Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, May 30, 1993 TAG: 9305280339
SECTION: BUSINESS PAGE: B-5 EDITION: METRO
SOURCE: BY WILMA RANDLE CHICAGO TRIBUNE
DATELINE: CHICAGO LENGTH: Long
So says a new study by Covenant Investment Management, a 3-year-old Chicago investment firm specializing in "socially responsible" investments.
The survey tracked the financial performance of 1,000 of the country's largest firms over a five-year period, from 1988 through 1992. It measured their financial performance in areas ranging from annual dividend yield and stock volatility to price-earnings ratios.
Financial returns were measured against a list of 36 "corporate responsibility" criteria, which were broken down into seven responsibility areas - community, competitors, customers, employees, environment, shareholders, suppliers and sensitivity on social issues.
The study found that 200 companies ranking highest on Covenant's overall social responsibility scale had outperformed the Standard & Poor's 500-stock index in the five-year period studied, said Anthony J. Carfang, Covenant's president.
"Over the five years ended Dec. 31, 1992, the S&P 500 was up an average of 15.9 percent a year," he said. "Over that same time, the Covenant 200 was up 16.6 percent."
"To put it in real terms," Carfang said, "let's say that you were a pension fund and you had invested $1 million in the top 200 companies. By the end of the five-year period we tracked, that money would have increased to $2.657 million. It would be worth only $1.864 million in the bottom companies and $2.093 million in the S&P 500. So we're talking about significant differences here."
Carfang said the conclusion reached from the study is that "responsible behavior clearly does not hurt a company's financial returns and, depending on how management focuses its social concerns, it can significantly enhance returns."
The study is being heralded as a breakthrough offering much-needed quantitative data, by those involved in the still-fledgling field of socially conscious investing, an area in which investment choices are driven by ethical and moral, as well as financial, concerns.
"This study is extremely significant," said Michael P. McGillicudy, who heads the recently formed Responsible Investment Group. Located in Chicago's Loop, the investment advising firm specializes in socially conscious investing.
"For one thing," McGillicudy said, "this is the first study to focus on large companies. In the past, the concept of socially responsible investing has always been applied to small and midsize firms.
"The companies on the Covenant list are the sort that people consider the bedrock of American business."
Issues of social concern covered by Covenant ranged from equal opportunities in hiring and promotion to investment in South Africa and Northern Ireland, as well as animal testing, use of nuclear power, environmental awareness and community involvement.
And the biggest surprise of the survey?
"The biggest surprise to us was that our top 200 companies were financially competitive," said Carfang. "The traditional notion has been that social responsibility means sacrificing financial returns. Or that social responsibility is independent of financial performance. What we found was that there is a symbiotic relationship between these two things. We believe they are really intertwined."
And in certain areas, the data was very telling, he noted.
For example, when it came to equal employment hiring of minorities and women, the stock performance at companies ranked high in this area was up more than 18 percent. Companies that ranked poorly in this area had a growth rate of less than 14 percent.
Carfang said the study's results disprove the traditional notion that an investor cannot make money and also remain true to social and moral convictions. Or, that if they want to do socially conscious investing, they have to invest in small companies.
That was exactly why his firm decided to track the country's top 1,000 firms, he said.
Several Illinois-based firms made the top 200 list, including Ameritech Corp., Amoco Corp., Baxter International Inc., First Chicago Corp., Quaker Oats Co., Sears Roebuck and Co. and Sara Lee Corp.
Though some of the companies on the list might seem oddly placed to social activists, Covenant's measurements say otherwise. Oil-conglomerate Amoco, for instance, got high marks for its civic, workplace and employee relations, Carfang said.
The same was true for retail war horse Sears, which, despite some much-publicized troubles, still got high marks for investor return as well as its "excellent supplier relationship, its great sensitivity to its employees and its civic involvement," he said.
Baxter International is ranked as one of Covenant's top 15 companies in the nation, based on responsibility to customers in areas such as fair pricing, product safety and product quality - despite being forced to pay a federal penalty relating to the Arab boycott of Israel.
"This is just one set of criteria," said Carfang about the customer responsibility category. And, he noted, "Baxter got penalized in our scoring system for that [the federal charge]. Our process recognizes that no company is perfect, and we're looking at how tradeoffs get managed across a number of different areas."
The Covenant survey results come at a time when the concept of socially conscious investing is starting to take root nationally, according to investment managers touting it as a specialty.
The concept began to sprout, particularly on the East and West coasts, in the mid-1970s and early '80s when social activists began decrying U.S. corporate investment in South Africa because of that country's apartheid policies.
Socially conscious investing is no longer the sole province of activists and radicals.
"What we are finding is that when it comes to investing, more and more people are not just making pocketbook decisions, they're also making moral decisions about moral issues," McGillicudy said.
Carfang predicts interest in the topic will grow.
For one thing, he said, investors today, many of whom are past 40 and who have money to invest, came of age in the socially active 1960s.
"As they begin to invest their money, they are also raising issues of congruity," he said. "And many of them are asking themselves, `How do I feel about profiting from enterprises that are inconsistent with my core values?"'
by CNB