N.B.: The following Q&A is based on a recent exchange between an Australian business reporter and Peter Kinder, President of KLD Research & Analytics.

Socially responsible investors believe businesses must incorporate environmental, social and governance (ESG) factors into their management strategies.

Institutional funds are major shareholders and play an important role in corporate governance. Australia, for example, has the fourth-biggest superannuation pool [money in pensions] in the world. That money could influence industries worldwide.

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Sound investment is built on information, and socially responsible investment (SRI) requires accurate reporting of every aspect of corporate activity. A traditional balance sheet doesn’t reveal a company’s environmental, social and governance (ESG) risks and opportunities, which makes reporting on these “intangibles” critically important to the SRI community.

Since 2005, KLD has studied the S&P 100’s sustainability reporting practices for the Sustainable Investment Research Analyst Network (SIRAN), a working group of the Social Investment Forum (SIF). The 2008 Sustainability Report Comparison reveals encouraging news. Of the 100 largest U.S. publicly-traded companies, 86 maintain corporate sustainability websites and 49 produced sustainability reports in 2007. These numbers represent significant progress over the past three years.

Pensions & Investments quotes KLD Senior Research Analyst Katy Chapdelaine and Research Products Managing Director Noel Friedman in an article on the SIRAN study. Friedman explains:

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The Sustainable Business 20 (SB20) highlights “20 public companies that are leading the way to a sustainable society,” according to Progressive Investor, which has produced this list for the past seven years.

SB20 companies must excel by both sustainability and financial criteria, and they include both established companies and smaller innovators, like Accsys Technologies – an English firm developing sustainable substitutes for precious hardwoods. Larger players include IBM, which aims to cut data center energy use by half by 2010, while increasing computing capacity by a factor of 10.

KLD Senior Research Analyst Andrew Brengle was one of five judges for this year’s SB20. “As tough as it is to narrow down the choices and find consensus among the judges as to which companies are the 20 best, it is nevertheless a rewarding process,” he said. “Every year I learn about several new companies that are doing great work, and every year the field of choices gets better.”

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The July 14 Christian Science Monitor asks: “Should Ethical Investors Dip into Water Stocks?” The CSM’s Laurent Belsie discusses the potential for investment in water-related businesses with KLD Research Director Eric Fernald and Chris Brown of Pax World Investments.

Observers such as the Unitarian Universalist Service Committee argue that privatization of water supplies threatens the “right to water.” Fernald and Brown acknowledge that contracting out the management of public water supplies (i.e., water utilities) or selling the right to use public water supplies (i.e., bottled water firms) is fraught with ethical risks. However, in some circumstances private companies can manage or use public water supplies in a responsible manner. Both warn that ethical investors need to be vigilant if investing in companies that engage in this aspect of the water industry.

Both experts also highlight companies that are developing promising technologies for public and private use. As Fernald explains:

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After languishing for most of the 1990s, gold prices have risen steadily, enriching mine owners and some investors. The true cost of metals extraction and refining, however, is often borne by people and places far removed from the mercantile exchanges. Open-pit mines like Argentina’s Alumbrera disturb the landscape and pollute surrounding communities, which is tragic; now, in what could be a portent, it may also be a crime.

In June 2008, a provincial court in Tucumán, Argentina charged the vice president of mining company Bajo la Alumbrera with “crimes against the environment.” Three multinational corporations jointly own Bajo la Alumbrera: Xstrata, Yamana Gold and Goldcorp, a Canadian company. The Canadian Mining Journal reports that Julian Rooney, Vice President of Bajo La Alumbrera, was “not jailed, but his possessions were impounded.”

David Modersbach of the National University of Rosario, Argentina has written a thorough summary of the case against Alumbrera. The charges were ten years in the making:

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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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Coal and the iron and steel works that consumed it were, 125 years ago, the foundations of Andrew Carnegie’s fortune.(1) So, his life would seem unlikely to hold lessons for investors concerned about global warming. But it does.

Carnegie’s Causes

The Scottish immigrant had two great causes. Most recognize his name today in the US and UK for his philanthropic investments in vehicles offering opportunities for human betterment: Carnegie libraries, university scholarships, Carnegie Hall, Carnegie Mellon University, teacher pensions (TIAA-CREF), etc.

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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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If a tree falls in a forest when no one’s around, does it make a sound? If a company emits carbon dioxide but saves a forest, has it achieved climate neutrality?

While both companies and outside stakeholders agree that reducing and/or offsetting emissions is a worthy corporate objective, there is no consensus on how to define and achieve this goal.

A new study from Clean Air-Cool Planet and the UK’s Forum for the Future considers climate neutrality and makes detailed recommendations for how to achieve it. Getting to Zero: Defining Corporate Climate Neutrality defines carbon neutrality as a condition in which “a company, or one of its products or services, can have no net impact on climate.”

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