"I think you can [perform however] you would have done with whatever investment strategy you follow whether or not you apply social screens," he said on a radio broadcast last year. In general, he believes that companies that care about issues such as the environment, labor standards and the like are better companies and, therefore, good long-term bets. But that doesn't mean Wall Street will always reward them for being good citizens.

In l975, Zevin started and built what later became Walden Asset Management, the first SRI unit at a bank (U.S. Trust of Boston). While at the bank, he played a key role in designing the Calvert Social Investment Fund, the first socially screened mutual fund in the country.

But since the 1960s, he has also pioneered the use of Modern Portfolio Theory as a way to reduce risk.

"From the beginning of my career, I was calculating Markowicz's efficient frontiers in portfolios," he says. "But unlike Markowicz, I wasn't doing it with historical data. I was doing it with scenario forecasts."

Strategic Foresight
According to Zevin, most professional investors under perform because they take too much risk in pursuit of short-term gains. They either try to bet on the most likely outcome with the most possible leverage, or they invest in fashionable sectors of the economy that are by definition expensive--and therefore risky.

In contrast, ZAM seeks to avoid loss and find reliable long-term gains. Rather than preparing for what is most likely to happen, it prepares for whatever may happen. In this light, it develops political-economic scenarios, or stories, that describe what may occur during the following year.

It models these stories into a series of equations and correlations among assets and sectors, and plugs in relevant macro-economic, financial, historical and forecast data. Using a top-down approach (general allocation between stocks, bonds and cash; then sector and region; and finally individual securities), the firm then chooses investments that work based on each of the scenarios it lays out. A portion of the portfolio is designed to do well in each scenario.

"Most of what happens to a particular investment is determined by these larger circumstances," Zevin says. "We expect to lag the market in the good outcomes. We think it's the same as paying an insurance premium on the house. If the house doesn't burn down, you lose the premium and that's fine."

ZAM generally works with five or six scenarios--three core stories that are most likely to happen, and two or three "outliers" that are less likely to happen but are still possible.

One possibility is a major military conflict. But ZAM's more likely core stories right now include the unraveling of the euro zone, sovereign defaults in Europe without an unraveling of the euro zone, and a double-dip recession. By Zevin's reckoning, the potential unraveling of the euro zone would have the most severe impact.

The euro zone will only unravel, he says, after a few sovereign defaults have taken place. The defaulting countries will be tempted to leave the euro zone in order to avoid the tight fiscal policies imposed on them, and after they do so they'll begin to recover as did countries that left the gold standard during the l930s. But a wave of defaults would have troubling effects for the global economy.