Transcript CalPERS - andy gustafson

This is a collection of the
presentations on SRI funds and
forums from the 11:00 class in Fall
2008 for Business 356 (Business
Ethics)
The Way You Invest Matters
Be part of the solution
domini.com
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1980- Stockbroker
1989- Begins work with
Peter Kinder and Steve
Lydenber on Domini 400
Social Index
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1990- Launches Domini
400
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1991- Created Domini
Social Equity Fund
domini.com
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Engaging companies on global warming, sweatshop labor,
and product safety
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Bringing new voices to the table.
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Redefining corporate America’s bottom line.
domini.com
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Each of Domini’s stock funds is actively managed
according to an innovative strategy of strengths of
Domini Social Investments
Responsible for the development and application of the
Funds’ social and environmental standards.
California Public Employees’
Retirement System
provides pension fund, healthcare and other
retirement services for approximately 1.5 million
California public employees
Calpers.ca.gov
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$235.9 billion worth of stock, bonds, funds,
private equity and real estate as of August 2008
Largest pension fund in the United States
Provides benefits to all state government
employees and, by contract, to local agency and
school employees.
3rd Largest purchaser of employee health benefits
in the United States
Wikipedia.org
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Calls for reform in executive compensation,
especially Golden Parachutes
Sued the NYSE over allegations that their
specialists (floor workers) engage in practices
which hurt investors
Banned investment of its funds in nine
companies that do business in Sudan until
the government of that country halts ongoing
genocide
Wikipedia.org
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Accused of being politically motivated due to
the fact Democrats control the board
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Removal of President
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Investment in CDOs
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Other Shareholder Activism
Wikipedia.org
A non-profit organization
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A member affiliates in 14 different countries
Affiliates include pension funds, financial
service providers, academic institutes,
research associations and NGO's
Started in 1901
Executive board made up of 5 members lead
by Matt Christensen
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Assets totaling over 1.665 trillion euros as of
December 31, 2007
Equally 17.5% of Europe's assets
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They have noticed what Europe’s growth is
driven by:
◦ there’s an increasing demand from institutional
investors.
◦ there’s a further mainstreaming of ESG
considerations into traditional financial services.
◦ External pressures and finally a rising interest from
individuals and specifically wealthy individuals.
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They segment the SRI into 2 different
tangents Broad SRI and Core SRI
Broad SRI is an estimated worth of 2.154
trillion euro's and Core SRI is worth an
estimated 5.12 trillion euro's
◦ Broad SRI - represents the more mainstreaming
of SRI and emphasizes the growing interest
◦ Core SRI - consists of extensive screening
strategies systematically impacting portfolio
construction and often implying a values-based
approach.
Korie Lebeda
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Description:
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Inception: Oct. 8, 1999
CEO is Joe Keefe, Lead Manager is Mary V. Austin
Account Min. = $250
Reinvestment Min. = $50
“Seeks high current income and capital
appreciation”
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Social Screens
◦ Tobacco= No investment
◦ Gambling, defense & weapons, alcohol, and animal
testing= Restrictive investments
◦ Products & services, the environment, human
rights, labor relations, employment & equity, and
community= Positive investments
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Do’s (would do business with)
◦ Companies with similar social missions:
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Promote quality of life (environment & community)
Encourage diversity
Policies/practices with employees & human rights
Examples: Levis Strauss, Blockbuster
Don’ts (would not do business with)
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Marketers of irresponsible alcohol consumption
Major manufacturers of weapons
Casinos
Companies that use animal testing
 Examples: Certain make-up and hair products
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Recommendation
◦ Based solely on Social Responsibility & Benefit
 Recommend to self: Yes
 Recommend to others: Yes
 $500,000 settlement with SEC-cleared name of charges of
violating investment guidelines
 Social Responsibility = big priority
Environmentally responsible mutual funds
founded by nonprofit advocacy
organizations. The Balanced Fund invests in
the stocks and bonds of companies with
clean environmental records.
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Founded 1991
provide two mutual funds for those who wish to align
their investments with their environmental values
use shareholder advocacy to seek to place direct
pressure on corporations to change their practices to
protect the environment
dedicate GCCM's profits to advocacy organizations
who work for public policies that help create a
sustainable economy.
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Nuclear weapons and nuclear energy
Tobacco
Fossil fuel
Animal testing (for non-medical purposes)
Factory farming
Genetically modified organisms ("GMOs")
Agricultural pesticides
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Alternative energy
Eco-friendly products
Green technology
Organic / natural food supply
Water solutions
Sustainable development
Community investment
Location: Vancouver, British Columbia
CEO – Kerry Ho
Net Assets: $143.75 million
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To help Canadian investors build wealth through enhanced
investment returns.
Before they invest, Inhance Investment listens to company
management, researches economic trends, and crunches the
numbers.
The thing that separates them from other businesses is that
they incorporate environmental, social, and governance
criteria into their analysis.
◦ They look at how companies behave, and solely invest in those
that have compelling growth prospects, and progressive and
sustainable business practices needing to keep growing in the
future.
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“We listen to what a company says, then we
analyze what it does.”
We call it return on responsibility.”
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Employee relations
Diversity
Environmental commitments
Community relations
Corporate governance and citizenship
Human rights
Sustainable products.
By: Ty Johnston
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Nicknamed “Chikyuryoku” is started by Shinko
ITM and teamed with KLD Research and
Analytics to create an index fund for socially
responsible investors in Japan.
Chikyuryoku fund is translated as “Global
Warming Prevention Equity Fund”
The fund is associated with the GC100 Index
started by KLD.
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The Chikyuryoku Fund began on June 5, 2006
with its launch coming on June 30, 2006.
Saw a promising market with the rise of the
GC100 Index
Original investors in Japan are very
environmentally concerned and wanted to
prepare for new energy systems
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Investors saw a very profitable market
available through the GC100 Index and the
Chikyuryoku Fund.
More stable market to invest in than other
volatile markets like the renewable energies.
Fund has become successful due to equalweighted strategies to accommodate big and
small companies to have an level playing field
in the market.
10 million invested over the next three
decades
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Growing group of Japanese Investors
concerned with environmental issues and
global warming
Clean energy market to depend less on fossil
fuels.
The index has a diverse group of companies
leading the way in today’s technology
Profitable Fund with a conscious effort on
cleaning up the environment and protecting
global warming efforts.
“the leading authority on
social research and indexes
for institutional investors.”
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Provide global research and index products to facilitate the
integration of environmental, social and governance factors
into the investment process.
Define by services, accountability standards that enable
investors, managers and fiduciaries to influence corporate
behavior through their investment decisions and share
ownership.
Effect through this influence, greater corporate
accountability and, ultimately, a more just and sustainable
world.
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Charitable giving
Innovative giving
Non-US charitable
Support for education
Support for housing
Volunteer programs
Labor rights
Retirement benefits
Health & safety
Companies Involved With &
Owned By:
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Abortion
Adult Entertainment
Alcohol
Contraceptives
Firearms
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Gambling
Military
Nuclear Power
Tobacco
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Economic Outcome
Making Unethical
Companies, Ethical
Helping Society
Background Information
•Teachers Insurance and Annuity Association – College Retirement Equities
Fund
•Founded: 1918, lead by Henry S. Pritchett
•Headquarters: New York City
•Current CEO: Roger W. Ferguson, Jr.
•Targets those in the academic, medical, cultural and research fields
Additional Information
• Minimum Account: $2,500 initial; $50 automatic investment
• Minimum IRA: $2,000 initial; $50 automatic investment
• 86th Largest corporation according to Forbes top 500.
• $420 Billion in assets as of June 30, 2008
• Meets the needs of nearly 3.4 million individuals and 15,000
institutions
• Operates on a nonprofit basis
• Does outside screening through an independent social investment
research firm
Restricted Investments
Alcohol Restricted investment (by fund policy and by practice). Considers retailers that
derive less than 15% of revenue from alcoholic beverages.
Military/Weapons Restricted investment (by fund policy and by practice). Considers
firm with less than 2% in sales, less than $50M in contracts, less than $10M nuclear
arms.
Environment Proactive investment (by fund policy and by practice). Clean energy,
beneficial management systems, pollution prevention and recycling.
Gambling Restricted investment (by fund policy and by practice). Excludes firms whose
primary business is providing gambling products or casino management services.
Nuclear Restricted investment (by fund policy and by practice). No investment in utility
companies that own interests in nuclear power plants.
Other Restricted investment (by fund policy and by practice). Excludes firms with
revenue from the manufacture of firearms, ammunition or more than 15% in sales.
Pornography Restricted investment (by fund policy and by practice). No investment in
firms that derive vast majority of revenue from distribution or sale of pornography
Tobacco Restricted investment (by fund policy and by practice). Considers retailers that
derive less than 15% of revenue from tobacco products.
Information from Social Investment Forum
Positive Investments
Community Relations Proactive investment (by fund policy and by practice). Charitable
giving, innovative giving, support for education, housing and employee volunteering.
Employment/Equity Proactive investment (by fund policy and by practice). Employee &
executive diversity, health & safety, retirement benefits, and work/life benefits.
Environment Proactive investment (by fund policy and by practice). Clean energy, beneficial
management systems, pollution prevention and recycling.
Human Rights Proactive investment (by fund policy and by practice). Considered in social
screens.
Labor Relations Proactive investment (by fund policy and by practice). U.S. workforce labor
rights and relations with indigenous peoples.
Other Proactive investment (by fund policy and by practice). Corporate governance
considered with executive pay, transparency, and accountability.
Products/Services Proactive investment (by fund policy and by practice). R&D, innovation,
quality and products that benefit the economically disadvantaged.
Information from Social Investment Forum
Concluding Points
•TIAA-CREF offers it’s clients only positive investments.
•Does not profit from customers and surplus is returned to it’s participants
•Conducts social screening before looking at financial benefit
•Screening process consist of three stages
•Stage One: Automatically eliminates companies that fall under restricted
investments.
•Stage Two: compares companies in the categories of positive investments
•Stage Three: Takes the top performers and takes a final look.
Are you ready for an Epiphany
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Exxon Mobil (wait what?)
Lowe’s
McGraw Hill
Linear Technology
Sysco
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Alcohol Restricted investment
Abortion Specific Products No investment
Animal Testing Investments NOT SCREENED for this
concern
Community Relations Investments NOT SCREENED
for this concern
Military/Weapons Restricted investment
Employment/Equity Proactive investment
Environment Proactive investment
Gambling Restricted investment
Human Rights Proactive investment
Labor Relations Proactive investment
Tobacco Restricted investment
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74 billion average market cap
2.09% average yield.
Founded 1979
Based in Fort Worth, Texas
Luther King Capital Management
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Named after St. Thomas Aquinas.
Provides investment management services to
religious organizations, employee-benefit plans,
endowments, foundations, common trust funds,
investment companies and high net-worth
individuals.
LKCM is committed to selecting securities based on
sound fundamental investing principles and most
importantly, Catholic values.
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The investment guidelines set forth by the United
States Conference of Catholic Bishops in 2003 serve
as a guide in the selection of securities.
Funds are managed with the philosophy that
investors should not sacrifice investment
performance for their Catholic values.
LKCM utilizes screening services such as the
Interfaith Center on Corporate Responsibilities and
the Investor Responsibility Research Center.
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Category: Equity Large Cap Fund
Minimum Account: $5,000
Minimum IRA: $5,000
Assets: $10 Million
Fund Return: 6.04% year to date
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Based on Catholic stances for controversial issues.
Use screening criteria for the following:
- Shareholder Activism
- Community Investment
- Environment
- Human Rights
- Employment
- Products and Services
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Merged together on April 4th, 2008
Sentinel Government Securities Fund
Inception date: 9-2-1986
Citizens Income inception date: June, 1992
Category: Fixed Income Bond
Min Account=$2,500(acc to Citizens Income)
Min IRA=$1,000(acc to Citizens Income)
Sentinel’s Philosophy:
◦ Consistency- investment-centric culture in
everything they do
◦ Vision- pursuit of investment excellence and
dedicated to
strategies
research teams for investment
◦ Insight- united by the common belief that well
defined, repeatable investment processes grounded in
fundamental research have the potential to deliver
solid, consistent results over time.
No Investment
Alcohol
Gambling
Tobacco
Positive Investment
Product/Services
Environment
Employment/Equality
Labor Relations
Human Rights
Restricted Investment
Defense/Weapon
Animal Testing
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Merged together on April 4th, 2008
Sentinel Government Securities Fund
Inception date: 9-2-1986
Citizens Income inception date: June, 1992
Category: Fixed Income Bond
Min Account=$2,500(acc to Citizens Income)
Min IRA=$1,000(acc to Citizens Income)
Sentinel’s Philosophy:
◦ Consistency- investment-centric culture in
everything they do
◦ Vision- pursuit of investment excellence and
dedicated to
strategies
research teams for investment
◦ Insight- united by the common belief that well
defined, repeatable investment processes grounded in
fundamental research have the potential to deliver
solid, consistent results over time.
No Investment
Alcohol
Gambling
Tobacco
Positive Investment
Product/Services
Environment
Employment/Equality
Labor Relations
Human Rights
Restricted Investment
Defense/Weapon
Animal Testing
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Owned and managed by Gary Hawton, CFA
Based in Cambridge, Ontario, Canada
◦ Founded in 2000 by Hawton
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Specializes in SRI funds
◦ Focuses on Screening, Shareholder Advocacy, &
Community Investments
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Negatively Screens for:
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Military & weapons contracting
Alcohol & Tobacco manufacturing
Pornography & Gambling
Nuclear power
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International labor standards
Environmental impact
Employee relations
Gender and cultural equity policies
Positively Screens for:
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Respect the dignity and value of all people.
Build a world at peace and free from violence.
Internalize a concern for justice in a global society.
Exhibit responsible management practices.
Support and involve communities.
Practice environmental stewardship.
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Guarantees shareholders strong involvement
in picking socially conscious funds
Posts voting criteria on-line for each firm up
for investing
◦ Allows both investors and company being invested
in ability to see what will happen
◦ Gives investors ability to provide input, suggestions
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Meritas takes 2% of assets in each portfolio
and donates to community
◦ Domestic and international donations
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Meritas feels impact on investors’ portfolios
is small, but impact on social responsibility
and communities affected is extremely large
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The Ethical Growth Fund founded in 1986
In 1992, the Ethical Funds Company was created and
took over the Ethical Growth Fund and created other
funds
Shared ownership: 50% Provincial Credit Union and
50% Desjardins Group
Ethical Funds is a Canadian Investment Company
◦ A majority of investments are made to Canadian based
companies
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Negatively Screens for:
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Military and weapons
Tobacco
Nuclear power facilities
Uranium mining
Countries supporting racial inequality
Positively Screens for:
◦ Environment
 Regulation of emissions, sustainability
◦ Stakeholder relations
◦ Human rights and security
◦ Good labor practices
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Companies that are financially sound
A concern for sustainability and the
environment, having little “adverse impact”
Contribution to the local community in
positive manner through ethics, governance,
and accountability
Respect for human rights
◦ Fair labor practices, reducing poverty, safe work
environment, peaceful conflict resolution
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Many funds to choose from
◦ Growth, year goal, index, equity, dividend
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Evaluation through financial analysis
High standard of investment in terms of companies
that fit the screens
Choose sustainable companies resulting in less risk
Low $500 minimum
Philanthropy and donates to charitable funds
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Formed in 1976 by D. Wayne Silby and John G.
Guffery, Jr
Started SRI in 1982
Based in in Washington D.C.
Specializes in SRI funds
◦ Focuses on Screening, Shareholder Advocacy
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Manages over $14 billion in assets
◦ Wide range of funds (i.e. Alternative Energy)
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Negatively Screens for:
◦ Military & weapons contracting
◦ Alcohol & Tobacco manufacturing
◦ Pornography & Gambling
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Positively Screens for:
◦ International labor standards
◦ Human rights
 Treatment of indigenous people
◦ Environmental impact/ Energy Conservation and Alternative
energy
◦ Employee relations
◦ Gender and cultural equity policies
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Original board member Muhammad Yunus won 2006 Nobel Peace
Prize
First out of South Africa First back in (1982 and 1994)
As of 2006, had donated $25.4 million to community investments
Sudan partnership with Save Darfur and Sudan Divestment taskforce
The Calvert Social Index
◦ Market index of 468 of the largest socially responsible companies
◦ Commonly used by other funds as a benchmark for their
performance
By: Seth Sinovic, Maurice Brewer,
Tess Reddin
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Started:
October 1988 for internal use
Went public in 2004
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Account Minimums:
Individual: $1,000
Institutions: $1,000,000
Typically holds 40-60 stocks in a fund
Standardized Returns for 1 year: 11% on investments for N shares
and I shares (since inception +3%), 14% for Domini 400 (since
inception +1.7%)
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Environmental sustainability
Corporate governance
Human rights
Product safety
Community relations
Employee relations
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Tobacco
Gambling
Weaponry
Alcohol
Abortion
Nuclear power
Portfolio 21 companies seek to prosper in
the 21st Century by recognizing
environmental sustainability as a
fundamental human challenge and a
tremendous business opportunity.
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Philosophy
Climate Destabilization=
Economic and Investment Destabilization
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Inception Date
Retail Shares September 30, 1999
Institutional Shares March 30, 2007
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Account Minimums for Global Equity Mutual Fund
Individual
IRAs
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$5000
$1000
Portfolio 21’s institutional shares
$1,000,000 minimum
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Uses “The Natural Step” and “Global Footprint Network” to
help set evaluation criteria
3 areas of evaluation
- Biotechnology
Rejects companies that engage in biopiracy, non-transparency (no
labeling), human genetic engineering, and agricultural genetic
engineering
- Nuclear
Will not invest in companies that generate a significant proportion (more than
5%) of revenues from nuclear energy business
- Globalization, Human Rights & Social Justice
No investments in companies that have significant business in countries that are state
sponsors of terrorism and/or where significant human rights violations or significant labor
rights violations occur in company-owned facilities
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Oracle
Has not enforced sustainability measures in the companies
that it has acquired.
Misses market opportunities by not promoting the potential
environmental benefits of its products
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Deere & Company
Does not direct any funds to the development of non
agricultural biofuels
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UPS
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Others include Bank of America, Lehman Brothers,
Goldman Sachs, Wachovia
Less than 1% of fleet vehicles powered by alternative fuels
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A Sovereign Wealth Fund (SWF) is a stateowned investment fund composed of
financial assets such as stocks, bonds, real
estate, or other financial instruments funded
by foreign exchange assets.
SWFs are typically created when governments
have budgetary surpluses and have little or
no international debt.
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The Petroleum Fund was established in 1990 after a
decision by the legislature assembly to counter the
effects of the forthcoming decline in income and to
smooth out the disrupting effects of highly fluctuating
oil prices.
The fund changed name in January 2006 from its
previous name The Petroleum Fund of Norway.
It is the largest pension fund in Europe and the second
largest in the world with a value of NOK 2.019 billion
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Investments have to be in line with the ethical
guidelines based on sector and company behavior.
The companies that the Fund invests in are closely
monitored by a Council of Ethics. If companies are
operating in conflict with the guidelines the Fund will
consider withdrawal.
Several Companies have already been excluded
including:
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Singapore Technologies, Singapore
BAE Systems, UK
Boeing, US
Honeywell, US
Wal-Mart Stores Inc, US
L-3 Communications, US
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The Council of Ethics was established in
2004.
The role of the Council on Ethics is to
provide evaluation on whether or not
investment in specified companies is
inconsistent with the established ethical
guidelines.
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The Government Pension Fund – Global is an instrument for ensuring
that a reasonable portion of the country’s petroleum wealth benefits
future generations
The Government Pension Fund – Global should not make
investments which constitute an unacceptable risk that the Fund
may contribute to unethical acts or omissions, such as violations of
fundamental humanitarian principles, serious violations of human
rights, gross corruption or severe environmental damages.
Investment Screens:
◦ Serious or systematic human rights violations, such as murder, torture,
deprivation of liberty, forced labour, the worst forms of child labour and other
child exploitation
◦ Serious violations of individuals’ rights in situations of war or conflict
◦ Severe environmental damages
◦ Gross corruption
◦ Other particularly serious violations of fundamental ethical norms
◦ companies from the investment universe that either themselves, or through
entities they control, produce weapons that through normal use may violate
fundamental humanitarian principles