How Socially Responsible Investing Changed the World

Source: Nick Ut at the Associated Press

Recently a smug investor asked me, “What’s SRI good for other than making one feel less guilty about living a fancy lifestyle.” After hearing that remark, I was really angry repeating it over and over in my mind.

After several weeks I got to thinking, “maybe he’s got a point.  I’m a limousine liberal not having really dirtied my hands in any good cause.”

But first, a brief history and explanation.  SRI stands for Socially Responsible Investing.  SRI has had many names including:

  • Ethical Investing
  • Impact Investing

Historically, SRI was mostly about avoiding “sin stocks”, companies that are involved with alcohol, gambling, pornography, tobacco and (nuclear) weapons.   But today’s SRI isn’t just about avoiding certain industries, but about investing in companies that are doing positive practices and having specific attributes (i.e., “best in class”). These practices fall under three areas, called ESG (Environmental, Social, Governance). Here, SRI has made substantial progress.

So, I started wondering, reading books, watching interviews and keeping up with headline news to determine if SRI was in fact doing some good in society.

Usually when an issue captures our minds, we contemplate supporting or opposing it through voting, how we act as customers (e.g., buy), or how we act as employees (e.g., strikes, unions).  Seldom do we think of our roles as investors.  The fact is, while we are intrigued by certain investments in companies like Tesla, most of us invest indirectly via mutual funds. So the link between companies and ourselves is broken.

I came up with a list of three important successes going back to the first example of modern-day SRI:

  • In 1758, the Religious Society of Friends (aka “Quakers”) prohibited its members from participating in the “slave trade.”  Another religious order, the Methodists was highly influenced by John Wesley whose sermons said that your business shouldn’t harm its workers or its neighbors.
  • In 1972, the country was outraged by the photo of a 9 year old girl that had just been burned by Napalm, which is a burning agent.  This ignited a protest, placing pressure on its sole maker, Dow Chemical, to stop producing the chemical-agent. Napalm was only 1% of its revenues, as the company was known for Saran Wrap. While the company refused to stop making Napalm talent veered away from Dow and the company was vilified for years. The pictures also prompted Dr. Martin Luther King to go public with his opposition to the Vietnam War.
  • In the 1990s, the world was appalled by Apartheid in South Africa. The movement against Apartheid actually began in 1960 after the Sharpeville massacre. In 1976, the UN imposed an arms embargo to the country. By the late 1980s and 1990s, investors including large institutions, divested all their investments in South Africa. That prompted businesses operating in South Africa to draft a charter to end Apartheid. And you all know the result…
  • 2015: Modern SRI is quite different than in the past. There has been a huge increase in the quality of Governance at most corporations. This has given investors the ability to monitor corporate behavior almost “real-time”.  This is done through proxy voting, oral dialogue, letter-writing, filing shareholder resolutions (usually a last resort) etc…At first glance, it appears that SRI hasn’t had any “big-wins” since the 1990s, but in fact, investor activism has been so strong that few companies get to the point where there is a big issue to topple.

2015 – 2020: The Next Battleground:
The Palm tree is a beautiful, elegant species and Palm oil is supposed to be a healthier oil compared to trans fats. However, ever expanding plantations are endangering Orangutangs, increasing Green House Gases as well as taken advantage of hungry workers.

In the next article, I will dig deeper into these issues.  But for now, I’ll leave you with some wise words from Mohandas Gandhi:

 You must be the change you wish to see in the world.  

 It’s the action, not the fruit of the action, that’s important. You have to do the right thing. It may not be in your power, may not be in your time, that there’ll be any fruit. But that doesn’t mean you stop doing the right thing. You may never know what results come from your action. But if you do nothing, there will be no result.” 

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