Forgiveness for Some “Sin” Stocks
Pax World loosens standards; Domini switches strategy.
Two leading socially-responsible funds are moving to arrange more investing flexibility, in part to compete more effectively against growing numbers of exchange-traded funds with a social and sustainability focus .
Shareholders of three Pax World funds based in Portsmouth, NH, are being asked to approve “a more proactive and engaged approach to socially responsible investing,” according to proxy materials. The change would, among other things, no longer exclude investments in companies with alcohol and gambling interests, but would examine a company’s “entire social responsibility profile.”
The current alcohol-investment exclusion forced Pax World last year “reluctantly” to sell a more than $20 million investment in Starbucks Coffee Co. when it entered into a deal to sell a coffee-based alcoholic beverage. Pax World said its new social screening policy would add corporate governance, community and product integrity screens, broaden environmental and workplace screens, and bring in issues such as climate change, sustainable development, global human rights standards and non-discrimination based on sexual orientation “that were not fully appreciated at the time when the screens were first adopted in 1971.”
Shareholders of the Domini Social Equity Fund, Providence, RI, have approved switching the fund to an actively managed fund instead of a passive strategy basing investments on the Domini 400 Social Index. Wellington Management Co. will be a submanager of the fund. Domini said the fund will “invest primarily in stocks of U.S. companies that meet a comprehensive set of social and environmental standards as applied by Domini Social Investments LLC.” Wellington, it said, “will seek to add value using a diversified quantitative stock selection approach.” Its fees are increasing as well.
The moves prompted an acerbic comment from Matthew Hougan, assistant editor of the Journal of Indexes, who wrote “these old-line socially responsible investing firms are falling victim to their own success. Having proved that social investing can work, they've attracted the behemoths to the field—companies like Vanguard and Barclays Global Investors have recently launched socially screened funds, using their heft to drive down expense ratios and grow assets.”
Indeed, with Domini ending its tie to the Domini 400 Social Index, Barclays has filed its intention to launch an exchange traded fund tracking the Index.
In other index-related news, in its most recent recent review, the FTSE4Good indices added 24 companies, 3 in the United States, and dropped 9, 5 in the United States. Seven of the deleted companies failed to meet the FTSE4Good Environmental Criteria: Seat Pagine Gialle of Italy; Mitchells & Butlers and Northgate of the United Kingdom; and AutoNation, Discovery Holding, Harley-Davidson, and Hartford Financial in the United States. Hasbro in the United States was deleted for failing to meet the supply chain labor standards and Enel of Italy was deleted for having acquired a nuclear power producer.
The Dow Jones Sustainability Index (DJSI) also announced index changes resulting from its annual review. Dow Jones said its World Index (DJSI) added 46 companies and deleted 36; its pan-European sustainability index (DJSI STOXX) added 26 companies and eliminated 16; while 17 companies were added to, and 13 deleted from its North American index (DJSI North America). Dow Jones said the changes reflect the “latest analysis of corporate sustainability leadership across the world.”
James C. Hyatt (Jchyatt@yahoo.com) is a New York freelance writer formerly with The Wall Street Journal. Published in the Fall 2006 Issue of CRO Magazine.