Socially Responsible Investing - Why It’s a Good Thing

By Edward Olivera

Socially Responsible Investing, or SRI, establishes social and environmental concerns as benchmarks for its investments. SRI investments have become powerful economic and advocacy tools for identifying which businesses act in compliance with a stringent set of criteria. For investors, SRI provides personal satisfaction about where their investment money is going, and for businesses, SRI provides guidelines and exposure towards improved conduct, corporate transparency and integrity.

An excellent primer on SRI can be found at the Social Investment Forum (www.socialinvest.org). Basically, SRI involves three strategies: screening, shareholder advocacy, and community investment. Screening is the process where businesses are scrutinized for their commitment to social and environmental practices and, based on those criteria, which corporate securities should be recommended to investors. Among screening categories employed by various funds are alcohol, tobacco, gambling, defense/weapons, animal testing, environment, human rights, employment/equality and community investment. A fund may choose to restrict or limit its investments with any business that does not comply with its governing investment policies.

Shareholder Advocacy provides vital information and strategy development for social investors in areas such as the shareholder resolution process, investment policy, media outreach and corporate governance issues. This is activism that produces real results, where consumers, investors and business leaders are given a voice to express their concerns about social and environmental issues.

Community Investment seeks to bridge the gap when capital from traditional financial services is unavailable. These are capital investments with high social impact, providing communities underserved with the resources and opportunities to gain access to credit, equity, capital and banking products. On a more socially responsive level, community investing creates jobs, affordable housing, provides education, and improves childcare and health care.

These are powerful tools, and have the power to alter the way companies do business as well as where investors decide to put their money. One can see the implications for the construction industry and its satellite industries. Indirectly of course any SRI holding with a physical plant is liable to being screened for its use of land, resources, and energy.
Whether most publicly traded construction or A/E companies could withstand the transparency demanded of SRI investments is difficult to gauge. But a simple look at the structure of SRI funds places construction and its related industries at the heart of SRI concerns: environmental issues, first and foremost, but also labor relations, housing, energy and virtually every major issue confronting SRI criteria.

As an example of how far reaching SRI can extend its advocacy and determination for responsibility, a resolution was filed against the heavy equipment giant Caterpillar for modifying its bulldozers with armor ostensibly to destroy homes in the West Bank and Gaza Strip. According to Social Funds (www.socialfunds.com), while divestment is a last resort among shareholders, accountability must be reached through some means of dialogue. If companies refuse to offer reasonable responses to allegations of neglect or abuse directed at their ways of conducting business, information
through shareholder advocacy will remain a threat to shareholder value.

Because of these pressures,construction companies and their related industries should increase their efforts to “Get Green.” Their profitability stands to rise or fall with an ever-greening marketplace. Jeff MacDonagh, SRI Portfolio Manager at Domini Social Investments (www.domini.com), a high-performing mutual fund investment firm working exclusively in SRI, issues a stark warning to the construction industry regarding its current practices. “Get on the train ‘cause it’s leaving the station,” MacDonagh quips. “People in the US construction industry are going to find themselves at a disadvantage to the rest of the world.”

MacDonagh sees the real issue facing the industry to be one that impacts us all: “The trend we see affecting everyone is climate change and the effect that is having in terms of energy efficiency. The name of the game is what is regulation doing,” said MacDonagh, pointing to Britain where 70 percent of development is mandated by law to develop their land on brownfields. MacDonagh also sees energy efficiency in buildings themselves as a positive way for builders to avert the catastrophic effects of climate change, and again he points to countries in Europe that are leading the way in building eco-houses.

“Construction companies have a wide variety of impact – they spread themselves out,” said MacDonaugh, noting though that investor voting proxy indicators show that management cares about” the issues of “how to cut energy use and resource use.

“We have to change the course we’re on,” MacDonagh warns, adding that in terms of investments “we’re looking for companies that are going to be first movers,” concluding with the admonition that “there’s a big learning curve with companies that want to begin to employ green building practices.”

Publicly traded companies also face the threat of divestment as investors become increasingly informed about where their money is going and what purposes it serves.

Many of the issues raised by MacDonagh in terms of corporate responsibility by the construction industry are echoed in a program the United Nations launched called the United Nations Environment Program Sustainable Building and Construction Initiative (UNEPSBCI). The initiative states that not only is the building and construction sector “a key sector for sustainable development,” that “contributes to a large proportion of the world GDP,” but “it is also widely responsible for resource depletion, waste generation or greenhouse emission. It is a key sector for sustainable development, both in terms of the important benefits it contributes to society and to the considerable negative impacts it may cause if appropriate considerations are not given to the entire life span of buildings.” For more information go to
http://www.uneptie.org/pc/pc/SBCI/SBCI_2006_InformationNote.pdf

The SBCI’s strategy for its program is to bring together stakeholders from the construction industry – which includes not only construction companies, but also material manufacturers, developers and real estate managers, financial services, government, planners, private owners and research experts. For companies who do work on a global basis, this initiative has serious implications especially for those who have no plan in place for changes in doing business in construction, changes that are inevitable. SRI is a good place to start.