By Jerilyn Klein Bier
Bruce Mandel, president and CEO of Oakwood Capital Management LLC, traces his interest in social and environmental issues back to his 1970s college days when he helped form CalPIRG at UCLA. In the 1980s, he began investing for some clients according to the Sullivan Principles, which introduced a code of corporate conduct for U.S. companies operating in South Africa.
Mandel, whose Los Angeles firm manages more than $550 million in assets, is currently exploring an often overlooked asset class in socially responsible investing--fixed income.
"It is truly ironic that this is almost always off the SRI client's radar," Mandel says. "Investors don't usually connect their personal values to fixed-income investments in a corporation, yet do have concerns about investing in the equity of the same objectionable company."
Mandel offers that might be because many investors view fixed income solely as a relatively low-risk, interest-generating investment. And while SRI investors don't want to support the growth of certain companies, they tend to view that growth from an equity perspective.
In the past, Oakwood initiated SRI discussion only if clients brought it up. Today, it asks all of its clients about their values regarding investing, which has led to more discussions on SRI.
"We explore religious, social, moral and ethical, and governance concerns of our clients to see if we need to drill down further to identify specific industries or business that would violate their values and see how important that restriction is to their investment portfolio," Mandel says.
Oakwood utilizes the list of stocks in Dimensional Fund Advisors' sustainability and social core portfolios--the basis for the firm's equity holdings--as the criteria for selecting corporate bonds. DFA's portfolios are screened by Sustainable Holdings and MSCI ESG Research. Oakwood also looks at specific companies identified by its clients. Quality, structure and liquidity of fixed-income instruments are important considerations, Mandel says.
Oakwood's bond exclusions have typically been names that clients also restrict from their equity portfolios such as Halliburton, ExxonMobil, BP and Phillip Morris. Clients have also excluded state tobacco bonds issued to help the major tobacco companies reimburse states for health-related settlement costs.
While Oakwood invests in individual SRI fixed-income securities, it also invests in socially conscious fixed-income funds. Morningstar counts more than 20 in this space, including the Domini Social Bond Fund, the Timothy Plan Fixed-Income Fund, the Parnassus Fixed-Income Fund and the Calvert Bond Portfolio (formerly called the Calvert Social Investment Fund Bond Portfolio).
Calvert Investment Management's new Green Bond Strategy seeks to source and identify bonds that can help provide capital to promote projects in areas such as clean energy development and technology, energy efficiency, smart growth, sustainable agriculture, water purification, eco-system and land conservation.
When it comes to municipal bonds, Mandel says securities related to areas that benefit the community such as schools, hospitals, zoos, and the like might be of interest to socially responsible investors.
Although Oakwood has focused on U.S. fixed income opportunities, Mandel says he's seeing more foreign SRI-related fixed-income opportunities. Japan and Europe, in particular, have been leaders in embracing so-called green bonds as a way to help accomplish climate change goals.
The World Bank has issued more than three dozen green bonds since it launched its first one in 2008., and U.S. pension funds and other institutional investors have been buyers. It's expected that as the issuance of green bonds increases, so too will investor interest in building socially-responsible fixed-income portfolios.