Opinion:
By invitation: Socially responsible investment – SRI’s big debate

Comments:

Where is the REAL SRI? - Jeffrey Scales, 12 Nov 2009

Change is the real SRI - movement in the right direction vs perfection right out of the box. I strive to nudge my clients every day a little further toward full SRI investment portfolio - which in itself is moving closer to fullfilling ESG factors - but definitely not there yet. It's better to get Walmart to influence 125 million shoppers weekly to go green and to have stores sustainably designed - than exclude them from consideration. I told American Funds distributor yesterday that we will no longer use their funds for clients because they're not willing to accept or initiate shareholder initiatives toward influencing the hundreds of companies they own shares in to take positive ESG measures in their firms. One more line in the sand - hopefully it'll add up and there will be change.

Beyond SRI? - Bill Baue, 12 Nov 2009

Christine,

First off, thanks for continuing the debate that Timberland's Jeff Swartz re-invigorated recently -- I commented on his blog, which is here: http://www.fastcompany.com/blog/jeff-swartz/greener-good/can-social-responsibility-be-sexy

Second, this conversation will continue at a panel we at Sea Change Media are producing for the Marlboro MBA in Managing for Sustainability called "Beyond SRI: The Future of Socially Responsible Investing," which will result in a consensus paper documenting the learnings from the panel as well as video and audio recordings. Check out the blurb here: http://gradschool.marlboro.edu/news/events/

Now, to respond to your article. To paraphrase Cary Krosinsky of Trucost, a panelist at the December Beyond SRI panel who co-edited the book "Sustainable Investing," SRI is actually not a monolithic entity, but a loose collection of sometimes contradictory practices (Catholic funds screen OUT abortifacient manufacturers, while politically progressive funds are more likely to screen them IN.) So talking about SRI is kind of like herding cats.

This bears in on the core critique you advance -- that SRI should invest only in progressive companies that advance sustainability. I personally agree with that strategy, but corporate sustainability didn't make it as far as it has by investors washing their hands of the "dirty" companies. Indeed, members of the Interfaith Center on Corporate Responsibility (disclosure: I'm currently producing a podcast series on their history), Trillium Asset Management, Boston Common Asset Management, and Green Century, among others, have long invested in "dirties" specifically so they can engage with those companies as investors to promote positive change.

And Calvert recently piggybacked on this strategy by launching a retail fund strategy (called SAGE) that explicitly invests in "baddies" to turn them into "goodies."

ExxonMobil, Chevron, Walmart, etc... are not going to disappear if SRIs divest, so if we want to "save the world," we're gonna have to figure out how to steer these companies in more productive, more sustainable directions -- as has happened with Walmart (disclosure -- I wrote their 2007 Sustainability Report.) Of course WMT isn't redeemed yet, particularly on the labor rights front, but they are now using their substantial market weight to shift entire supply chains toward more sustainable production.

The bigger question for me is how the "mainstreaming" of ESG (the acronym taking over from SRI, which stands for investing that factors in environmental, social, and governance issues), a trend documented in recent reports from BSR and Robeco. This is a welcome trend, but it's also one to watch with skepticism, as mainstream money managers may simply greenwash -- State Street comes to mind, which has an SRI fund and sponsors conferences on climate change, but opposed ALL the climate change shareholder resolutions it faced in 2008. Talk about talking out of both sides of your mouth!

I don't think there will ever be neat consensus on which companies are "true greens" (I love Ben & Jerry's, but their product is linked to obesity, requires transportation by freezer trucks that spew GHG emissions, as do the cows required to make ice cream!) To me, the key is to continue pushing the needle by whatever means necessary, trusting that SRI funds populated by ExxonMobil and Chevron will not fool investors.

SRI - Christine Arena, 13 Nov 2009

I agree with and greatly appreciate the comment that the real SRI equals change. You just put your finger on it, Jeffrey. Ideally, change is what the SRI industry sells, the result that portfolio companies generate and the value that responsible investors invest in.

It’s just that today, there are so many varying degrees of change in the corporate world – authentic vs. superficial, mission-critical vs. supplemental, systemic vs. piecemeal. I believe a key question is: Which SRI companies are focused on doing less bad (cutting down on waste and pollution, treating stakeholders a little more humanely) – and which focus on creating more good (developing products that meet unmet human needs, radically transforming industry standards and practices, and so forth)?

Bill, you bring up a great point with respect to ExxonMobil and Chevron. Both companies are cutting down on emissions, investing in natural gas and some renewables. Both are invested in incremental change, but both business models mainly rely on increasing oil supply, demand and control for the foreseeable future. That’s one end of a reasonably wide spectrum.

On the other end, we have companies like Interface, Herman Miller, Timberland and Wainwright, which have transformed not just themselves, but their industries, their supply chains and the business community in general. In my view they should be rewarded accordingly through a flow of investor and consumer assets. The SRI industry, which equals change, should be helping to encourage growth in these leader companies. If the gold standard for inclusion in an SRI fund were steadfast investment in authentic systemic change, then I think we would see many of the questionable companies fall by the wayside. That would be ideal.

Whereas I do agree that it isn’t reasonable to suggest that all SRI funds be comprised of “perfect” companies (as if there is such a thing), perhaps it is time for a new SRI solution. What about a new sub-class, or category of fund that helps to close the gap?

Portfolios of Change - Bill Baue, 1 Dec 2009

Christine,

Thanks for your responses to both me and Jeffrey. I also agree with Jeffrey that SRI is essentially a change mechanism. Borrowing from the language of investment, I think that the breadth of SRI is both constructive AND confusing to the change agenda. When there is a broad portfolio of different investments delivering a fairly consistent message, for example on carbon, this creates incentive for companies to change. Of course when the breadth of SRIs deliver conflicting messages, eg on abortifacients, this creates noise in the system that stymies change.

Christine, your point about business models is absolutely key! SRI can shift companies toward incremental change in a progressive direction, but the question is whether incremental change is sufficient for broken business models, such as the reliance on increasing petroleum supply in a world that needs to DECREASE CO2. Exxon and Chevron are not alone here, but share space with more forward-looking companies as BP and Shell -- they all are hinging their prospects on more petroleum, throwing a Hail Mary that carbon capture and storage will become commercially viable in time, and won't explode underground.

My sense is that SRI may not be sufficient to cure broken business models -- that the market and reality will need to take care of that, potentially in very disruptive ways. SRI can help nudge us toward the edge...

Best,
Bill

Is my company getting investment from SRIs? - John Joseph, 18 Dec 2009

Sorry I'm a little late to the conversation...
We're trying to make the case to our company leadership that they can make attract more investment if we are attractive to SRI funds. The lack of transparency into companies receiving investment, and the criteria used to select them, makes that a difficult proposition. If the goal of SRI is to motivated companies to change, shouldn't funds be more active in enticing companies to meet specific criteria? Shouldn't this information be readily available to people who are in a position to influence corporate leadership? I would love to be able to walk into our CFOs office and say "if we meet these criteria, we will appear on the following SRI indeces."

John

Post your comment by using the form below: