Mapping the Rise of Investor Unrest

The U.S. Social Investment Forum recently released its 2012 report on trends in socially responsible investing, or SRI. Some interesting trends have emerged since the last report in 2010, and should give many investors food for thought on how to direct their investment dollars.

The report revealed that corporate governance is one area that has grown in concern for responsible investment; the recent acknowledgment of its importance has likely been helped along by Dodd-Frank and the financial crisis. However, another area that's of huge interest in 2012 is blocking or divesting stocks profiting in geographical areas fraught with conflict or tyrannical regimes.

Sudan's still on the map
Sudan has taken a higher profile in the socially responsible investing community than it probably has in many other areas. The report reveals that the risks related to this "volatile and repressive" regime has led to investors pulling out of companies working with Sudan, or at least engagement with them to try to find workable solutions. This issue actually affected more than $1.63 trillion in institutional assets and more than $999 billion across all investment vehicles.

In fact, the report reveals that such an impact means that "Sudan-related investment policies are the most prevalent ESG criteria incorporated into investment management." ("ESG" criteria are defined as environmental, social, and governance factors.)

Speaking of which, last summer Sudan avoidance activists scored a major victory. Shareholders of ING Emerging Countries Fund voted 59% in favor of banning Sudan-related holdings. After having initially tried to block the proposal from reaching shareholders for a vote, ING fund's board ended up taking a neutral stance on the resolution.

Activist group Investors Against Genocide has performed plenty of advocacy for avoidance of companies that profit in Sudan, having agitated at more than 80 other funds, but this was the first time it's managed to drum up a majority vote. Although the vote was non-binding, it was a major victory on the human rights front.

Oil companies are often implicated for the business they do in Sudan, financially supporting the government's human rights abuses and genocide in regions like Darfur. Such companies include PetroChina (NYSE: PTR  ) and Sinopec (NYSE: SHI  ) .

The problems in Sudan, most notably Darfur, began in 2003. War between armed military groups and government forces, lawlessness, large numbers of refugees lacking food, water, and sanitation, and violence and repression continue to this day. According to the United Nations, 300,000 people have been killed and 3 million displaced since the conflict began.

Plenty of areas to avoid
The situation in Sudan is obviously one of the most well-known and serious conflicts, even if news coverage has failed to keep us all current on the continuing problems there.

However, there's a divestiture campaign currently taking place related to the recent conflict in Gaza as well. An organization called We Divest has been calling for divestment, particularly by huge pension fund TIAA-CREF, from companies like General Electric (NYSE: GE  )  and Caterpillar (NYSE: CAT  ) for "war profiteering" in the region.

In addition, Quaker investors Friends Fiduciary Corporation have dropped shares of Hewlett-Packard (NYSE: HPQ  ) and Veolia Environnement (NYSE: VE  ) due to ties to the Israel/Palestine conflict.

The situation in the Democratic Republic of Congo is another source of conflict for responsible investors. "Conflict minerals," such as gold, tin, tungsten, and columbite-tantalite (coltan), are frequently sourced in the war-torn area, and are used in some of the most popular consumer devices such as laptops, mobile devices, and tablets.

The Securities & Exchange Commission adopted a rule last summer that was put forth by the Dodd-Frank Act; this will require public companies to disclose their use of conflict minerals sourced in Congo and other countries.

Other oppressive and terrorist regimes or situations that are being tackled by SRI asset owners include Iran and "The MacBride Principles," related to fair hiring practices in Northern Ireland.

Where do you stand?
This data may sound like a new way to approach the definition of a "sin stock," but it actually isn't. Way back in the 1980s, some responsible investors embarked on divestiture campaigns to protest apartheid in South Africa, for example. And addressing human rights concerns like these is certainly a far more complex approach to SRI than simply screening out weapons manufacturers or defense contractors.

It's no secret that socially responsible investing is fraught with complex issues and certainly tends to be a bit fragmented; after all, the area is very reliant on subjective opinion, and opens itself to discourse on what the most -- or least -- responsible companies actually are.

However, what may be the most important part of investing this way, and a key to making all investments better, is its focus on how companies profit, and whether it's truly right to use your investing dollars to support the practices.

There's a point where "Do I stand to make a profit?" should be followed by the question, "Is it high time I take a stand?"


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Check back at Fool.com for more of Alyce Lomax's columns on environmental, social, and governance issues.


Read/Post Comments (5) | Recommend This Article (8)

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  • Report this Comment On November 30, 2012, at 2:49 PM, tedwarrenlives wrote:

    When are we going to start looking with in our own borders?

    The ills and get out of jail free cards used by corporations such as "chapter 11", the company remains in tact, the employees get paid and the companies debt gets wiped clean but the common share holde gets destroyed by the shares values going to zero. How is that fair?

    When are we going to start talking about the unrest the common investor feels regarding the "rigged game"?

    When are we going to start looking inward and speak about the fundamental flaw of Wall St. where they refer to it as "the game" and which we have come to know it as "stealing our money, aka the game"?

    The arms of manipulation the jungle of psuedo-journalist sites have become for various agendas at various times. Where accountablity is non-existent? Prime example CNBC has Jon Corzine on as a guest speaker continously and now they hardly mention him or admit except for a early 6am morning 15sec statement, does that seem right? They have PIMCO fund managers Mohamad and Bill Gross on and never once address the 77% premium one of their funds has?

    The have Mario Gabelli on and not once do they confront him about the incredible high fees his funds charge some upto 2.61, incredulous and not forthright are some adjectives that come to mind.

    There is no information highway that can be trusted.

    The US gov't has stolen money from each and every responsible saver in the US.

    The US gov't has destroyed lives with their constant irresponsible bi-partisian peacocking

    EVERY site is guilty of one form or another, even Motley Fool and Seeking Alpha, rampant bloggers and no accountablitiy.

  • Report this Comment On December 01, 2012, at 12:39 AM, skypilot2005 wrote:

    “Socially responsible investing”

    “There's a point where "Do I stand to make a profit?" should be followed by the question, "Is it high time I take a stand?"

    Two big “leaps”, I. M. O.

    I don’t own any of the companies mentioned.

    I have owned CAT and GE. I sleep well. As do most of the thousands of families that receive their primary income from working for them. I am sure.

    It appears you are advocating that these companies should be run out of business. What happens to the workers?

    Basic economic theory / “Law” makes this all a nonissue. If, CAT and GE do not sell their products to them, a competitor will.

    But, I enjoy your articles.

    Sky

  • Report this Comment On December 01, 2012, at 9:46 AM, Nomadder wrote:

    "Basic economic theory / “Law” makes this all a nonissue. If, CAT and GE do not sell their products to them, a competitor will."

    Basic economic theory, and those in the field I have spoken to, often have trouble understanding the difference between intrinsic goods and extrinsic goods.

    The concept that something might be valued in and of itself, as opposed to merely what it is good for, is a foreign concept and the main reason why this logic prevails.

    Hopefully, we are moving towards a world in which the majority of humans worry more about abstract principles (such as justice, love, morality, etc) than they do about what something is good for.

    If this ever is the case, then the current reasoning you present of "well someone else would be doing it anyway so it's ok for us to ignore moral objections" will no longer work.

    That is what the article is about.

    I would go so far as to say that is what most of Ms. Lomax's articles are about, and the fact that she is a featured writer on an investment site, is itself a cause for hope.

    Nobody wishes these companies to be run out of business. We do wish them to be more socially responsible. If other companies come along that are less so, then the hope is that they too will find, in the long run, that the old way of doing business is less profitable that the way of responsibility.

    Progress may be slow, but it is being made, and can be quantified, as Ms. Lomax has done in several of her previous articles.

    If you are comfortable investing in these companies as they are, I won't try to stop you.

    I will tell you, however, that more and more people are becoming comfortable taking that stand.

  • Report this Comment On December 02, 2012, at 5:46 PM, skypilot2005 wrote:

    On December 01, 2012, at 9:46 AM, Nomadder wrote:

    “Hopefully, we are moving towards a world in which the majority of humans worry more about abstract principles (such as justice, love, morality, etc) than they do about what something is good for.”

    I would like to see that achieved, too.

    But, we have all of “recorded history” working against us. I’d say it is a “long shot” in our lifetimes.

    For now, I stand with the workers and their families.

    Peace out.

    Fool On,

    Sky

  • Report this Comment On December 05, 2012, at 2:45 PM, Darwood11 wrote:

    I'd say, we also have the many U.S. investors working against us.

    I use Apple as the poster child and the nexus for the problem we face.

    Apple promotes itself as a leader in certain technology, but then defends itself in the involvement with the problems at Foxconn as "we're one of the pack; everyone does it." There are lot's of acolytes who defend that position. at EDN and elsewhere.

    I disagree, and that's why I don't own Apple stock.

    WalMart, the leader of low end cheap, is providing a better service at very low margins, and helping millions in the U.S. I don't defend WalMart's transgressions, but I think it's important to maintain perspective. Apple provides very high end products at what some would say are obscene margins. In other words, NO EXCUSE.

    Apple is one of the "high rollers" in the stock industry. They can lead on all fronts, and I expect them to. Yet they do not.

    The Sudan is a serious problem. Ditto for all of the Sahel.

    "There's a point where "Do I stand to make a profit?" should be followed by the question, "Is it high time I take a stand?""

    It's all a choice. I say the stand beings with the Motley Fool and ends with the investors.

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