Evidence of this backlash surfaced last week. Texas Attorney General Greg Abbott issued a statement that requiring divestment on any grounds would be contrary to the Texas constitution. As his reasoning goes, pension funds are to be run “for the sole benefit of pensioners”, so any bar set on moral grounds amounts to a diversion of funds.

Pending legislation is currently being debated in the Texas Legislature as well as at several county and municipal levels. Thankfully, the Attorney General neither writes laws, nor issues legal rulings. In my opinion, the move was meant to signal to lawmakers that he will be ready and willing to take up the cause against the legislation if, and when, it becomes law. He disputes the idea that the Legislature has the right to direct the pension trustees. Legislators respectfully disagree.

As a resident of Austin, I have observed the Attorney General, a Republican, and generally thought highly of his law enforcement and his avoidance of partisan hackery. Most Texans admire him for overcoming his disabilities (the AG is wheelchair-bound). On this issue, however, he is deeply mistaken. Setting guidelines about the fitness of a company for investment is what trustees and their managers do. That is what it is all about. Many pension funds worldwide, for example, require that companies have a listing on a major exchange. Pink sheet companies are forbidden. Others have guidelines that only “investment grade” bonds can be owned. Mostly, I find it highly relevant to pensioners to assume that companies who aid and abet genocide might not have the best interest of pensioners on their minds. Companies that make the right moral choices generally turn out to be the best stewards of investment money. They are not mutually exclusive propositions.

But, wait. After reading the statement and dismissing it as the ramblings of an ignorant bureaucrat, I actually reconsidered my opinion. Nationwide, divestment legislation is a mish-mash, differing widely in scope, flexibility, and targets. Most enacted or pending legislation is targeting the regimes in Sudan, Iran, and North Korea. However, other smaller divestment movements exist around animal rights, sweatshop labor, non-union labor, alchohol, gaming, abortion (on both sides), and others. Taken separately, I can begin to understand the fear facing pension managers. Pensioners do not need trustees that have to look over the shoulders of their managers on every transaction, and managers should not need to check with their attorney every time they want to make a trade.

All divestment movements would be well-served by simplifying and unifying. The legislation should be about forcing pension trustees to hear the voice of the people. Making judgements on moral grounds should not only be accepted, but expected. We should abandon the efforts to push through every single divestment agenda. Instead , we should focus on protecting the trustees’ authority to set moral guidelines and defeating ideas such as those coming from the AG’s office.

The California Public Employee Retirement System (Calpers) has operated with a social agenda for a few decades, and remains a leader in both performance and respect nationwide. The blueprint is there.

Mark Brandon is the owner of First Sustainable, a registered investment advisory catering to socially responsible investors.

It is amazing that people fall for these things a mere six years after the meltdown of the "new economy" internet debacle. However, if you know how to look, they are not that hard to spot. Here are some tips to protect yourself:

1) No listing… no dice. Qualifying for a listing on the NASDAQ is not that hard for a company, and qualifying on the AMEX is even easier. Profits are not a requirement and neither is revenue, for that matter. This is a good rule, by the way. Some industries, especially in technology and medicine, require many years before a product is ready for market. It only takes about $40,000 in listing fees, $4 million in assets, and about 400 investors. If a company has what it takes to survive in the public markets, such as a solid management team, an interesting product or technology, and a reasonable business plan, it is also not that hard to find a reputable underwriter to help you meet these requirements. Usually, a pink sheet stock is on the pink sheets because the reputable underwriters took a look at the prospects and said "no way". This alone should clue you in to the highly speculative nature of the enterprise.

2) Is it news, or fluff? If you look at the company's web site, or widespread personal finance sites like Google Finance, you can usually spot the "Company News" link. In many cases, what looks like news is only a press release. Sometimes, it is more cleverly disguised, but it still amounts to fluff. If the source is Business Wire, PR Newswire, CSR Wire (which is for the SRI crowd), or something similar, then this "news" was written by someone with an agenda. It's not the wire's fault. That is what they do. Even if the source seems more real, see if the reporter is critical in the analysis. Many local papers are anxious to write about local "success stories".

3) …and you are? If the first two reasons have not scared you off, take a look at the management team. First off, there should be more than one, and they should all have different last names. You would think that investors would not be so gullible, but I was pitched just last week by someone hoping to fund a "blank check company" with one CEO and one director (the same person). What is likely to happen is that the "officers" will form a compensation committee (of one) and decide on a grossly exhorbitant salary for the management team. Second, it is reasonable to expect that company leaders have proven themselves to be good stewards of public money.

4) The Woody Allen Rule. Seriously, unless you are yourself a multi-bazillionaire, ask yourself why people would want you to join their country club. Like Woody Allen, you should resolve that any club that would have you as a member is not a club you want to belong to. The very best IPO's and private placements are reserved for Wall Street's best clients. This unfortunate fact is conspiratorial and wrong, but a fact nonetheless. It is a good rule to follow for ANY investment, whether real estate, "fine art" Dali prints, collectibles, or stocks and other securities.

5) … and you are (part 2)? A lot of companies that failed to ignite investor interest in other fields, are just changing their names and starting anew. Take, for example, Western Wind Energy, a company that was, until a few months ago, a mining firm. Another example is Newgen Technologies, also a former mining company, now on its third name. Neither company ever produced a nickel's worth of revenue.

Some of these scams have legitimate sounding names and even more legitimate business plans, but watch your wallet. As always, be diversified, keep investment costs low, maximize your company's 401(k), and be systematic in your saving. You will do just fine.

Mark Brandon is the owner of First Sustainable, a Registered Investment Advisory catering to socially responsible investors. His column appears in Green Options on Mondays.

However, other stories are more complex. Take, for example, the case of Dupont (NYSE:DD). After decades of resisting pressure about their ozone-depleting CFC's, the company learned that CFC-substitutes not only soothed environmentalists, but also increased profits. This caused the CEO to direct his team to find similar innovations. The result is a reduction in greenhouse gases on the order of 76 percent. Of course, as with many of the most astounding cases of reduction, it logically follows that they were heavy polluters to begin with. Other features in the article include Goldman Sachs (NYSE: GS) and their project financing innovations, Swiss Re (OTC:SWCEY) and its weather-derivative innovations, and Hewlett Packard (NYSE:HPQ) and its industry-leading e-waste initiatives.

Socially Responsible Investors often fall into three categories. Some object to owning companies involved in dirty businesses. For these, Dupont will never be acceptable. They do, after all, still make Teflon which has been shown to have ill health effects. Another category accept that, as long as the company leads its field, and makes genuine efforts (without greenwashing), it is worth owning. Waste Management (NYSE: WMI), for example, is clearly in a dirty business, but among waste companies, it has a pretty respectable agenda for accomplishing its economic reason for being without trashing the planet. The third category, and the one I find most exciting, is the customer who recognizes that there is money to be made in being more efficient.

Which one are you?

Mark Brandon is the owner of First Sustainable, a Registered Investment Advisory, catering to socially responsible investors. His column appears in Green Options on Mondays.

Image source: CNNMoney.com

Statement: SRI does not perform as well as traditional investing
Status: Mostly False
Explanation: As more people become of aware of investing responsibly, a lot of naysayers point out that social portfolios and funds have underperformed market indexes over the last few years. This much is mostly true, but it is not that simple. Following the tech bust and subsequent recession, the market enjoyed a cyclical upturn in 2003, which continues to the present day.

In this cycle, as in most early-stage cycles, the stellar performers have been commodities-based companies, extractive companies, heavy industrial companies, and of course, oil companies. Many socially screened portfolios have not participated with these companies because they tend to rely on socially troubling practices. Commodity players (some, not all) are in developing countries paying exploitative wages. Heavy industry pollutes. Oil companies are a root cause of global warming emissions. But, since overall market indexes incorporate these companies, SRI indexes have trailed.

However, with an over-weighting toward technology and health care stocks, SRI portfolios outperformed for seven years prior to the last upturn. Most of the run-up in those cyclical stocks occurred in 2003. So, any study of the matter that does not take multiple cycles into account is just plain incomplete. The best scholarship on the topic, represented by the Social Investment Forum’s Moskowitz Prize, shows that there is no real difference between screened and non-screened performance over the last 25 years. The verdict is that SRI neither underperforms, nor overperforms traditional investing on a financial return basis.

Statement: SRI is more risky.
Status: False
Explanation: Adherents to the Dow Theory claim that by narrowing your universe of stocks through social screening, you increase your risk by decreasing diversification. The problem with that notion is that, by definition, managing a portfolio requires narrowing your universe of stocks. If that is too much work or too expensive, just get an index fund and be done with it.

Statement: Companies do not pay attention to social investors.
Status: Mostly False
Explanation: Skeptics point to alcohol, tobacco, and gambling companies, long the target of social divestment strategies, and show that the social divestment movement has not really made them change their ways. This is probably true. Divestment probably does not work when a socially repugnant enterprise is the core business. In these cases, activists can only hope that they behave more responsibly, such as has happened with cigarette settlements, better labeling, etc.

Social investment activism has been very effective with companies that have repugnant practices in the everyday pursuit of their not-especially-repugnant businesses. For example, Nike (NYSE:NKE) was once shamed as a pariah of sweat shop labor. Today, that company is one of the most progressive companies on the issue. Social investors recently persuaded large publicly traded financial companies such as Goldman Sachs (NYSE:GS) and Lehman Brothers (NYSE:LEH) to pledge to clean up their project financing guidelines. I could go on and on. If the company's core business is not socially IRRESPONSIBLE in and of itself, SRI can have a huge effect.

Statement: National divestment campaigns do not work
Status: Jury is still out
Explanation: Social investors like to take credit for forcing companies to divest from Apartheid-era South Africa. The economic isolation was one reason that the white leadership eventually caved. I, personally, think that SRI contributed to Apartheid’s downfall, but realize that there were several other issues that contributed as well. Alas, this is a subject for another post, or even another Green Options blogger.

However, anecdotally at least, one can look at occasions of forced divestment through government regulation to see how this works. Companies have been forced to divest from countries with oppressive political regimes for decades. Forced divestment from Cuba, Iraq, Iran, North Korea, Libya, the former USSR, and its allies frankly has a mixed record. Economic isolation definitely caused some communist regimes to crumble. In other cases (Cuba, Libya, Iran), sanctions have not had much effect on destabilizing regimes. And, in others (Iraq, North Korea), it could be argued that sanctions have caused suffering only among the population while actually strengthening the targeted regimes. Having an enemy to rally against while at the same time exploiting black markets created by sanctions helped Saddam hold on to power, and is probably doing the same for Kim Jong Il.

The current campaign to divest from Sudan is a current hot-button issue. In my opinion, this is a case where national divestment could work. Oil revenues are giving the genocidal government its power. Foreign oil companies make those revenues possible. Make no mistake. The ethnic cleansing going on Darfur is all about claiming oil-rich land. If it were just about claiming political power (as in Cuba, or North Korea), I would be more skeptical that financial investors could change the minds of maniacs.

Mark Brandon is the founder of First Sustainable, a Registered Investment Advisory catering to socially responsible investors. His weekly column appears in Green Options on Mondays.

S&P Global Clean Energy Index: Representing 30 companies, 10 countries, and a total market capitalization of $117 Billion, this index is a composite of clean energy producers, equipment makers, and technology companies. The top 10 holdings are:

1. MEMC Electronic Materials (NYSE:WFR)

2. Vestas Wind Systems A/S

3. Renewable Energy Corporation AS

4. Suntech Power Holdings (NYSE:STP)

5. Solarworld AG

6. Germany Q-Cells

7. Endesa-Chile

8. Copel -PNB (Companhia Paranaense de Energia SA)

9. ACCIONA SA

10. Sunpower Corp.

S&P Global Infrastructure Index: Representing 75 companies, 22 countries, and an aggregate market cap just shy of $1 Trillion dollars, this index focuses on utilities, transportation and energy. It's top 10 components are:

1. Abertis Infraestructuras

2. E.On AG

3. Autostrade SPA

4. TransCanada Corporation

5. Macquarie Infrastructure Group

6. Williams Cos

7. Suez SA

8. Kinder Morgan

9. Enbridge Inc

10. El Paso Corp.

S&P Global Water Index: Representing 49 companies, 14 countries, and $227 billion in aggregate market cap, this index focuses on water utilities, water equipment makers, and water infrastructure. It's top 10 components are:

1. Veolia Environnement

2. Suez SA

3. Mitsubishi Heavy

4. Kubota Corp.

5. United Utilities

6. Danaher Corp.

7. ITT Corporation

8. Nalco Holdings

9. Pentair Inc.

10. Severn Trent

Although not perfect, these indices do a respectable job of separating out companies whose clean tech activities are only a subsidiary of a larger company. For example, even though Shell Solar and BP Solar are giant players in the solar space, it's impossible to buy their stock and not be entangled primarily with their non-renewable businesses.

The way to take advantage of these indexes is to find a broker or adviser that can handle what is called a Separately Managed Account (SMA). These accounts allow you to purchase underlying components of indices to more or less mirror its performance. Ideally, SMA's require $250,000 to run efficiently without getting killed by transaction costs. With less than that, stick to the existing clean tech ETF's, like the Powershares Wilder Hill index.

Mark Brandon is the owner of First Sustainable, a registered investment advisory catering to socially responsible investors.

If successful, pension funds representing teachers, police, firefighters, and other government employees would have to dump billions of dollars in equity in the offending companies. Presumably, the tidal wave of supply in unwanted stock will force the companies to divest from Sudan, or at best, force the companies to in turn force the regime to change its ways.

On the face of it, the decision to divest seems to be a clear cut moral choice, but in practice, conflicts of interest coupled with questions about whether divestment works not only stalls the pending legislation, but is also overturning existing legislation.

On the conflict question, opposing forces claim that a law forcing divestment conflicts with existing laws requiring fund managers to act in the best interest of the shareholders. If the companies in question generate better than average returns, the thinking goes, then fund managers have neglected their fiduciary duty to seek out the best returns. The fund managers, who are opposed to the law, point out that the companies, most of whom are from the oil and oil services sector, have not only outperformed the rest of their portfolio, but also the benchmark indexes. This much is true. Socially responsible investors must always concede better returns when heavy smokestack industries are in favor.

The last few years have seen superior returns from oil companies. However, when those companies are out of favor, SRI portfolios perform better. SRI portfolios are more heavily weighted toward technology and healthcare stocks, so for the seven years prior to the recent run-up in oil prices, SRI-screened portfolios performed better.

Divestment proponents lost a key battle on the conflict front. On February 23, a federal judge overturned Illinois' law, which was generally regarded as the most progressive, but also the most restrictive. The judge said such a law violates the federal government's authority to set foreign policy. Less restrictive laws have passed judicial muster, though.

Whether divestment works, or not, is also in question. Proponents point to the institutional investor pressure placed on the Apartheid-era regime in South Africa as a key reason for that regime's fall. Opponents claim that the reasons behind Apartheid's fall are more complex, and also say that excess supply caused by dumping will just be scooped up at bargain prices by investors with less scruples.

I can neither give concrete evidence that divestment does or does not work. However, if you own shares in the offending companies, whether through your pension or directly, then you personally are profiting from genocide. So, to me, it does not matter if it works. I would want no part of it. Companies such as Oil and Natural Gas Co. of India, China Natural Petroleum Corp., and Schlumberger (NYSE:SLB) should pay the price of propping up murderers.

Mark Brandon is the owner of First Sustainable, a socially responsible investment advisory. His weekly column on SRI appears in Green Options on Mondays.

Market meltdowns, like the one we saw last week, and the one that may be forthcoming this week (as of this morning, the Asian markets took another nosedive), are no reason to panic.

In fact, unless you are on the cusp of retirement (or currently retired), market corrections are mostly positive news. Corporate profits are at multi-year highs. U.S. corporations have as more cash on hand than at any time in history. Because of the first two reasons, dividends and buybacks are also on the rise. The correction allows you to buy these assets and cash flows for that much less.

Whether you invest responsibly or not, most individuals need to keep these four principles in mind:

• Be diversified. Unless you have a few million and do not need to work, you should not be concentrated in any one company or asset class. Even if you are getting generous options grants from your employer, you should periodically diversify to protect your downside. Proper allocation is where a good financial adviser can really earn his or her pay, because arriving at such an allocation requires taking into account your life stage, your goals, your current assets, your income, and a lot of other factors.
• Be low cost. The average actively managed mutual fund charges an astounding 1.57 percent of assets each year. If you figure that stock returns historically average 8 - 12 percent, that is a lot of money for no risk. Still, that figure would be fine if they consistently outperformed the market benchmarks. Alas, they do not. While about 40 percent of actively managed funds beat their benchmark in any one year, less than 15 percent beat the benchmarks over 5 years. If you consider that index funds charge 60 to 90 percent less than 1.57 percent, you might as well be content with market returns.
• Maximize your company's 401k plan. Nowhere else can you get a tax deduction, tax deferral, and free money in the form of a company match. Think about it. A company match means that you get a 100 percent return automatically. No investment vehicle in the world can offer that kind of return without risk. Even if your company does not have a match, the tax deduction can enhance your dollars by 15 to 35 percent. Still pretty good.
• Be systematic. Whether you resolve to invest once a week, once a month, once a quarter, or whatever, be disciplined about saving a set amount. This is yet another reason to utilize your 401k plan, because money will be taken out of your paycheck every time you get paid, and you will not even miss it. Systematic savings plans also allow you to take advantage of lower prices when the market corrects.

If you follow the above principles, then most of you will do just fine. Concentrate on making money through your employment or entrepreneurial endeavors. The more one obsesses over making money in the market, the more likely they are to start market timing, and believe me, almost everyone who tries to beat the market with timing fails. Even the professionals.

You might be wondering which, if any, vehicle accomplishes this task. My favorite mutual fund is the Vanguard FTSE Social Index Fund (VFTSX). Based on the FTSE4Good Index Series, it focuses on environmental sustainability, human rights, and corporate governance. The management fee, at 25 basis points (versus the aforementioned 157 basis points for actively managed brethren), is the lowest among all SRI funds. Versus non-screened indexes such as Vanguard's S&P 500 Index Fund, this fund is a little more heavily weighted towards technology and healthcare companies, but not so much that it would wreck a sound asset allocation.

• Wal-Mart Sustainable Packaging Value Network. The company is leading the largest effort in the retail industry to encourage sustainable packaging not only at its own stores, but throughout its value chain.
• ASDA, Wal-Mart's British subsidiary and the 2nd largest grocer in that country, has pledged to reduce its packaging by 25 percent by the end of 2008.
• The company has pledged to sell 100 million compact fluorescent lights, a goal which, if achieved, would save American consumers $3 billion in energy costs, and prevent the emissions equivalent to a fleet of 700,000 vehicles.
• The company has recently become the 2nd largest private purchaser of renewable power, second only to Whole Foods Market.
• The company is testing several concept stores, designed to use zero net energy. Succeeding would not only reduce Wal-Mart's giant impact, but it would light the way for other big box retailers.
• Wal-Mart has long had a favorable reputation among SRI investors who make diversity their social criteria. The company is among the largest employers of black and hispanic managers in the country, far exceeding some of its more unionized critics.

I am sure I missed some other initiatives, since CEO Lee Scott has been on a whirlwind tour promoting them all. If Wal-Mart even partially succeeds in accomplishing what it has announced, the net impact will be greater than the comparatively tiny initiatives of Target, Costco, Kohl's, Sears, and KMart combined. If British Petroleum (NYSE:BP), an oil company for Pete's sake, can be sainted in SRI circles, why should Wal-Mart continue to get such a bad rap?

In addition to BP, large companies have shown before that they can change their stripes. Nike (NYSE:NKE) used to be known as a sweatshop pariah. Now, they lead the charge against sweatshop abuses. Dell, Inc. (NASDAQ:DELL) faced e-waste picketers not more than four years ago. Now, they have the most comprehensive e-waste policy of any computer manufacturer. Denny's (NASDAQ:DENN) was once handed the most severe punitive judgement ever for discrimination. Now, they are getting awards.

What do you think? Is this Greenwashing, or has Wal-Mart gotten the religion?

Yesterday, General Electric (NYSE:GE) lost a shareholder bid to quash GE's lobbying efforts to better regulate carbon emissions. GE has a large "Ecomagination" business selling all manner of climate friendly products. The problem is that, even though Ecomagination is a $10 billion business and is one of GE's fastest growing divisions, it is a small fraction of GE's overall $160 billion business.

In this case, an activist investor is on the other side of the table, encouraging GE to NOT lobby for such regulations, on the thought that it could harm the rest of GE's portfolio. This does not mean that the proxy proposal will win. It just means that GE can not block it from coming to a vote.

Is this an investor activism backlash?

Mark Brandon is the owner of First Sustainable, a socially responsible investment adivsory, and author of The Sustainable Log blog and newsletter.

This column is not about ethanol, however, but instead about following the herd when it comes to clean tech investing. Even though I have mixed feelings about ethanol (a subject for another post), do not get me wrong. Clean Energy is going to be THE defining industry of the next few decades. It will be to the 21st century what the automobile was to the 20th and the railroad to the 19th. The problem is that just about everybody has figured that out by now, giving rise to valuations have no basis in reality.

Some fresh thinking is in order. If you still want to capitalize on a 21st century mega-trend, you will need to start thinking downstream. Instead of investing in the darlings, think about how the trend will affect other companies. For example, Jim Rogers, the famed commodity investor and world traveler, mentioned on CNBC that one of his best oil bets was actually in sugar companies. Why? Sugar cane is the primary feedstock for ethanol in Brazil. Subtrends, too, will provide ample opportunity. High corn prices, abundant wind resources, and other incentives will bring prosperity to rural American unseen since the 1950's. Which companies can benefit from that? Retailers based in the Heartland? Car and Truck Dealers? Real Estate Investment Trusts?

Solar stocks are a bit bumpy now, too. The recent rise in the price of silicon has been well-chronicled. Which companies are positioned to either provide a substitute, or service a workaround? This much, I know. The solar bandwagon is here to stay.

The rising price of corn might provide opportunities for an investor. It has gone from $2 to $4 per bushel since 2004, putting undue stress on several other economic factors. I am afraid that investing in corn commodities, corn agribusiness, and other corn-based businesses may have already experienced the price run-up. However, it won't take much before, for example, soft drink manufacturers switch their formulas back to sugar. In the 1980's, the beverage makers decided to use corn syrup thanks to the high cost of sugar (caused by the type of protectionism that is now affecting corn). Will soft drink makers and confectioners benefit or suffer? How about bakers? The tortilla-based economy just might make a large switch to flour, instead of corn, as Mexicans riot over the skyrocketing price of corn tortillas. Far-fetched? For the first time since Aztec times, the Mexican government is now importing corn because so much of their domestic crop is earmarked for ethanol production.

The Clean Tech megatrend does not mean the laws of supply and demand are going to take a vacation. You still need to think a few moves ahead of everybody else to make a buck.

What do you think? Where are the undiscovered opportunities, the less glamorous by-products of the Clean Tech revolution?

Mark Brandon is the owner of First Sustainable, a socially responsible investment advisory, and the author of the Sustainable Log newsletter and blog. His columns appear Mondays at Green Options.

However, if you wish to invest responsibly, your plan may not have any SRI (socially responsible investing) options. That does not have to be the end of it. Let me share with you a little secret. These plans are SO easy to administer these days, that it is now practical for a firm of ANY SIZE to have a 401(k) plan. My company administers 401(k) plans for small businesses, and to add another fund to our roster, it takes about 30 seconds of plugging in the fund name and CUSIP number. That's it.

Now… it is not exactly that simple for some plans. Plan administrators, especially those associated with payroll firms, are known for literally gouging their customers with fees for every little thing. This includes taking 30 seconds to expand the roster lineup, and then pretending that it was some high level consulting.

I recently concluded a 401(k) takeover plan where the 23-employee firm had only two participants in the 401(k) plan, the owner and his partner. With about $90,000 in total assets, they were being charged about $6,000 per year by ADP. This is unconscionable. Congress recently took some actions to halt the gouging, but that is a subject for another post. If expense is the HR person's objection, they need to re-evaluate their plan provider. Simple web-based programs are now scalable and so easy to use. They should not require massive fees.

So, why are SRI options typically not available? Because nobody asks for them. All you need to do is make your HR Department aware of the demand, and it CAN BE accomplished in no time. Of course, some companies spend months evaluating their 401(k) plans (usually at huge expense by the aforementioned highly paid consultants). That is ok. Even at large companies, HR departments do not receive that much comment about their fund lineup. Even one voice may be enough to accomplish the goal.

So, speak up. Your co-workers will thank you.

Mark Brandon is the founder of First Sustainable, a socially responsible investment advisory, as well as the author of The Sustainable Log blog and newsletter.

Regular readers of this column might conclude that I am obsessed with the Gates Foundation (see previous posts, More On Gates Foundation and Social Investing and An Open Letter to Bill Gates). The controversy has raised the level of dialogue about socially responsible investing such that it is still worthwhile. Nonetheless, this will be my last post on the topic.

I would never want to be accused of being so myopic about my beliefs that I never take into account opposing viewpoints. The Wall Street Journal posted an op-ed piece praising the anti-SRI position of foundation head, Patty Stonesipher (because WSJ is behind a firewall, I link to a PDF). In fact, author John Entine, trashes the whole notion of socially responsible investing.

Fair enough. However, to rebut his position, one needs to take into account, a much more expansive definition of SRI. Entine sticks to the antiquated notion that SRI is all about what we call negative screening. This means that a portfolio manager filters the available universe of instruments according to some narrow social criteria. The classic strategy of weeding out companies engaged in alcohol, tobacco, or gambling falls into this category.

Entine uses some dubious studies to support his position. I have evaluated all of the studies, and most of them have a fatal flaw: looking at a limited timeframe. For example, Entine claims that SRI-screened investments under-perform their non-screened peers by .31%, which is admittedly a sizable chunk. Furthermore, it is true that SRI investments have underperformed non-screened investments FOR THE LAST THREE YEARS. This is easily explained. SRI screens typically filter out heavy cyclical industries. Why? They tend to be polluters, like oil companies. It would follow that over the last three years, with an upward economic cycle and increasing oil prices, that these cyclical stocks would outperform. However, for the previous seven years prior to 2003, the situation was reversed. With a heavier concentration in technology and health care, SRI portfolios outperformed their non-screened brethren. My best guess, after evaluating the best academic studies out there, is that there is a negligible difference over the long term between screened and non-screened portfolios.

I can partially concede one point in Entine's piece. We do not know if divestment campaigns truly make a difference. The SRI crowd is quick to take credit for the fall of Apartheid, thanks to divestment campaigns. Even I am hesitant to take that much credit. However, I am not willing to say that they make NO difference, either.

The real shortcoming of Entine's (and Stonesipher's) thinking is that he fails to take into account PROACTIVE screening. This involves seeking out the companies that are positioning themselves for the macro-economic megatrend of the 21st century, preparing and capitalizing on a carbon-constrained world. Businesses and economies are discovering all over the world how resource efficiency and sustainability are not only saving money, but presenting new business opportunities on a massive scale. This aspect of SRI excites me the most. Sustainability principles have the potential to upend our most pervasive industries, including automotive, energy, real estate, and finance. Seeking out the companies that lead this charge will indeed be rewarding.

Mark Brandon runs First Sustainable, a socially responsible investment advisory and financial planning firm. He also authors the Sustainable Log blog and newsletter.

Considering Green Options is still in beta phase, it is doubtful that the brass at the Foundation actually read my letter, but the very next day, the Foundation issued a statement indicating that they would formalize the process by which social and investment criteria are weighed. The hope among the social investment set was that this move would stimulate other large foundations to identify inconsistencies between corporate behavior and charitable missions.

Then, earlier this week, the Foundation issued another statement (this link should not require registration) stating that they would keep their current methodology. "… it is naive to suggest that an individual stockholder can stop that suffering," said foundation executive Patty Stonesipher. "Changes in our investment practices would have little or no impact on these issues."

Look, if the Gates Foundation just does not want to apply social criteria, that is fine, but this statement is just plain wrong. First of all, a $30 billion foundation is hardly an "individual stockholder". Executives notice when one of the largest shareholders on the planet raises its hand at corporate meetings. Second, the Gates Foundation is not just any foundation. The largest foundation in the world would serve as an example to all other charitable organizations. Together with government pensions and activist investors, the effect on rapacious corporate behavior could be enormous. Third, her statement sounds like she is saying, "well, we can't make a difference, so why try?" We know that can not be the case, or else Bill and Melinda would spend their money elsewhere (like Paul Allen, who buys billion dollar yachts).

I am on your side, Bill and Melinda. Social investing can be just as profitable, if not moreso, than the other way. Without spending a nickel, incorporating these principles can have an amplified effect for good.

Mark Brandon runs First Sustainable Investment Advisers, dedicated to helping people invest responsibly. He also authors the Sustainable Log blog and newsletter.

I hope you are doing well. It is with dismay that I recently read in a Los Angeles Times story about how the investments of the Bill and Melinda Gates Foundation might be working against the good works that is the foundation's mission. The story chronicles one 14-month old infant, Justice Eta from Ebocha, Nigeria, who has been fortunate to have received immunizations against polio and measles thanks to the Gates Foundation. Unfortunately for little Eta, he has been suffering (and will likely continue to suffer) from respiratory illness brought on by the refining activities of several oil companies. These companies count the Gates Foundation as one of their largest investors. The problem effects large swaths of the Nigerian population. I will not re-cap the whole story, but it is worthwhile reading.

I am pretty certain you are aware that, at $35 billion, the Gates Foundation dwarfs the next largest charitable foundations by a factor of six. Moreover, pledges from your own personal fortune plus the historic bequest last year from your pal, Warren Buffet, mean that this foundation could soon be worth $100 billion. There has not been a force for good on this scale since … well … ever! It is entirely possible that your legacy from this foundation will eclipse the gargantuan business legacy of the Gates' and Buffets.

Bill, I would never bash any individual or any organization that does this much for humanity. I sincerely applaud you, Melinda, and Warren for your epic generosity, well thought out goals, and your commitment to determining where your charitable dollars will generate the most bang for the buck. But…

What I find particularly amusing is a quote from one of your policy wonks pointing out a Chinese Wall between the investment and giving wings of the foundation. One side does not concern itself with the other. One side's mandate is to seek out the "highest returns" while the other focuses on who, when, and how much to give away. Since you spent much of the 1990's asserting that a Chinese Wall existed between OS and Applications at Microsoft (much to the disbelief of others), isn't it ironic that your foundation now claims that another Chinese Wall cancels out some of the foundation's good works?

Bill, please take this advice:

1) Investing responsibly does not mean sacrificing returns. The best academic studies have shown this over and over again.

2) If you must hold those companies, use your size and breadth to get active at shareholder meetings and stop the most repugnant practices. This would help the Foundations goals and help the investment returns.

3) You can still profit from rising oil prices while not engaging in extractive, highly polluting industries. You should already know this from your personal stake in Pacific Ethanol (NASDAQ: PEIX).

4) If you take the lead in making corporations more responsible, other charitable foundations and public investment institutions will follow. You can magnify your good works many times. Moreover, if you can show the mostly spineless mutual fund complexes that social activism can be profitable, they will follow, too.

5) Despite many opinions to the contrary, most of which are expressed by the sour-grapes McNealys, Ellisons, and Andreesens of the world, I sincerely believe that Microsoft is a beacon of social responsibility (yes, seriously). I firmly believe that these activities have been taking place without your knowledge (unlike — ahem — those other allegations from the anti-trust trial… wink, wink). Your "returns at any cost" managers have just been shortsighted. However, since you know now, the status quo just will not do.

Oh, and if your investment managers need some help determining which companies have lousy social performance, have them give me a call.

Give my best to Melinda. Do well by doing good.

Mark

Mark Brandon is the managing partner of First Sustainable, a socially responsible investment advisory, and the author of the Sustainable Log blog and newsletter.

For many, making your voice heard with the management of companies or funds in your portfolio is best achieved by voting with your feet, or divesting your portfolio of any companies that conflict with your social criteria. XYZ pollutes the Hudson River, so you sell XYZ, theoretically depressing the stock price. For others, this method is too passive. How is management going to know that you sold because they are bad citizens? After a few decades of anti-tobacco investing, those executives have not come any closer to abandoning their lethal product.

The first step to becoming an activist investor is to vote your proxies. Most people do not even realize that by owning a fund or stock, you are entitled to vote at company meetings. Your broker should be forwarding you the company proxies which contain ballot items that affect the direction of the company, including who serves on the board of directors. Since frightfully few investors actually bother to vote, sending in your vote gives you a disproportionately strong voice.

Just like in our democracy, it is easy to wonder if a small fry investor's vote actually counts, and I am afraid to say that this is true on some levels. One share equals one vote, so in most large companies, management tends to ignore small investors. That is why you should pay attention to the large investors in a company. You can find out who are the top 10 institutional investors from many publicly available sites, such as Marketwatch and Morningstar. Pension funds, especially those benefitting public employees, are likely to agitate on moral grounds. Sadly, large fund complexes tend to vote with management. This is a scandal in itself, but that is the subject of another post. Aligning yourself with the actions of the larger investors helps you become part of a political party, so to speak, instead of the Ralph Nader "crazy voice in the wilderness".

Of course, voting your proxies are not that interesting if the issues that matter to you are not even on the ballot. Surprisingly, there is no uniformity among companies with regard to this issue. For some, you may find resistance to ballot initiatives, especially one that threatens management. Still, for others, getting on the ballot may just mean phoning the investor relations department and proving that you own at least one share. Annual company meetings, which are required of all public companies, are usually not that imposing. Coverage of the annual meeting of Berkshire Hathaway (NYSE: BRK.A) may make you think that all such meetings require the use of a convention center.  Actually, most annual meetings take place in a venue no bigger than a hotel ballroom, and some are so sparsely attended that they happen in the company cafeteria.   At these meetings, just raising your hand and speaking out is the best way to get your point across. Going to the meetings may also allow you to interface with the aforementioned large investors, too. There is no reason to be intimidated by these people. Management works for you, the shareholder.

Does any of this work? Does it matter to the issues? Does it matter to the share price? The answer to this is a resounding "yes". The winner of the 2006 Moskowitz Prize (a UC Berkeley prize for social research) found a measurable wealth creation effect for the beneficiaries of CALPERS, the California pension fund which happens to be the largest and most active institutional investor. Shareholder revolts are behind some of the biggest issues of our time. SRI forces can take credit for the divestment from South Africa, which in part, brought down Apartheid. Activist investors have forced electronics makers to enhance their recycling efforts. Activists have shamed sweatshop operators into changing their ways. Nike (NYSE: NKE), which once was a sweatshop pariah, is now a leader in the fight against sweatshops. These are but a few examples. It is clear that agitation is both effective and profitable.

Get out the vote.

Mark Brandon is the founder of socially responsible investing advisory First Sustainable, and the author of the Sustainable Log newsletter and blog.