Most fund managers don't dump a favorite stock when the firm makes a move to grow revenues and expand brand recognition. So when the Pax...
Most fund managers don’t dump a favorite stock when the firm makes a move to grow revenues and expand brand recognition.
So when the Pax World funds announced recently that the firm had reluctantly unloaded 375,000 shares in Starbucks — a longtime darling of the social-investment community — it shined a spotlight on the process of investing with an agenda.
Social investing — and I do not call it “socially responsible investing” because that infers that all other firms are irresponsible — is the investment art of “doing well while doing good,” choosing investments based first on a value system, and then on profit potential.
Screening out bad actors tends to make social funds more costly than other issues, and may dampen potential returns, although a number of social funds have stellar long-term records.
As the Starbucks situation highlights, however, being a “social investor” means different things to different fund companies.
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There are about 200 social-investment funds. Some funds invest based on religious principles, others follow their own value system. The most common screens, according to the Social Investment Forum, are for environmental and human-rights issues, plus alcohol, tobacco and gambling.
On the surface, those issues don’t seem to affect Starbucks. The Seattle-based coffee purveyor has a strong record on environmental issues, has promoted fair trade and much more. Couple those practices with phenomenal returns over the past few years, and you have precisely the kind of stock most social funds would go for.
But when Starbucks announced plans for a distribution and development deal with Jim Beam, the whiskey manufacturer, it left the social-investing comfort zone.
When it comes to products, social funds typically take issue with manufacturers, more than with retailers.
That means shunning the cigarette manufacturer, but not necessarily the grocery store chain that sells smokes. Only when a retailer gets a big percentage of its revenues from selling the items the fund manager avoids will the stock be screened out of the fund.
Jim Beam plans to sell a coffee-based alcoholic beverage, capitalizing on the popularity of the Starbucks brand.
Pax World’s prospectus says its funds will not invest in companies that “derive revenues from the manufacture of liquor.”
“It’s a bottle of alcohol with the Starbucks name on it,” says Anita Green, vice president of social research for Pax World, “and Starbucks is deriving income from it. … It’s a great company, and there is a lot we like about it and didn’t want to do this, but we’re not interested in cutting corners on our policy.”
For investors, the issue highlights the need to match agendas with social funds. (There are some social funds that do not buy government bonds because Uncle Sam pays for the “war machine,” and others that buy Treasuries because Uncle Sam gives money for the arts, AIDS research and more.)
Examine not only the screens a fund uses — you can find a list of funds and what they screen for at www.socialinvest.org — but also how those rules are applied, so you can decide just how strictly your values will be applied to the portfolio.
If the Pax decision makes you say, “I would have let my profits run,” it may also be saying that social investing is not the right choice for you.
Chuck Jaffe is senior columnist at CBS Marketwatch. He can be reached at firstname.lastname@example.org or Box 70, Cohasset, MA 02025-0070.