Sierra Club Considers a Mutual Fund.


Mar 11, 2001
Reaction score
July 20, 2001

Sierra Club Considers a Mutual Fund.
By JOHN H. CUSHMAN Jr. The New York Times.

ASHINGTON, July 19 — The Sierra Club, the oldest, largest and most influential environmental advocacy group in the country, wants to start a mutual fund using its well- known name to attract individual investors' money into the shares of companies that meet the club's strict standards for environmental performance.

The move would open a new front on Wall Street in the club's efforts to fight industrial pollution and could raise significant amounts of money for its operations, like lobbying the government for policies it supports.

The fund's manager, an outside financial firm yet to be selected, would choose stocks from a list of companies that the Sierra Club already uses for its own multimillion- dollar portfolio. The club's investment screen uses criteria that are more restrictive than those commonly used by other mutual funds marketed as being environmentally responsible, said Carl Pope, the club's executive director.

For example, the fund would probably not invest in an oil company that was working hard to comply with all environmental laws, even if its operations were cleaner than all other oil companies, because "the best oil company is not very good," Mr. Pope said.

"We have a reputation for being pretty hard line," he said.

The club is adopting an approach pioneered last year by the Humane Society. The society joined Smith Barney to set up a fund that would exclude meatpackers or other companies that sell animal products, manufacturers of hunting equipment, and pharmaceutical companies or others that use animals in laboratory testing.

But the Sierra Club exerts its influence over a much broader political landscape, and its move raises several intriguing questions.

Would the club's board, which is elected by its members, be able to veto the fund's holdings? (Yes, for example if a company previously on the approved list was named in litigation brought by the club.) How many of the club's 650,000 members would invest substantial amounts in such a fund? (The answer will help determine the club's income, which would depend on how big the fund gets.) And, finally, how would the club spend its earnings?

Mr. Pope said the money could pay operating expenses like salaries, rent and phone bills as well as some of its political activities. It could lobby Congress with the money, but not contribute it to candidates' campaigns; it could advertise in favor of energy conservation or against oil drilling in wilderness areas, but not advocate voting against candidates who disagreed.

A recent tax court decision allows the club to earn royalties tax free under Section 501©4 of the tax code, which governs its operations.

After a year of internal discussions, the club's board in May ordered its staff to solicit proposals from Wall Street fund managers to operate the mutual fund. The fund would charge investors the customary fees and pay royalties to the club for the use of its name and its proprietary investment screen. The club would not have to invest money in the fund, and would be guaranteed an income whether the stocks held by the mutual fund went up or down.

But several board members remain hesitant, according to minutes of their meetings, and the board will not grant its final approval until it sees what terms financial firms are willing to offer and it surveys members on the idea.

Louis Barnes, the club's chief financial officer, told the board that the fund might earn the club $1 million a year within five years. The club's budget this year is about $60 million, about a third of it spent on influencing public policy. In the year leading up to the 2000 election, the club mounted an $8 million campaign called its Environmental Voter Education Fund.

The club, whose offices on Capitol Hill have become so crowded that the staff is spilling into temporary space nearby, is stepping up its lobbying in Washington to defeat the environmental proposals of President Bush. The club endorsed Al Gore in the last election.

While it focuses on lobbying on energy, forests and similar issues, the club has also been pouring money into lobbying Congress to pass campaign finance legislation that has passed the Senate but stalled last week in the House.

The preliminary work on the new mutual fund was done by the firm Harris Bretall, which manages the club's own substantial portfolio using the same screening criteria that the mutual fund would employ. Another firm, Investment Counseling Inc., prepared a draft request for proposals to circulate on Wall Street. Several investment firms have emerged as potential managers for the fund, staff members told the board.

At a May 2 meeting, board members said they saw several advantages to the fund.

"This can influence corporate behavior, and some corporations might want to change their policies to be part of the fund," Larry Fahn, a board member, said, according to the minutes.

Robbie Cox, a former club president who is on the board, emphasized the publicity to the club as well as its need for additional revenues.

But another longtime board member and former president, Phillip Berry, opposed the idea, telling the board at the meeting, "Selling the club's name cheapens it."

Jennifer Ferenstein, the current club president, also voiced concerns.

"What happens if a company turns out bad?" Ms. Ferenstein asked at the board meeting, according to the minutes. "How do you dump companies?"

Mr. Barnes replied that the club had "unilateral say over companies in the portfolio."

"We can sell a position quickly," he said.

Hundreds of mutual fund companies offer portfolios that select stocks based on criteria like whether corporations have good environmental records, sell military products or treat workers fairly. According to the Social Investment Forum, a nonprofit analysis group, 14 of the 16 such funds with assets of $100 million or more earned top ratings from Morningstar and Lipper Analytical Services, two independent rating agencies, in 2000.

But another measure of this type of investment, the Domini 400 Social Index, lagged behind the S&P 500 last year, losing 14.3 percent against the broader market index's loss of 9 percent. Over the past 10 years, the DSI 400 gained 19 percent while the S&P 500 gained 17.5 percent.

In a twist, the Sierra Club last year established a separate investment kitty of $40,000 to use for buying small holdings in companies it views as egregious polluters. That way, the club's representatives can attend the meetings of those corporations as shareholders, and the club can sponsor shareholder resolutions urging the companies to change their practices.
Top Bottom