July marks the third anniversary of the KLD Global Climate 100 Index (GC100)—the first global index focused on climate change solutions. The success of the GC100, which has outperformed its benchmark (the S&P/Citigroup BMI World) for all three years, is a testament to the strength of its mission and its methodology. (Click here for GC100 performance data.)

The GC100 serves as the basis for a number of investable products, including three mutual funds sponsored by Shinko Investment Trust Management in Japan; a mutual fund from Cominvest Asset Management in Germany; a unit investment trust sponsored by Advisors Asset Management; and several other separate and institutional accounts. Click here for a list of products based on KLD Indexes.

For the GC100, KLD looks for large and small companies that produce and distribute renewable energy like solar and wind power and/or future fuels such as hydrogen and biofuels. Companies committed to developing and applying new technologies to reduce resource consumption and carbon emissions are also candidates.

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Social investors have long been interested in executive compensation. The pay packages of CEOs occasionally attract attention from the mainstream press, too, and the June 12 issue of The Economist weighs in on the issue.

Three different articles consider executive pay, and they follow different paths to the same general conclusion. Yes, the authors agree, it’s possible that companies overpay their executives – especially in the U.S. – but it’s hard to say how much compensation is too much. The first article, “Pay Attention,” includes this sweeping statement:

“It is near impossible, of course, to determine the correct absolute level of executive pay.”

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The Sustainable Endowment Institute (SEI) recently released its College Sustainability Report Card. According to its Executive Summary, the Report Card “seeks to encourage sustainability as a priority in college operations and endowment investment practices by offering independent yearly assessments of progress.”

Institutions of higher education have played a significant role in SRI at least since the South African divestment movement of the 1980s. The Report Card examines both the investment practices of these schools and the sustainability of core university operations.

SEI finds that “the level of campus sustainability initiatives far outpaces that of endowment sustainability activity.” Responsible food-service and recycling practices, for example, earned “A” grades for 29% of schools. Only 4% of colleges achieved the same grade for their “Endowment Transparency.”

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A growing number of KLD’s clients serve high-net-worth investors (HNWI), commonly defined as individuals whose investable assets exceed $1 million. Nelle Coady, Assistant Manager of Client Services at KLD, reports that “the next generation of money” is concerned with the social impact of their investments.

“Young, high net worth investors are looking to be more proactive,” Nelle explains. “Our institutional clients tell us that social responsibility is a priority for more and more of their younger investors.”

The wider investment community, in the U.S. and abroad, has recognized this trend. American Banker reports: “Major custody banks are increasingly adding socially responsible investment factors into their monitoring services.”

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One of the first socially responsible investment (SRI) screens excluded weapons suppliers from investors’ portfolios; today, however, publicly traded companies don’t just build weapons – they fight wars. Privatized Military Operations (PMO) have been integrated into American missions in Iraq, Afghanistan, and other less-visible theaters worldwide.

Researchers at the Industrial College of the Armed Forces have produced a fascinating in-depth review of PMO in modern warfare. The report, released in 2007, highlights the extent of PMO involvement in the Iraq war. For example, the ratio of private contract employees to American troops in Iraq is 1 to 1.5.

Private contractors now provide services that have traditionally been the responsibility of American soldiers. Some of these are support tasks, such as maintaining barracks and running kitchens. A more worrisome trend is PMO contractors’ performance of core combat functions: building overseas bases, maintaining weapons, and providing security details.

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The Rev. Dr. Luther Tyson, a founder of Pax World Funds, has died at 85.

In any short list of SRI’s indispensible people, Dr. Tyson’s name would appear close to the top. He was one of the founders of the Pax World Fund, the first SRI mutual fund. Pax World was also the first management company devoted solely to SRI.

His vision of a fund for investors who did not want to own companies that profited from the Vietnam War helped establish the legitimacy of using ethical values to guide investment decisions.

His obituary from the Boston Globe appears below.

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National Advisors Trust Conference
Hilton Head, South Carolina
April 24, 2008

SRI’s Moment

I’ve been deeply involved with socially responsible investing – SRI – since 1983. Three times since then I’ve heard, “SRI’s time is here!”

I heard it first in the late 1980s, following the South Africa divestment legislation and the Exxon Valdez disaster. SRI grew, but not exuberantly.

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Last week, Greenleaf Publishing announced the publication of The Difference Makers, a history of the corporate responsibility movement through interviews by Boston College’s Sandra Waddock.

KLD co-founders Peter Kinder and Amy Domini, along with former Research Director Steven Lydenberg, were interviewed for the book.

As Prof. Waddock explains in her introduction, the 23 entrepreneurs she studies “represent a unique perspective on the developments that have taken place around corporate responsibility in the past 20-25 years.”

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Not long ago, I reread George Eliot’s Middlemarch.

I’ll have more to say about this unforgettable novel about social change in the countryside at one of the great inflection points in British history. But these two quotations, I thought, merited attention by themselves:

On one point he may fairly claim approval at this particular stage of his career; he did not mean to imitate those philanthropic models who make a profit out of poisonous pickles to support themselves while they are exposing adulteration, or hold shares in a gambling-hell that they may have leisure to represent the cause of public morality.

George Eliot, Middlemarch [1872] (New York: Bantam Classics, 1985), p. 133.

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On February 27th, I had the opportunity to hear Leonard English, Investment Manager for the General Board of Pension and Health Benefits of the United Methodist Church, talk about the organization’s community investments through their Positive Social Purpose Investment Program (PSPI).

One point in particular jumped out at me, and that was a number: 6.5%.

The annualized performance of PSPI loans held in the organization’s Domestic Bond Fund (as of 12/31/2007) has been 6.5% since inception (07/31/1990). Which is an impressive number and in line with their benchmark performance, as well as competitive market rates of return.

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