford University made headlines when it announced that it would divest its $18 billion endowment from coal-mining companies.

Divestment is part of Stanford’s 1971 Statement of Investment Responsibility, which gives its trustees the ability to divest from a company whose “activities or policies cause substantial social injury”, and Stanford noted that “divesting from coal is consistent with this policy given the current availability of alternatives to coal that have less harmful environmental impacts.”

2.Advocacy

Divestment is just one of the ways that sustainable, responsible investing, or SRI, seeks to make a difference. Another common approach is to invest in companies and advocate for change as a shareholder — by voting proxies at the companies’ annual meetings, for example, or filing or supporting shareholder resolutions.

The Wall Street Journal reported in 2014 “environmental and social issues have accounted for 56% of shareholder proposals, representing a majority for the first time.”

Domini Social Investments is one of the SRI firms that focus on shareholder activism rather than divestment. Domini has filed shareholder proposals at Kraft and Pepsi Co to urge the companies to address deforestation in their supply chains, and they’ve engaged with companies like J.P. Morgan Chase and AT&T about improving political accountability.

3. A combination of Divestment & Advocacy

Some SRI companies, like Pax World Investments, one of the oldest SRI fund companies, combine divestment and shareholder advocacy. Like Stanford, Pax divests of coal companies (Pax also avoids investing in oil sands companies). And like Domini, Pax seeks to engage with fossil fuel companies as shareholders.

“If we use our power as investors to urge fossil fuel companies to reduce emissions, invest in renewables and be more mindful of environmental consequences, we have an opportunity to make the remaining years of our dependence on fossil fuels much less damaging than they could be,” Pax explains on its website.

The SRI funds in NoLoad FundX include funds that divest, funds that focus on shareholder activism and funds that combine these two approaches. We seek to invest in the SRI funds that are currently bringing in the best returns. If funds that divest are doing well, our SRI portfolios will be primarily invested in those funds, and if funds that focus on shareholder advocacy are bringing in the best returns, we’ll be led to own advocacy funds in our SRI accounts. We believe this approach gives us the ability to participate in a range of SRI strategies and opportunities.

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