Spotlight on Your Portfolio: What We're NOT Buying…Yet(A)

Investors with Trillium managed portfolios know that an important part of our investment discipline is diversification across economic sectors. We are often asked if, due to social screens, we have trouble finding investment opportunities in certain sectors and the answer is almost always no (with some client-directed exceptions). Our policy is to under- or over-weight sectors relative to the market as an intentional reflection of our financial outlook for that segment of the economy.

There are stocks we avoid as social investors: tobacco (classified under consumer staples), weapons manufacturers (typically industrials), and nuclear power (primarily utilities), as examples. We apply our expertise in analyzing the influence of these specific holdings on their sectors and make explicit adjustments to create prudently diversified portfolios. You’ll find Procter & Gamble, Group Danone and Whole Foods Market in consumer staples, but not Altria; industrials like 3M and W.W. Grainger rather than Lockheed Martin, and a nuclear power-free utility sector with natural gas-focused Keyspan and hydropower-based Puget Energy.

Two stocks with prominent positions in their respective market sectors, which you won’t see us buying in Trillium portfolios, are diversified industrial General Electric and consumer staples giant Wal-Mart. Both companies historically have not met our social criteria. But recently, there have been exciting and potentially groundbreaking announcements at both companies. So we’ve been re-evaluating – do GE and Wal-Mart have a place in Trillium portfolios?

In May, GE announced the launch of its Ecomagination initiative to aggressively address the need for cleaner and more efficient energy, reduced emissions, and new sources of water. GE’s commitments include doubling its research budget for cleaner technologies, introducing new wind, solar, water purification, and energy efficiency products, and reducing its own greenhouse gas emissions. These developments present an opportunity for true environmental leadership from one of the world’s largest companies.

Other aspects of GE remain of concern: GE’s legacy of PCBs in the Hudson River followed by decades of unsatisfactory negotiations around clean-up, its development of nuclear power plants, its position as the 14th largest U.S. military contractor with both conventional and nuclear weapons-related contracts, its recent equipment sales to Iran through European and Canadian subsidiaries, and the conflicts of interest inherent in GE’s ownership of broadcast network NBC. As much as we applaud Ecomagination, we are not ready to add GE to Trillium portfolios.

In October, Wal-Mart announced a set of social and environmental commitments with perhaps even greater transformative potential than GE’s Ecomagination. Wal-Mart’s ambitious commitments address climate change, product and store sustainability, product sourcing, workplace diversity, benefits and wages, and are, in rhetoric at least, a turnabout from Wal-Mart’s formerly defensive stance. For Wal-Mart, the key will be implementation. Will Wal-Mart bring true change to those core issues that have been of such concern. The jury is still out about whether Wal-Mart will become an acceptable investment for us. In the meantime, we continue to own other attractive retail and consumer stocks.

From an investment perspective, we are satisfied with the opportunities to diversify around big stocks like GE and Wal-Mart – there are plenty of alternative attractive investment candidates in their sectors. But from a social perspective, we would very much like to add GE and Wal-Mart to our universe of buyable securities. The recent announcements are good steps in moving both companies in that direction. So keep watching… we may see GE and Wal-Mart as socially responsible stocks yet.