February 26, 2002

Social Studies

KLD and Nasdaq join forces to produce an SRI index

Using exclusionary and qualitative screens, the KLD-Nasdaq Social Index is now up and running. The new index provides a means for SRI investors to satisfy their principles in choosing stocks from the Nasdaq for their portfolios. Boston-based KLD Research and Analytics, Inc., one of whose founders was Amy Domini, is a provider of social research services for institutional investors. Domini is no longer a principal of the firm, although her Domini Social Equity Fund is one of KLD's largest clients.

The KLD-Nasdaq Social Index includes approximately 290 stocks from some of the largest companies in the Nasdaq, weighted by market value and chosen according to KLD''s screens. The choices cover major market segments including telecommunications, technology, and financial stocks. Companies screened for possible inclusion were domestic companies with over $1 billion in market capitalization. Companies must be listed on the Nasdaq in order to be considered for inclusion in the Index.

According to Anjeli Gupta, a spokesperson at KLD, the screens include traditional exclusionary ones--alcohol, gambling, tobacco, military contracting, and nuclear power--and qualitative. The qualitative screens, says Gupta, make for more subjective decisions (made by KLD) of company inclusion or exclusion, based as they are on a company''s social strengths and concerns. These screens include environment, community involvement, diversity, employee relations, non-U.S. operations, and product quality.

Some of the factors that count in favor of a company in the qualitative screens are whether it shows evidence of innovation, or has progressive policies in social and environmental areas. Such behavior could include extensive employee benefits packages, or support of charities or other functions within local communities. Companies included in the new index include Oracle, in part because of its strong diversity policies; Qualcomm, because of exceptional employee involvement policies; and Amgen, because of its community involvement. Says Gupta, "We don''t include companies on any of our indexes that have a record of detrimental behavior to society." The index does not release names of companies that did not pass their screens, but will say that stumbling blocks to listing on the index include such areas as a history of discrimination lawsuits, significant and recent environmental liabilities, or a lack of female or diversity representation in management or board positions.

Announced in mid-February, the index saw its official debut on January 1, 2002, when it began tracking stocks. It had been under development since the fall of 2001. Currently there are no financial products available based on the index, but KLD is in discussion with a number of institutions, says Gupta, for the creation of such products, including the possibility of mutual funds, within the next few months.

Advisors may want to follow these developments. Those with clients who have particular concerns not covered in the main screens, such as animal welfare or particular "green" standards, should contact KLD directly, says Gupta, to indicate their interest in the possible addition of such screens to the process.

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