Green Yield

As I wrote in my first blog, Pax World was the first Socially Responsible Investment [SRI] Mutual Fund - and the first financial venture to introduce this new concept to the world of investing. Dr. Luther Tyson and the late Dr. Elliott “Jack” Corbett of the United Methodist Church in Washington DC founded the fund in 1971 and named it “Pax” World to show that it would not invest in war-related industries.

The Pax World Balanced Fund, as its now called, also introduced the first social screens against tobacco, alcohol, and gambling. In October of 2006 Pax was compelled to change its stance a bit, and move away from a “zero tolerance “ position when two of their holdings [Starbucks, who agreed to introduce a coffee liqueur with Jim Beam and Yahoo! who was found to allow a bit of online gambling] no longer fit their SRI screens. Pax had to sell its holdings in each of these stocks, but since these activities amounted to a very small fraction of the business of each of these companies, Pax amended its own rules.

I have owned some Pax World stock for over 15 years and found it to be rather conservative, but solid in a down market. It is a No-Load fund [no sales charge] and will accept just $250 as a minimum investment, so it would be a bargain for the conservative part of your portfolio. Although its been around for a while, only four more funds have been added to the Pax World Mutual Fund family: the Growth Fund-1997, the High Yield Fund-1999, the new Value Fund-2007, and the Women’s Equity Fund [created in 1993 to advance the social and economic status of women in the workplace through the collective power of individual and institutional investors.] just acquired by Pax in October 2007. Pax Funds is the second largest SRI fund family.

Morningstar rates these funds: Balanced****, High Yield***, Womens Equity***, Growth**, Value NR [Top =5 stars, lowest = 1 star]. In comparision to other SRI funds, Pax funds rate above average for their respective mutual fund categories.

In looking at the top ten holdings for each portfolio, no red flags present themselves. Some of the largest holdings are: Cisco Systems Inc, CVS Caremark Corp, Thermo Fisher Scientific Inc, BP, Whiting Petroleum Corp, and Nokia. Its a peaceful fund group.

I picked up an SRI book at the library called The Blue Way: How to Profit by Investing in a Better World [c2007] by Daniel de Faro Adamson and Joe Andrew. My first thought was: why blue instead of green? By page 6 it was clear "blue" stood for the Democratic Party [The Green Party I understand, but why are Republicans red & Democrats blue?] Since one of the authors, Joe Andrew, is a former national chairman of the Democratic National Committee, this is a political book.

What does this have to do with investing? Its not a short answer. The concept behind the book is based on two fields of research. First are criteria for social responsibility: ***Environmental Sustainability ***Responsible corporate governance ***Respect for human rights ***Diversity in the workforce and in leadership ***Fair treatment of all employees ***Avoidance of products that cause great social harm. Somehow this adds up to 9 fundamental social responsibility benchmarks/screens. This research is done by KLD (Peter Kinder, Steven Lydenburg, and Amy Domini) Research & Analytics, Inc, the largest, most experienced, and most prestigious research firm in the Socially Responsible Investment field, so it is reliable.

The second field of research, defining Blue or Red Companies, is determined by contributions. “In gauging whether a company gives blue, we measure all the donations from a company’s political action committee (PAC) and political contributions from its top three executives over the current and previous four election cycles.” Just 76 of the Fortune 500 (15%) companies and only 371 (19%) of the Russell 2000 Index of small-cap companies are “blue.”

So here’s the point. Research has shown that "Blue" companies are more socially responsible, more progressive, less likely to have PAC’s, and outperform red ones in the stock market. Investing in blue companies is best, serving the triple bottom line: planet, people, and profit. The book gives lots of examples and cites an independent research firm, Competition Policy Associates, as a double-check to validate these findings.

Now they have created a mutual fund, the Blue Fund [where you can find an extensive listing of blue companies] a Buy Blue campaign, and a whole "Blue Sector" consciousness. Naturally you can find futher info & discussion on the web, especially close to national elections. One “red” site is asking followers to boycott blue companies.

A few 100% Blue companies: Barnes & Noble, Black & Decker, Google, Levi Strauss & Starbucks,
A few 100% Red companies: Dominos Pizza, Lowes , Kohls, PetSmart, & Nordstrom

While I found this book useful - it fits my perceptions of politics and SRI corporations - I hope this new concept does not prove to be divisive. I don't want to think of most companies as blue/Democratic or red/Republican, especially those companies whose contributions are less than 2/3 blue or red, and there is no reason to think that all "blue" companies are “green” and all "red" companies are not.