To quote legendary folk singer Bob Dylan, "The times they are a-changin'."
That's the rationale behind three social screening changes that Pax World Management of Portsmouth, N.H., advisor to the three Pax World Funds, will be asking shareholders
In a preliminary proxy statement filed last week, Pax World indicated it would like to modernize the positive and negative social screens that are used for its portfolios. The original social screens that Pax World has employed since launching the Pax World Balanced Fund in 1971, the oldest socially screened fund in the nation, have become somewhat outdated and need freshening, the proxy explained.
"A modernized and modified social screening process will allow a more proactive and engaged approach to socially responsible investing and will make the social screens more relevant and meaningful in a changing world," the proxy noted.
The fund's managers have been applying those exact same social standards to companies also chosen for the company's newer funds, the Pax World Growth and Pax World High Yield Funds, which debuted in the late 1990s.
Specifically, Pax World wants to add formal screening criteria related to three areas: "corporate governance," which would include executive compensation; "community," including companies that contribute to community organizations; and "workplace" issues. It also wants to extend its screens in key areas that include climate changes, sustainable development, global human rights standards and non-discrimination based on sexual orientation.
Officials at Pax World declined to comment on desired changes citing the upcoming proxy solicitation.
Perhaps, even more importantly, Pax hopes to get shareholders to agree to relax two of its four original exclusionary screens on so-called "sin stocks". It will retain its screens that prevent the funds from investing in companies with ties to tobacco and weapons. But it wants to relax its self-imposed outright prohibition on stocks with ties to alcohol and casinos.
While Pax will not now nor in the future invest directly in companies that derive significant revenues from companies that manufacture alcohol, nor in casinos where gambling is the main event, it wants to take a more holistic look at otherwise good companies that may be dabbling in those industries. Those dabblers will get more scrutiny to assess whether they should really be excluded or forgiven if they are otherwise excellent corporate citizens.
Pax World managers learned that hard lesson last year when they hit a social criteria conundrum. Starbucks Coffee, one of their favorite companies to investment in, had forged a development and distribution deal with Jim Beam to produce coffee liquer, making Starbucks off limits and forcing Pax, by its own rules, to sell 375,000 shares of the company then-valued at $23.4 million.
Subsequently, Pax managers were once again forced to sell an otherwise great investment when online casino issues cropped up in relation to Yahoo!.
The socially responsible industry, driven in large part by institutional investors charged with managing large amounts of pension and endowment money, has really begun to take a hard look at a host of corporate and socially responsible issues, said Tim Smith, president of the Social Investment Forum in Washington and senior vice president of Walden Asset Management in Boston. Although socially responsible investing began with religious leaders' exclusion of sin stocks, the industry has grown and transformed. Now a host of new issues has arisen, and institutional investors, as responsible fiduciaries, are assessing risks and how issues will impact the bottom line, Smith added.
Other funds have also modernized along the way. A few years ago, Calvert Group of Bethesda, Md., added a new screen focusing on the rights of indigenous persons to its social screens. And last year, Parnassus Investments of San Francisco, another veteran socially responsible fund group, launched the Parnassus Workplace Fund whose explicit focus is to invest in companies that foster good workplace initiatives. Although Parnassus jumped into the then-tiny socially responsible investment industry in 1984 and does screen for workplace issues within its screening process, the new fund puts workplace issues as the number one screen, said Jerome Dodson, president and chief investment officer of the firm.
George Rue, chief investment officer of the socially and religiously screened New Covenant Funds of Jeffersonville, Ind., said it makes sense to update or add positive screens, as society faces many more issues today.
But not every socially responsible mutual fund has chosen to embrace new issues or update its social screens. "We only invest in companies that do useful things for the environment," said Maurice Schoenwald, founder, chairman and co-portfolio manager of the $93 million New Alternatives Fund of Melville, N.Y. The first environmentally screened mutual fund, it invests in environmental and alternative energy companies, a mandate that hasn't changed in 20-plus years, although the fund has expanded its focus to include some organic food companies.
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