Myths and Truths about Socially Responsible Investing

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Myths and Truths about Socially Responsible
Investing

• Lincoln Pain, CFP ,
  AIF
• Effective Assets
• Invest to Change the
  World

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What is Socially Responsible Investing?

• Every time you invest, your money is doing two
  things
• - It is working for you financially.
• - It is capitalizing the corporations that
  are creating
• your future in which you, your children,
  and your
• grandchildren will be spending your
  investments.
• There is no avoiding the fact
• All investments are doing both all the
  time.
• Socially Responsible Investing is the
  process of taking responsibility for both effects
  of investing.

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THREE LEGS OF SRI

• 1. Positive Negative Social Screening Or
  Best-In-Class (more popular approach in
• Europe)2. Shareholder Engagement /
  Proxy Activism3.Community Development Investing
  / Lending /
• Micro-Lending

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MYTH 1

• Socially Responsible Investing
  Underperforms.

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MYTH 1

• Why the myth?
• Stories in WSJ, Forbes Fortune compare
  performance of all SRI funds with Equity Index.
• Does SRI underperform?
• Index history
• Manager history, apples-to-apples
• Mutual Fund History
• Morningstar Analysis.

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• Indexes are unmanaged groups of securities and
  are not directly available for investment.

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• Indexes are unmanaged groups of securities and
  are not directly available for investment.

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• Indexes are unmanaged groups of securities and
  are not directly available for investment.

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During Wartime

• Indexes are unmanaged groups of securities and
  are not directly available for investment.

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Boston Trust InvestmentManagement Company (as
of December 31, 2007)
Year Unrestricted Social Difference
QTD -0.1 0.4 -0.5
1 Year 14.3 12.4 1.9
3 Year 9.3 8.0 1.3
5 Year 13.0 12.2 0.8
7 Year 6.3 5.1 1.2
10 Year 7.4 7.8 -0.4
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"The Impact of Social Screening on
Growth-Oriented Investment Strategies

• - Compares returns of screened and
  unscreened portfolios for eight growth managers,
  and finds no statistically significant
  performance difference. Time  periods vary
  between nine and 23 quarters, all ending in
  December 1996.
• - Lloyd asserts that until 2004, while he was
  collecting these data, they continued virtually
  the same.
• Kurtz, Lloyd. "The Impact of Social
  Screening on Growth-Oriented Investment
  Strategies," The Journal of Performance
  Measurement, Spring 1997.

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MYTH 1

• SRI does not underperform in long-term but has
  underperformed during certain periods.
• During what periods does SRI underperform?
• - Wartime
• No weapons manufacturers no taxpayer
  subsidy
• for industries.
• - High oil prices
• No Exxon Mobil, Sun Oil, etc.
• Conventional investors can also
  invest in alternatives.
• - Tangible Assets cycles
• Few Commodities, Limited Real Estate,
  No Mining.

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MYTH 1

• What are performance advantages of SRI?
• Studies on www.socialinvest.org
• Go to Research, then Moskowitz Prize
• Some advantages to treating
  workers well
• Some advantages to taking
  care of
• environmental
  liabilities early
• Some advantages to
  performance of
• shareholder action,
  especially around
• governance.

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MYTH 2

• Performance Myth 2
• Invest conventionally Afterwards give your
  outperformance to charities that make a
  difference.
• Problem Some problems cannot be cleaned
  up, such as malformed babies or drowning and
  starving polar bears.
• Problem Most cleanups cost more than
  doing it right in the first place. How much
  outperformance will it take to clean up mess?

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If we capitalize pollution and abuse, how much
will the cleanup cost our children?
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Myth 3

• SRI cannot be effective.

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Effectiveness

• Which SRI techniques are socially effective?
• - Screening (Negative Positive)
• When has screening been effective in the
  past?
• Why?
• Various Arguments regarding screening.
• - Shareholder Activism
• - Community Development Investing

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SRI RESOURCES

• www.socialinvest.org - Social Investment
  Forum / SRI Trade Association Research / Trends
  Report / Advocacy Public Policywww.socialfunds.
  com - The Largest Personal Finance Site Devoted
  to SRI Full List of SRI Mutual Funds, Links to
  Fundsiteswww.coopamerica.com - Non-Profit
  support for social Consumer,
• Business Investorwww.sri-adviso
  r.com - SRI World Group SRI Professionals
  Directorywww.greenmoney.com - Greenmoney Journal
  - Only magazine for SRI
• non-professional
  investorswww.iccr.org - Interfaith Center on
  Corporate Responsibility - Top
• Resource for Shareholder Activism
  by Religious Organizations.www.asyousow.org -
  Non-Profit Shareholder Activism
  www.trilliuminvest.com - SRI Management Firm -
  Leader in Shareholder
• Activismwww.bostontrust.com -
  Walden - SRI Management Firm - Leader in
• Shareholder Activismwww.firstaffir
  mative.com - One of the largest SRI RIAs /
  Co-Producer of
• Nat'l SRI Conference
• www.progressive-asset.com - Progressive
  Asset Management

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FIDUCIARY SRI
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UN PRINCIPLES
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ISSUES WITH SCREENING AND BEST-OF-CLASS

• Screening
• - Harder to Index - Not
  available to Indexers - Eliminates worst
  corporations from shareholder influence Best-In-
  Class
• Includes some industries/countries that are
  objectionable to some SRI investors -
  Extraction - Genocide - Slave Labor - Weapons
  of Mass Destruction GE might make BOC
  list, but is still major weapons
  manufacturer

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IT'S A COMPLEX WORLD OUT THERE Corporate Good
Guys?Bad Guys?Who Decides?How?Securities
offered through Cambridge Investment Research,
Inc., a Broker/Dealer member, FINRA SIPC.
Effective Assets is an Independent Registered
Investment Advisor registered with the State of
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the following Cambridge Branch office 1751 Old
Pecos Trail, Suite D, Santa Fe, New Mexico 87505
Phone [phone]. Lincoln Pain is a
registered investment advisor representative of
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an independent Registered Investment Advisor
registered with the Securities and Exchange
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