Winds of Change

By Staff Writer

November 01, 2002 at 02:00 AM

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Arturo Tabuenca is proud to call himself a socially responsible investment consultant. Contrary to what you might think, however, he does not go to work every day in a tie-dyed shirt, Birkenstocks, and bellbottoms. He will not clobber you if you haven't hugged a tree today; he does not subsist on soy and granola. He will not strangle you if you drive something other than a hybrid car, and, unless he was wheeled to Woodstock in a stroller, he was never a part of the counterculture of the 1960s. (After all, he was born in 1968.)

Tabuenca does have a B.A. in business and spent several years as an investment consultant in Bank of America's Premiere Client Group, where he became one of the company's youngest vice presidents. But this isn't your father's investment firm, either. Forget gold lettering on the door; forget expansive mahogany desks. The office of Tabuenca's Pasadena firm, Blue Marble Investments, LLC, is more of a loft than an office, and it is designed to encourage clients to think about how their money affects the earth–that "blue marble" they live on–as well as the people who live on it. Sunlight splashes in through large windows that line almost an entire side of the office. Black-and-white photographs of forests, marshes, and small children playing are scattered on various walls; in keeping with the firm's name, the walls themselves are painted marine blue and pale green. On the shelves of books for client perusal, there's a copy of Walden next to The Millionaire Next Door. Exposed wooden beams stretch overhead, and, in place of beige cubicles, the office is divided by an enormous aquarium alive with the vibrant colors of tropical fish.

In a place like this, you'd really have to work at it to invest in a company that belches black smoke or uses child labor to stitch the clothing it sells. Yet Tabuenca, who is a registered rep with Commonwealth Financial Network, says he isn't out to strong-arm anybody into anything. His goal is to provide an inviting place for people who are predisposed to invest in a socially responsible manner but haven't known how to go about doing it. "I'm not there to beat you over the head with 'I can't believe how ignorant you are about the environment,' or labor relations, or whatever. We're not here to convince. We're here to tap into something that's already there," he says. "Most of our clients have been yearning for some kind of investment management that takes into account their beliefs, and when they find us, we're just beneficiaries of their happiness. Obviously it's good for my ego"–he laughs–"but it really is wonderful, to find that you're what they've been looking for for a long, long time."

There are plenty of people out there looking for SRI. Most of Tabuenca's 80 individual clients sought him out, unsolicited, after visiting his firm's Web site, www.bluemarbleinvestments.com. His 40-odd institutional clients evince great relief at finally finding an SRI investment firm to manage their organizations' money.

His clients aren't alone: According to a recent poll by Harris Interactive, two-thirds of employees who are offered an SRI option in their retirement plans choose it, and three-quarters of those who do not currently have such an option said they would choose it if it were offered. Nationwide, nearly one out of every eight dollars under professional management (a cool $2.34 trillion) is invested in a socially responsible manner, according to the 2001 Report on Socially Responsible Investing Trends in the United States by the Washington, D.C.-based Social Investment Forum. And since 1995, the number of SRI mutual funds has jumped from 55 to 230. Interestingly, those funds have proven "stickier" than most: In June 2002, SRI funds enjoyed net inflows of $47 million, while the universe of U.S. diversified equity funds suffered $13 billion in net redemptions, according to Lipper data compiled by the Social Investment Forum.

Do as We Say (and as We Invest)

While Tabuenca has more individual clients than institutional ones, the institutional clients and their larger asset bases are the bread and butter of his two-year-old firm. Nonprofits are particularly drawn to SRI for the same reason rehab centers don't hand out free six-packs and Sierra Club members don't eat broiled dolphin: They want to be consistent in their actions. "SRI makes sense for us [nonprofits] because we are all mission-based entities. We exist for an altruistic cause. We exist to create social change," says Blue Marble client John Heathcliff, who runs Workplace Hollywood, a nonprofit organization that promotes diversity in the entertainment industry. "All of our external financial work is focused on fulfilling our mission–grant-making, programs, etc.–so it only makes sense to organize our internal financial activities so that they are also mission-based."

To that end, Heathcliff hired Tabuenca to help him set up an SRI-oriented 401(k) plan for his employees, and plans to have the firm managing his organization's general funds by the end of the year. With few exceptions, all money managed by Blue Marble Investments is in socially responsible mutual funds. "The SRI industry has grown rapidly over the past 15 years, so it's not difficult to create an extremely well-diversified SRI portfolio," notes Tabuenca. Not surprisingly, Heathcliff's organization is particularly interested in funds that target companies with good records in diversity, including the makeup of their board and employees, and their willingness to provide medical benefits for same-sex couples. "The nice thing is that it can be tailored to whatever your organization's interests are," says Heathcliff.

For hospitals and other health-care-related organizations, for instance, tobacco screening is of primary interest, for the obvious reason: You can't heal with one hand while manufacturing Marlboros with the other. Indeed, in 1996, the American Medical Association formally called upon "all physicians, health professionals, medical schools, hospitals, public health advocates, and citizens [to] divest of any tobacco holdings, including mutual funds that include tobacco holdings," and issued a special call for life and health insurance companies and HMOs to do likewise. Granted, many individuals and organizations have not heeded the call, but Tabuenca has seen interest: He recently helped a global Christian health association add tobacco-screened funds to the retirement plan for its 50,000 employees.

While nonprofits, which can include hospitals, universities, foundations, and churches, are a natural match for socially responsible investing, they're not always an easy sell. "It's a matter of getting to the right person [in the organization], and finding someone who adopts our mission as their own," he says.

Making the Case

But finding the right person doesn't end the challenge. Once that person is found, "there's always an educational process, whether the investment committee is new or pretty sophisticated." At Workplace Hollywood, Tabuenca had Heathcliff to help him get his foot in the door, yet the board of directors still took some persuading. Everyone thought SRI investing was a nice idea, but it wasn't until they saw hard performance numbers that they were willing to sign on. "Often the board members are working in the private sector, so they tend to look at [SRI] as being sort of crunchy-granola stuff," says Heathcliff. "They're the financial stewards of the organization, so while you can approach the idea through the lens of mission, you really have to address it squarely from the investment side." Tabuenca is accustomed to hearing questions about the performance of socially responsible investments, so he comes prepared. "When people say that the performance of SRI investments is bad, I just say, 'Well, here are the facts–and here are my sources.' And if they're still skeptical, "I just ask them, 'Hey, would you mind sharing with me where you found that information?' Usually it's just prejudice–they've 'heard somewhere' that SRI performance is bad."

Among the statistics available to help Tabuenca make his case is one that is pretty hard to sneeze at: According to Boston-based KLD Research & Analytics, Inc., the Domini 400 Social Index has outperformed the S&P 500 Index over the last one-, five-, and ten-year periods. And skeptics who thought the often tech-heavy SRI funds would choke after the tech bubble burst can consider this: Despite being unable to invest in the few (relatively) bright sectors of 2002 (military contractors, mining stocks, and tobacco, to name a few), the 63 socially responsible domestic equity funds tracked by Morningstar trailed the overall domestic equity fund universe by a mere 0.17% in the first three quarters of 2002. In addition, according to the Social Investment Forum, 13 of the 18 screened funds with $100 million or more in assets received the highest performance rankings from either Lipper or Morningstar, or both, for the one- and/or three-year periods ending June 30, 2002.

"I come from an investment background, I don't come from a green background, so I'm not going to say, 'Oh, we're not going to worry about performance.' We want to have our cake and eat it, too," says Tabuenca. "I have found studies that say [SRI] doesn't necessarily improve performance–although there are definitely some that do say that–but as long as it's at least not hurting performance, that's enough for me. Any increased performance is just icing on the cake." (For an analysis of how corporate environmental policies can affect investment performance, see "A Question of Balance," page 54). "Once you realize that the myth [of SRI's diminished performance] really is a myth," adds Heathcliff, "there's simply no reason not to do this."

The Emotional Connection

Once an organization signs on with Blue Marble, Tabuenca helps its investment committee tailor an investment policy with its own social criteria. "Whether it's a university or church or hospital, there's generally a mission statement already in place that has some overarching social mandate, and we use that to guide the social or environmental tone of the investments," he says. "We want to help them integrate their investments into that mission." He doesn't push his own values onto any of his clients, and says he has a "fairly mainstream" perspective, anyway (though, admittedly, "mainstream" means different things to different people). "It's so easy to talk about the 10% that we don't agree on and ignore the 90% we do agree on, but we have more in common than we don't," he says. "Who's going to say, 'I don't give a rip what kind of air my children breathe, or my children's children breathe'? If we step back and look at the big picture, and focus on giving dignity to people, and animals, and nature, a lot of [disagreements] just sort of melt away.

"You can have strong opinions, and you should invest your own funds that way," he adds, "but once you start imposing your own nuances on someone else, you shortchange the entire process. There are more things at stake here than my personal stand on vegetarianism."

What Tabuenca particularly likes about socially responsible investing is that, after all the emphasis about taking the emotion out of investing, SRI encourages investors to put emotion back in. Sure, they should still buy low and sell high, but they can create emotional ties to the way their money is being invested–ties that relate to their personal beliefs about the world and how it should be. "It seems strange to have to create those connections, but it's a powerful thing," he says. "That emotional connection can be so deep when you're talking about [investing in] something you believe in, not just something to fund your retirement," he says. Indeed, the aforementioned "stickiness" of SRI funds seems to corroborate his view.

From his Web site to his client brochure, Tabuenca encourages clients to explore an emotional connection to their money. "What if your money had a cause greater than you?" he writes. "What if your net worth included your values? What if your heart became your benchmark?" The reward for investing in concert with your beliefs, he writes, is that "you will find equity where once you saw only a stock, a uniting force where once you saw only a bond, and a genuine concern where you merely had a passing interest."

Tools of the Trade

Most people think of socially responsible investing as simply "screening out the bad guys," and refusing to invest in companies that do things the investor disagrees with. But a number of funds also actively seek out companies with especially positive social records. There's also community investing, in which people invest in financial institutions that provide banking services and loans to disadvantaged communities. And there's shareholder advocacy, in which shareholders file or vote on resolutions to improve a company's behavior.

Tabuenca has recently begun encouraging some clients to do their banking at community development banks. He has never filed a shareholder resolution, but he says his clients' voices are heard, albeit indirectly, through the funds his clients are invested in. Many SRI funds regularly vote proxies on behalf of all their shareholders, using the fund's overall social guidelines. "If the fund screens out tobacco companies, they're going to file proxy votes along those lines," he says. "Proxy voting is generally very rare. Historically, SRI funds are some of the few who have done it." Given the number of people who hold shares in, say, the Domini Social Equity Fund (which has $1.1 billion in assets), that can mean a lot of socially responsible votes amid otherwise low "voter turnout."

To research SRI mutual funds and investigate corporate conduct, Tabuenca consults a number of resources, including the Web sites and online tools of the Social Investment Forum (www.socialinvest.org), SocialFunds.com, and SRI-adviser.com. He has compiled his own proprietary database of funds, and he also consults Socrates, a comprehensive database of corporate citizenship "report cards" on more than 1,600 companies. (Socrates is available on a subscription basis from KLD Research & Analytics, Inc. A sample "report card" can be viewed for free at www.kld.com/

research/sample.html.) He plans to add an online tool to his Web site soon that will enable investors to search for funds that match their screening criteria.

Researching SRI mutual funds means exploring the usual information, plus taking a look at the fund's social screening criteria. "SRI funds don't all have the same social screens, so one SRI fund doesn't necessarily fit every investor," says Tabuenca. "There are certainly some that are more pervasive, like tobacco, but there are other issues that are a little more esoteric." Some funds screen companies based on their policies toward women managers, board members, and employees; some focus on companies' involvement with human rights, predatory lending, weapons manufacturing, or animal testing. "There are also some that promote renewable energy not just by screening things out, but by 'screening in' companies that are working on new technologies or environmental cleanup," says Tabuenca. "So you have to hone it down to what is important to you."

Because he manages SRI money exclusively, Tabuenca has made fast friends in the world of SRI mutual funds. He speaks regularly with Parnassus Fund manager Jerome Dodson, who recently agreed to be interviewed for Tabuenca's quarterly client newsletter, BluePrint. He is also in frequent contact with one of the SRI industry's luminaries, Amy Domini, founder of the Domini fund family and Domini Social Index. "Amy and I talk fairly regularly, and she's been an enormous part of keeping focused on this, and showing how she did it many years ago," he says, noting, clearly impressed, that the Domini Funds are part of the retirement plans of TIAA-CREF, Ford Motor Company, and other major institutions.

Getting the Word Out

Unlike many who market themselves through targeted hob-nobbing, Tabuenca focuses his marketing activities on the written word: through a newsletter, Web site, and the articles he writes for various publications (many of them of an environmental bent). He stays home most Wednesdays and Fridays to write, and forwards his calls to the office. "It's harder than you'd think to keep a 75-page Web site current," he says, "but I love to write, so this allows me to do something I was never able to do at B of A." The work seems to be paying off: The Web site has brought in clients from across the country, from Washington to Florida, and South Dakota to Texas.

Almost all his individual clients find him through the Web site, though sometimes in roundabout ways. Two young NASA employees working on the Pathfinder project, for example, found the firm while doing an online search for information on fuel-cell engines. Since the Blue Marble site includes information on renewable energy, including fuel cells, the site popped up on their search list. "They were thrilled that they could invest in something that [was associated with] renewable energy and conservation," says Tabuenca.

The rest of the individual clients tend to fit a specific profile: They're usually female, between the ages of 35 and 50, often with advanced degrees, and almost always with significant civic involvement. "This is going to sound funny, but the socially responsible clients we talk to are far and away much more interesting than conventional investors," he says with a laugh. "They're not the run-of-the-mill investor: They're people who volunteer, they're well traveled, they're very involved in their communities–they just kind of have a twinkle in their eye. It's been an incredibly enriching experience to meet them."

Tabuenca never turns down individual clients on the basis of their net worth. Part of the reason is that he expects his institutional clients to bring in the revenues. The other part is that it would contradict the grassroots ethic of socially responsible investing. "You can't have a grassroots movement that tries to bring people up through community development and that sort of thing, and then be exclusionary at the same time," he says. Clients with $50,000 or more generally pay a wrap fee for asset management, while clients with less are charged commissions instead. Tabuenca tries to work as many clients as possible into the wrap account structure. "It can be tough [to accommodate smaller accounts], because there's only one large, socially responsible fund family, Calvert, that's based on a load," he says.

In the end, Tabuenca sees his mission as that of education. The Web site, the newsletter, the library from which clients can borrow books on SRI–all of it is intended to help educate as many people as possible about socially responsible investing. Of course, once their education progresses further along, he hopes those site-visitors and readers will sign on the dotted line at Blue Marble Investments. But even if they don't, he won't think his efforts have been for naught. "I am a very small cog in this very big thing called socially responsible investing that goes all the way back to the Quakers," Tabuenca says. "If I can push it along just a little bit, that makes it all worthwhile."

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