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January 16, 2003

Corporate Governance Reforms a Boon to Investors in 2002

SocialFunds.com Analyzes the Impact of Last Year's Top Social Investing Stories.

Brattleboro, VT - SRI World Group, Inc., the leading objective authority on socially responsible investing, announced through its website SocialFunds.com the top social investing stories of 2002. They were: (1) Substantial corporate governance reforms; (2) SRI mutual funds matched non-SRI peer funds in performance; (3) Community investments outperformed equity funds for the third year in a row; (4) A shareowner resolution on equal employment opportunity policy got results after 10 years of corporate opposition; and (5) Government mandates for transparency shaped international momentum for SRI.

All investors welcomed measures to improve corporate governance, such as the Sarbanes-Oxley Act and the new listing standards imposed by the New York Stock Exchange (NYSE). The measures aim to enhance auditor independence, corporate responsibility, financial disclosure, and corporate accountability while guarding against conflicts of interest.

"Out of tragedy sometimes comes good, as the corporate governance debacles finally inspired legislators and regulators to enact reforms that are welcomed by all investors," said SRI World Group President Jay Falk.

While the socially responsible investment (SRI) community applauded these reforms, it is continuing to point out that such reforms do not go far enough to solve some pervasive corporate governance problems. Both the proposed NYSE standards and the Sarbanes-Oxley Act retain loopholes or even remain silent on such vital issues as abolishing staggered boards, expensing stock options, and disclosing corporate environmental and social liabilities.

The next top story was the strong SRI mutual fund performance in a market where the S&P 500 was down 23.4% for the year. In an analysis of the mutual funds tracked on SocialFunds.com, SRI World Group found that 32 of 62 SRI funds had returns that beat more than half of their peer non-SRI mutual funds in 2002. Regarding three-year performance results, 30 of 52 SRI funds topped more than half of their peer non-SRI mutual funds.

Social investors also demonstrated to mutual fund companies in 2002 that they are an attractive market sector because they are longer term investors. According to an analysis of Lipper data commissioned by the Social Investment Forum, between January and June 2002 there was a net outflow from U.S. diversified funds of approximately 9.5 percent of total assets. However, the opposite occurred with SRI mutual funds. According to that same analysis of Lipper data, SRI mutual funds experienced a net inflow of 3 percent during the same time period.

"Social investors tend to be 'sticky'-in other words, they trust that the financial, social, and environmental strengths of their investments will create long-term value, even when bearish short-term prospects scare other investors," said Mr. Falk.

The third top story was the relative performance of community investments. In a year that saw the stock market drop for the third year in a row and 1-year CD rates fall below 2 percent, investors who had assets allocated to community investing looked very wise. Many community investments offered investors a 2 or 3 percent return or possibly higher. At the same time, since community investments have such a good payback rate, those who participated in community investing in 2002 avoided the minefield of the corporate bond market.

The California Public Employees' Retirement System (CalPERS) made community investing pay not only in 2002 but throughout the whole decade. Last month CalPERS, the nation's largest pension fund (with more than $132 billion in assets), announced that its Single Family Housing Program has been its highest returning investment category. The program has returned more than 20 percent annually since its inception in 1992, earning CalPERS a total of over $500 million.

The highest shareowner vote ever on a social policy resolution was the year's fourth top story. At the CBRL Group (the parent company of Cracker Barrel) annual meeting, 58 percent of voting shareowners supported a resolution that called for the adoption of an equal employment opportunity (EEO) policy that bars sexual orientation discrimination. Cracker Barrel's decade-long opposition to the policy finally crumbled because of shareowner pressure.

Rounding out the top five social investing stories was the adoption of SRI principles by legislators in France and Australia. In February, the French Parliament published its new economic regulations (nouvelles régulations économiques, or NRE). Besides increasing the transparency of take-over bids, improving corporate governance, and fortifying antitrust regulation, the NRE also require companies to report on their social and environmental performance.

In March, the Australian government passed the Financial Services Reform Act. The act requires investment firms to report on the extent to which they take into account ethical, environmental, and social considerations. The law does not mandate SRI practice, but it requires that investment firms who claim to practice SRI must disclose their methods.

For more details about the top social investing news stories of 2002, visit SocialFunds.com at: www.socialfunds.com/news/article.cgi/article1005.html



SRI World Group, Inc. is a financial information and consulting services firm. The company operates SocialFunds.com and InstitutionalShareowner.com, which serve individual and institutional investors, respectively. SRI World Group is a news, research, and consulting firm that advises clients regarding sustainability investment issues and corporate responsibility practices. It also operates CSRwire, a globally syndicated newswire service that specializes in distributing corporate social responsibility reports and press releases.

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Socially Responsible Investing is the act of making investment decisions to achieve social as well as a financial return. Together a social and financial return are often described as a "double bottom line." The three main strategies of socially responsible investing (SRI) include screening, community investing, and shareholder activism.

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