NELSON CAPITAL MANAGEMENT

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NELSON CAPITAL MANAGEMENT
Social Investing, Then and Now Socially
Responsible Investing Here and Abroad Monterey,
6.26.09 Lloyd Kurtz, CFA
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What is Social Investing?

• Social Investing is an investment discipline that
  enables individuals and institutions to own
  companies whose philosophies and activities are
  compatible with their principles and values. It
  is also known as
• Sustainable Investing
• Green Investing
• Screened Investing
• Social Investing
• Natural Investing
• Ethical Investing
• Values-based Investing
• Mission-based Investing

Source Nelson Capital Management
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Key Moments in the History of Social Investing
19th Century Religious investors avoid
investing in alcohol, tobacco, gambling, weapons
manufacturing, and other objectionable activities
1980s Religious investors join forces with the
Nuclear Freeze Movement and church groups in
South Africa
1971 Pax World Fund founded, first socially
screened mutual fund
1989 Launch of Domini Social Index, first
broad-based social index
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The Past and the Present
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Now a Major Market Sector
Social Investing in the U.S. reached 2.7
trillion in 2007
Community Investing 1 26 billion
Screening Shareholder Advocacy5 (151)
billion
ShareholderAdvocacy Only22739 billion
Screening Only72 2,098 billion
Source Social Investment Forum, SRI Trends
Report 2007
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Performance of a U.S. Social Investment Stock
Index
Annualized Returns
Past performance is not indicative of future
results
Domini Risk Profile

• Higher beta
• Modest growth bias
• Sector weights
• Overweighted in Technology, Consumer, Finance
• Underweighted in Energy, Utilities

Source KLD Website, as of May 30, 2009. Data
from 5/1/90 inception date of Domini 400 Social
Index.
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Studies Suggesting Positive Performance Effects

• Corporate Governance
• Barber (2006)
• Employee Relations
• Edmans (2007)
• The Environment
• Guenster (2005)
• Overall Social Responsibility
• Statman (2008)

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Fortune 20 Most-Admired Companies, 2007
This informal study found that the 20
Most-Admired companies generally had excellent
social records.
Sources Fortune, KLD Research Analytics,
Lloyd Kurtz analysis, 2009
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Why Dont More Investors Do It?

• Performance?
• Family resemblance in social screens
• Round up the usual suspects.
• Many practitioners cant / wont customize
• One size fits all

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Is it Good to Compartmentalize?
Our viewis that symbols matter To have one
set of principles for financial management and
another for programmatic objectives sends a mixed
moral message. Jeff Skoll acknowledged as
much following his foundations support of Fast
Food Nation, a dramatic film highlighting the
adverse social impacts of the fast-food industry.
How do I reconcile owning shares in Coca-Cola
and Burger King with making the movie? he
asked. As a growing number of foundations
recognize, to compartmentalize ethics inevitably
marginalizes their significance...
Source Deborah Rhode and Amanda Packel. Ethics
and Nonprofits, Stanford Social Innovation
Review, Summer 2009.
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The Cost of Inconsistency Some Headlines

• Dark cloud over good works of Gates Foundation
• Los Angeles Times, January 7, 2007
• Warren Buffett and Darfur Sudan divestment
  movement targets Berkshire Hathaways China oil
  holdings
• Fortune, April 2007
• Major health insurers invest billions in tobacco
  stock
• San Francisco Examiner, June 6, 2009

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Quote of the Week

• "It's the combined taxidermist and veterinarian
  approach either way you get your dog back."
• - David Himmelstein, internist at Harvard
  Medical School and co-author of the study

Source consumerist.com, 6/6/2009 http//consumer
ist.com/5281026/health-insurers-own-tobacco-stocks
-worth-nearly-45-billion
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Americans
Percent Saying Country Heading in Right
Direction

• Percentage of respondents saying right
  direction in response to the question Do you
  believe the country is heading in the right
  direction or are things off on the wrong track?
• Zogby International

Source Zogby.com 5/26/09 http//www.zogby.com/ne
ws/ReadNews.cfm?ID1686
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The Government

• 1/8/2009 Obama speech on the economy
• To finally spark the creation of a clean energy
  economy, we will double the production of
  alternative energy in the next three years. We
  will modernize more than 75 of federal buildings
  and improve the energy efficiency of two million
  American homes, saving consumers and taxpayers
  billions on our energy bills. In the process, we
  will put Americans to work in new jobs that pay
  well and can't be outsourcedjobs building solar
  panels and wind turbines constructing
  fuel-efficient cars and buildings and developing
  the new energy technologies that will lead to
  even more jobs, more savings, and a cleaner,
  safer planet in the bargain.

Source Financial Times FT.com published January
8, 2009
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Investors

• SRI is Growing Faster Than Other Types of Managed
  Investments1
• Total assets under management grew about 3 over
  the last two years, while managed SRI assets grew
  above 18.
• Long-Term SRI Influence Is Growing
• More than one-third of U.S. investment managers
  believe that social or environmental factors will
  become a common component in mainstream
  investment management over next decade.2

• Source Mercer Investment Consulting.
• Source Social Investment Forum's Report on
  Socially Responsible Investing Trends in the
  United States by lead author Joshua Humphreys of
  Harvard University 2007.

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Disclosures
Nelson Capital Management, LLC is a registered
investment adviser and non-bank affiliate of
Wells Fargo Company. The information in this
report was prepared by Nelson Capital Management
and expresses the opinions of its investment team
unless otherwise noted. This material is for
general information only, is not suitable for all
investors, and is not soliciting any action from
any particular investor. Information and opinions
presented have been obtained or derived from
sources we believe reliable, but we cannot
guarantee their accuracy or completeness.
Opinions represent NCMs judgment as of the date
of the report and are subject to change without
notice. Affiliates of Nelson Capital may issue
reports or have opinions, which are inconsistent
with, and reach different conclusions from, this
report. Asset allocation does not assure or
guarantee better performance and cannot eliminate
the risk of investment losses. Fixed income
securities are subject to availability and market
fluctuation. These securities may be worth less
than the original cost upon redemption. Certain
high-yield/ high-risk bonds carry particular
market risks and may experience greater
volatility in market value than investment grade
corporate bonds. Government bonds and Treasury
bills are guaranteed by the U.S. government and,
if held to maturity, offer a fixed rate of return
and fixed principal value. Interest from certain
municipal bonds may be subject to state and/or
local taxes in some instances, the alternative
minimum tax. Investing in foreign securities
presents certain risk that may not be present in
domestic securities. For example, investments in
foreign and emerging markets present special risk
including currency fluctuation, the potential for
diplomatic and political instability, regulatory
and liquidity risk, foreign taxation and
differences in auditing and other financial
standards. Real estate investments carry a
degree of risk and may not be suitable for all
investors. Past Performance does not indicate
future results. The value or income associated
with a security may fluctuate. There is always
the potential for loss as well as gain. Returns
include the reinvestment of all income. Nelson
Capital Management and/or its affiliates does not
provide tax or legal advice. Please consult
appropriate tax or legal advisors to determine
how this information may apply to your own
situation. Because the social screens applied to
an SRI account/portfolio may exclude securities
of certain issuers, industries and sectors for
non-financial reasons, Nelson may forgo some
available market opportunities. As a result, the
account/portfolio investment returns may be
affected. In addition, Nelson will generally
sell the securities of a company that no longer
meets the social screens, its portfolio turnover
rate may be higher than it would otherwise and it
may be selling securities when it not otherwise
beneficial to do so. Nelson votes proxies
consistent with social and environmental
guidelines, but will not support proposals we
determine to be potentially harmful to
shareholder value. Indices represent securities
widely held by investors. The indices and
benchmarks shown for comparison purposes are
unmanaged. Their performance returns do not
reflect the deduction of any advisory fees or
commissions. You cannot invest directly in an
index. SP 500 Index An unmanaged
capitalization-weighted index of 500 stocks
designed to measure performance of the broad
domestic economy through changes in the aggregate
market value of 500 stocks representing all major
industries. Domini 400 Social Index A market
capitalization-weighted common stock index. It
monitors the performance of 400 U.S. corporations
that pass multiple, broad-based social screens.
The index consists of approximately 250 companies
included in the SP 500, approximately 100
additional large companies not included in the
SP 500 but providing industry representation,
and approximately 50 additional companies with
particularly strong social characteristics.
Additional information is available upon request.