Say your prayers, CFOs. Faith-based investing groups are back en masse this year to spread their messages to managements and boards.
For finance chiefs who want to maintain or build a wide investor base, it’s become increasingly important to monitor the agenda of such groups as the Interfaith Center on Corporate Responsibility. The ICCR, which has about $100 billion in assets, is a coalition of 275 institutional investors that includes denominations, religious communities, pension funds, health-care corporations, foundations, and dioceses.
In years past, faith-based organizations delegated their proxy votes to money managers, generally without advocating particular positions on company policy. To be sure, the groups have been known for asking their fund managers to screen out from their portfolios so-called “sin stocks” that don’t conform to certain aspects of their specific religious or socially-responsible-investing ideals.
These days, however, more faith-based trusts have set up committees that will set voting proxy guidelines for money managers, explains Phil Maisano, chief executive of EACM Advisors LLC., a Mellon Financial subsidiary. That active approach is putting executive compensation and other “lightning rod” issues on the table, he says.
The ICCR is also taking some issues in new directions. Take the matter of proper adherence to international labor standards, a lobbying issue that the ICCR has targeted for reform at apparel makers like Gap Inc. In 2005, the group will push the initiative at Apple Computer.
The ICCR’s initiative on the labor issue focuses on making sure that the companies have established policies and procedures to protect against child and forced labor, among other human-rights violations .The shareholder group will also ask Apple to develop independent monitoring to track its progress in labor reform and make the results public, Wolf says.
Other hot-button issues the ICCR is taking a stand on include global warming, food and water supplies, environmental justice, corporate governance, and access to capital and health care.
To be sure, some faith-based shareholder groups still bar their managers from buying shares in some companies simply on the grounds of the companies’ lines of business. The New Covenant Funds, with $1.5 billion in assets, avoids companies dealing in tobacco or alcohol or those demonstrating abusive labor practices.
New Covenant has also started to monitor mainstream companies that may be offering gambling and pornography on the Internet, according to Bob Leech, chief executive of the Presbyterian Church (USA) Foundation, which runs the faith-based fund.
Some groups, too, are pressing forward on more-conventional governance issues. Just last month, the General Board of Pension and Health Benefits of The United Methodist Church spoke with the following companies about such matters: Baxter International, on public reporting on sustainability; Citigroup, on derivatives accounting; and Apple, the Walt Disney Co., and McDonald’s Corp., on global vendor standards. David Zellner, chief investment officer of the group, notes that it is targeting about 25 companies for its reform efforts this year, about the same as in 2004.
At the same time, the Methodist shareholder group automatically screens out companies that derive 10 percent or more of their revenue from sales in alcohol or pornographic products that go against church law. “Then there are the other companies engaged in activities that we want to institute change for,” says Zellner. “We’ve been very concerned about HIV/AIDS in Africa and how companies are addressing the epidemic.”
The ICCR is already active in that area, having campaigned on the issue of HIV/AIDS. Last year, it targeted Merck, Pfizer, and Abbott Labs, among others, to argue that most businesses have ignored the dampening effects of AIDS on sales in key markets like China and India.
The interfaith group also submitted a shareholder proposal to the Coca-Cola Co. asking executives to study the effects of HIV on the company’s growth projections. The resolution received a 98 percent yes vote. “HIV is a moral issue and an important business issue for corporations,” says Wolf.
In another area, the issue of violence in society, the ICCR is planning a take a new approach in the video-game industry. Instead of targeting manufacturers, the group will rather push game retailers to make sure they have policies in place to monitor sales of M-rated (mature) games, which can be violent. For the first time, the ICCR has issued such a resolution with Circuit City. “We’ll be interested to know how it does,” Wolf says.
A likely sign of the increasing clout of faith-based groups is the interest that hedge-fund managers are taking in faith-based investing. Normally, these managers shy away from such restrictions as the screening of investments. But some hedge-fund executives are now asking EACM analysts to develop a fund with a variety of managers who will subscribe to socially-responsible-investing principles, says Maisano. He believes the interest in faith-based investing is a reaction by hedge-fund managers to seeing more money being awarded to socially responsible managements. “I don’t think they got a ray from heaven to do this,” he says.