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November 01, 2002 at 02:00 AM
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.
