From the Wall Street Journal –
Mention “socially responsible investing” and most people think of a stock-picking strategy that involves abstinence—that is, avoiding industries or companies whose ethical, environmental or governance practices fall short of certain standards.
The mutual-fund industry began offering products based on this idea in the 1970s, and Morningstar Inc. recently identified 199 mutual funds and 23 exchange-traded funds as socially responsible. Among the industries these funds typically shun are those connected to tobacco, alcohol, pollution, weapons and authoritarian regimes.
But some involved in socially responsible investing, or SRI, say two recent developments—a long, acrimonious debate about health-care finance and the worst financial crisis in 80 years—may prompt some socially responsible investors to take a closer look at two other sectors: for-profit health insurers and too-big-to-fail banks.
Both groups “put the customer at odds with the corporation, and that is very problematic,” says Amy Domini, founder of Domini Social Investments LLC, which refuses to invest in certain banks and insurers for precisely that reason.
Both industries have drawn the wrath of the Occupy movement. To protest the power of Wall Street banks, many Occupy sympathizers have moved their deposits from large financial institutions to smaller banks and credit unions.
What if investors wanted to do something similar and move their money to funds that refuse to invest in big banks and for-profit health insurers?
Turns out it might not be so easy.
While there are a few exceptions, SRI managers generally haven’t painted big banks and for-profit insurers with the same broad brush as, say, tobacco and gambling. Indeed, some of the most prominent names in both industries can be found in some of the best-known SRI funds.
Hazardous to Health?
Unlike products and services widely considered to be harmful to the greater good, the health-insurance industry’s impact on society is a matter of debate.
Critics contend there is a fundamental conflict between the profit goals of insurers and the public-health goals of everyone else. This owes largely to the tendency of for-profit carriers to avoid the sickest individuals to the extent that they can, a problem the Patient Protection and Affordable Care Act of 2010 aims to address.
Insurers, of course, deny they add cost but no value to health care. “Health plans have pioneered the programs and services that are needed to help patients navigate the complicated delivery system to get the care they need,” says Robert Zirkelbach, spokesman for America’s Health Insurance Plans, a lobbying group that represents for-profit and nonprofit insurers. And as required by state law, 90% of policies already are sold on a “guaranteed issue” basis, meaning no applicant is turned away, he says.
The $20 million Eventide Gilead fund has avoided for-profit health insurers since its inception in July 2008, citing the industry’s basic business model. “It’s a huge financial game that these guys are playing to maximize their profits, by bringing in the most healthy people and trying to turn the screws on people who are sick,” says Finny Kuruvilla, a former practicing physician who manages the Boston-based fund. “I’ve never seen a single [for-profit insurer] that I’d feel proud about owning.”
His stance, however, appears to be the exception rather than the rule. Indeed, some of the health-insurance industry’s biggest names figure in many socially responsible funds, and they’re also in one of the oldest and best-known SRI reference indexes, the MSCI KLD 400 Social Index.
The index, formerly known as the Domini 400 Social Index, excludes companies with significant business in six industries: tobacco, alcohol, gambling, nuclear power, firearms and military weapons. Outside of those six excluded industries, companies are evaluated using metrics that attempt to gauge the company’s “social utility,” says Thomas Kuh, an executive director at index compiler MSCI.
At least three private health insurers—Cigna Corp., Humana Inc. and WellPoint Inc.—have made the cut: They represented 0.93% of the index as of Jan. 31.
Erin Gray, head of marketing for Green Century Capital Management, whose Green Century Equity portfolio tracks the MSCI KLD 400 index, says that while “it wouldn’t surprise me if individual investors want to stay away” from for-profit insurers, “I don’t see us currently taking that next step within the SRI sector—to screen out these types of companies.”
Indeed, Calvert Investments, one of the largest SRI firms in the U.S., says it holds insurers Cigna, WellCare Health Plans Inc. and Aflac Inc. in several of its SRI funds, and it holds WellPoint in a separate line of funds it calls SAGE (Sustainability Achieved through Greater Engagement).
While conceding that the U.S. way of health insurance is “imbalanced” and “imperfect,” Calvert Senior Vice President Bennett Freeman says Calvert is “just not going to fence off a whole industry.”