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The below guidelines were provided by EuroSIF and represent the latest evolution in responsible fund management.  I believe these transparency guidelines are especially relevant during this time of financial uncertainty.  As fund managers find it difficult to attract capital, more funds will need to incorporate “confidence building strategies.”  Following the after-shocks of Monday the 15th, I am heartened by the idea that fund transparency will be permanently incorporated into the remaining financial institutions.  In the meantime, I satirically advise the Triple-G strategy: Guns, Gold, and Gas.

 

Basic Details

  • Signatories should be clear about who they are and provide background information on the fund, and the fund manager.
  • Provide the name of the fund(s) and fund manager to which these guidelines apply.
  • Provide contact details for further information regarding the funds.
  • What is the size of the fund? In currency at a specified date.
  • Where can financial performance history data about the fund be found?
  • Provide details of the content, frequency and means of communicating information to investors.
  • Additional: Briefly describe the corporate responsibility policies of the organization that manages or promotes the fund(s), or give direction to where this information can be located.

 SRI Investment Criteria

  • Signatories should be clear about their purpose and investment criteria.
  • How does the fund define SRI?
  • What are the SRI investment criteria of the fund?
  • How is the SRI criteria defined, how frequently and by whom are the criteria reviewed?
  • How are criteria changes communicated to investors?

Research Process

  • Signatories should provide information on their research process.
  • Describe your SRI research methodology and process.
  • Does the fund manager use an in-house research team and/or an external research team? Please explain.
  • Is there an external control or external verification process in place for the research process? Where an Advisory Committee is used, please state its responsibilities.
  • Does the research process include stakeholder consultation? If yes, please provide details.
  • Do companies have the opportunity to see their profile or analysis? If yes, how often?
  • How frequently is the research process reviewed?
  • What research findings are disclosed to the public? How?

Evaluation and Implementation

  • Signatories should provide information on how the research is used to build and maintain their portfolio.
  • How are the results of research integrated into the investment process, including selection and approval of companies for investment?
  • What internal or external measures are in place to ensure portfolio holdings* comply with SRI investment criteria?
  • What is the policy and procedure for divestments* on SRI grounds?
  • Are investors informed about divestments on SRI grounds? If yes, how frequently and by what means?
  • Does the fund manager inform companies of portfolio exclusions or divestments due to non-compliance with its SRI policy and criteria?

Engagement Approach

  • Signatories should explain their approach to engagement if the fund has such a policy.
  • What are the aims of the engagement policy?
  • How does the fund priorities which companies it will engage with?
  • Who undertakes engagement on behalf of the fund?
  • What methods of engagement are employed?
  • How is the effectiveness of engagement activity monitored/addressed?
  • What further steps, if any, are taken if engagement is considered unsuccessful?
  • How, and how frequently, are engagement activities communicated to investors and other stakeholders?

Voting Policy

  • Signatories should make clear their policies on voting.
  • Does the fund have a voting policy? If so, what is it?
  • Does the fund disclose its voting practices and reasoning for decisions?
  • Does the fund sponsor/co-sponsor shareholder resolutions?

Periodical Activities

  • Signatories should periodically disclose information about their activities.
  • List the fund holdings at a specified date within the last 6 months.
  • What engagement activity has been carried out on behalf of the fund during the past year?
  • What voting actions occurred that were related to the SRI fund criteria?
  • Additional What divestments occurred in the past year related to the SRI fund criteria?
  • Additional What were the amount of donations and the percentage of management fees that the fund gave to charities this past year?

Definitions of key terms used in the guidelines:

Divestments – Companies that are sold from the fund portfolio.

Engagement – A long-term process of dialogue with companies which seeks to influence company behavior in relation to their social, ethical and environmental practices.

Exclusion – The exclusion of sectors or companies from a fund if involved in certain activities based on specific SRI fund criteria (e.g. no tobacco or no animal testing).

Fund(s) – A legal entity, the purpose of which is solely the acquisition of portfolio investments.  This also includes compartments and sub-funds. 

Fund Manager – The entity responsible for overall management of the fund. 

Fund Purpose – The spirit and overall focus of the fund, but not the investment criteria employed.  Holdings – Equities and/or bonds of companies that collectively comprise the fund portfolio. 

Portfolio – A collection of investments managed by the fund manager.

Signatories – Fund(s) and/or fund manager that commits to disclose SRI information in

line with the Guidelines. 

SRI Investment Criteria – The principle or standard of judgment used to determine what the fund can Criteria and cannot invest in from a social, ethical or environmental (SEE) perspective.

Voting Policy – Policy of a fund to exercise it’s voting rights as investors to influence company behavior.

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Listed below are standout SRI funds that I feel are well positioned to gain from the current economic environment.  These mutual funds and ETFs are grouped into different categories that reflect their holdings, strategy, and geographic region.  I also include categories that are unique to responsible investing such as environmental activism, humanitarianism, community development, and alternative energy.  With over $2.71 trillion is assets subject to social criteria and over 260 socially monitored funds, it can be difficult to navigate all the options out there. 

I’ve picked the following funds based on a number of fundamental criteria such as management track record, MPT statistics, and industry outlook.  However, the “niche” nature of each SRI sub-categories must be taken with a grain of salt due to the lack of competition.  The youthful nature of many funds in this sector also hiders forecasting. 

An important litmus test for any “alternative fund” requires determining if management has jumped on the “green bandwagon” for short-run gain.  Unfortunately, this last quarter has seen a number of self proclaimed SRI funds mislead investors.  To ensure these imitation funds don’t show up on my list, I’ve dug into each fund’s holdings to confirm consistency with the fund strategy.  Ultimately, I’m looking for funds that demonstrate a long-run commitment to well articulated objectives that are consistent with socially responsible investing.        

These “top picks” are not a static snapshot of the current SRI industry.  Rather, it is an evolving list that I hope to refine over time.  I welcome suggestions and recommendations.

Alternative Energy/ Resource

  • PowerShares Wilderhill Clean Energy Portfolio Fund (PBW)
  • Van Eck Global Alternative Energy (GEX)
  • PowerShares WilderHill Progressive Energy Portfolio (PUW)

Global/International

  • Calvert International Opportunities Fund (CIOAX)

Fixed income (Bonds)

  • Calvert Social Investment Bond A (CSIBX)
  • AHA Full Maturity Fixed Income Fund – Institutional Class (AHFMX)
  • AHA Limited Maturity Fixed Income Fund – Institutional Class (AHLFX)

Equity Large Cap.

  • Calvert Large Cap Growth I (CLCIX)
  • Pax World Growth (PXWGX)
  • MMA Praxis Growth Index Fund A (MGNDX)

Balanced Funds

  • Walden Social Balanced Fund (WSBFX)
  • Calvert Social Investment Equity Fund (CSIEX )
  • Pax World Balanced (PAXWX)

Environmental

  • Winslow Green Growth (WGGFX)
  • Portfolio 21 (PORTX)

Technology

  • Clean Edge U.S. Liquid Series Index Fund (QCLN)
  • PowerShares Cleantech Portfolio (PZD)

Religious Funds

  • Guide Stone Int’l Equity GS4 (GIEZX)
  • Amana Trust Growth (AMAGX)
  • Amana Trust Income (AMANX)
  • New Covenant Funds (NCGFX)
  • Ave Maria Mutual Funds (AVEGX)
  • LKCM Aquinas Fixed Income (AQFIX)
  • LKCM Aquinas Value (AQEIX)

Copyright © 2008 David van der Roest

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