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GreenMoney Journal - publishing since 1992
Fall 2010 issue
Socially Responsible Investing – Better Companies, Better Communities
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New Financial Study Shows Stocks Can Reflect Investor Values Without Sacrificing Performance; Study Measures Effect of Positive Corporate Behavior
Marc J. Lane
A new study concludes that investors can positively express their values on corporate behavior
issues such as Social Justice and the Environment through stock selection -- without sacrificing
portfolio diversification or long-term performance.
The study, released by Chicago
attorney, money manager and author Marc J. Lane, indicates that investors need not give up
performance when assembling portfolios based on positive screening of certain desired corporate
behaviors.
Typically, Socially Responsible Investing (SRI) has involved the use of
negative screens to avoid investing in companies that do not reflect an investor's personal values.
Lane's proposition is that investors can look for companies that reflect their own values using
positive screening.
"This research is significant for investors seeking to support
exemplary corporate behavior through their investments," said Lane. "Our work indicates that, when
Socially Responsible Investing relies on positive behavioral screening, there need not be any
performance give-up. Put another way, investors may now be able to align their portfolios with
their social goals, without compromising their financial objectives."
Lane continued: "If,
for example, a non-profit or a family foundation is dedicated to relieving human suffering,
combating HIV/AIDS, or running a food bank, it can be true to its mission and invest only in
companies that have comparatively strong Human Rights records."
Some investors have
avoided SRI because they perceive performance and diversification limitations. While many SRI money
managers use negative screening to rule out entire industries (such as alcohol, tobacco, gambling,
adult entertainment, defense, chemicals or energy), Lane's study examined the nine-year performance
of stocks grouped by highly specialized positive screening methods based on a company's
Environmental Practices and Social Justice.
Social Justice consists of Diversity/Employee
Relations and Human Rights. (The time frame analyzed, January 1995 though December 2003, was the
most recent period for which sufficient social data could be collected for the 2,884 companies
examined.)
"Positive screening of company social behaviors can empower investors --
without eliminating entire industries -- to deploy capital in a way that gives voice to their
values and principles," Lane said. And his new study, Corporate Behavioral Screening: A New
Perspective for Social Investors, concludes that this expression of values can be accomplished
without sacrificing either diversification or long-term performance.
In the study period,
from January 1995 through December 2003, the most rigorously screened subsets of companies'
behaviors in Social Justice and the Environment achieved gross compound annual return rates of
14.62 percent and 15.58 percent, respectively (versus 13.05 percent for the benchmark universe,
consisting of the 2,884 stocks for which data could be compiled within the Russell 3000 Index).
Within the Social Justice practice area, the subset of Diversity/Employee Relations
achieved gross rates of 14.38 percent and the subset of Human Rights achieved 14.83 percent. The
study involved performance analyses of hypothetical subsets of the universe, rather than actual
managed portfolios, and does not necessarily reflect or predict investment results in actual
practice.
Lane believes that positive screening -- and proactively investing in companies
which the investor deems to be engaged in socially desirable activities or practices -- will find
growing acceptance as both individuals and institutions increasingly exploit the opportunity to
drive their core values and missions through investment selection.
Lane's own firm
actively manages investment portfolios using a concept he calls Advocacy Investing(SM). Unlike the
static hypothetical groups of stocks in the study, Lane's Advocacy Investing(SM) first applies
financial and corporate governance screens to narrow down the universe and then, after "drilling
down" to ascertain the investor's unique core values, designs an individually-tailored portfolio of
stocks and bonds in companies which have demonstrated behavior compatible with those views. All
client accounts are individually customized and managed separately, without pooling or commingling
of any kind. The minimum account size is $500,000.
"Advocacy Investing is fundamentally
different from conventional exclusion," Lane said. "It's not for everyone. It all depends upon your
point of view. Would you rather be passively avoiding whole industries, or actively promoting
change by investing in companies which you believe are moving in the right direction?"
Lane continued: "While we can still exclude an industry for those clients who want to do so,
for most of our clients it 's a whole lot more meaningful to promote a cause you believe in than to
avoid one in which you don't."
Article Information:
The Law
Offices of Marc J. Lane, a Professional Corporation, and its financial affiliates have, since 1971,
offered specialized legal and wealth management services to individuals and the entities which they
own and control. Mr. Lane is an Adjunct Professor of Law at Northwestern University School of Law
and an Adjunct Professor of Business at the University Of Illinois College Of Business
Administration.
Marc J. Lane Investment Management, Inc., an affiliate of Lane's law firm,
utilizes Advocacy Investing(SM), a proprietary application of corporate behavioral screening
techniques, in addition to analysis of fundamental financial data and corporate governance.
Advocacy Investing(SM) is a service mark owned by Marc J. Lane Investment Management, Inc.
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