Investing to meet human needs

Can socially responsibly investment save our economy from a wild, dangerous ride?

By: Robert Walker

  Many of us remember those old cowboy movies with the runaway stagecoach scene*. The stagecoach driver loses control. The horses bolt across the desert. A young family cowers in the stage, fearing for their lives. Up ahead, a deep canyon means certain death. Disaster looms. And then, from out of nowhere, a cowboy appears at full gallop, leaps from his horse onto the stagecoach team and manages to pull everyone to safety.
  Many people today feel global capital markets have bolted, taking the rest of the world along for a wild and dangerous ride. We don't know where or how this ride will end, but we do know that our social, environmental, and democratic values are being trampled in the process. With climate change, environmental degradation, income polarization, chronic poverty and joblessness, we fear we're heading toward global, social and environmental disaster.
 

Socially responsible assets in Canada total $49.9 billion - up 75% in two years

  Where is our cowboy? Is it government? Maybe, but for many years now it seems that most governments have lost interest in governing. Even activist governments are beaten back as fiscal and monetary policy has become subject to the dictates of the global financial system. Is it the consumer? Again, maybe, but corporate advertising and a complacent media tend to overwhelm consumer protests. Is it corporate management? No, publicly traded corporations face relentless pressure from investors to maximize shareholder return. They take orders from their master, global capital markets.
  But one possible hero, now just a speck on the far horizon, may be found in a small segment of the investment industry: the socially responsible investor. This class of investor has the potential to maybe, just maybe, take control of the thundering forces of finance and steer us away from disaster.
  Socially responsible investors - a group of individuals and institutions intent upon assuming a stewardship role in guiding their investment activity - have been around for quite some time. Some people trace the roots back to the Old Testament with its directives on how to invest according to ethics. In the US, Quakers practiced an early form of socially responsible investing as early as the 18th century, based on their beliefs in human equality and nonviolence.
  The modern origins of socially responsible investment (SRI) in Canada can be traced to the mid-1970s. Church organizations began using their pension and endowment fund investments to influence companies on social justice and environmental issues. In 1975, Canadian churches established the Taskforce on the Churches and Corporate Responsibility to facilitate corporate dialogue and responsible shareholdership. In playing a role in helping to bring about the end of apartheid in South Africa, their achievements were monumental.
 

Each of us - as investors, pension fund beneficiaries, church goers, and charitable donors - can and should ensure our investments integrate social and environmental criteria

  Instruments designed to help individuals integrate social and environmental criteria into investment decision-making began to appear in the 1980s. The first widely-distributed socially-screened mutual fund in Canada was the Ethical Growth FundŽ, launched in 1986. Owned by Canada's credit union system, and distributed primarily in financial cooperatives from coast to coast, Ethical Funds has since grown to more than $2 billion in assets in a family of 12 funds and nearly 200,000 unit-holders. Mainstream financial institutions have followed Ethical Funds into the SRI market: Canadians now enjoy a total offering of 36 socially-screened mutual funds, one of the highest SRI market penetrations in the world.
  SRI seems to be taking hold. A recent survey of socially responsible investing in Canada conducted by the Social Investment Organization found that socially responsible assets in Canada total $49.9 billion. While this is still just a tiny slice of the market, a growth rate in screened mutual fund assets of 75% from June 1998 to June 2000 surpasses that of the mutual fund industry as a whole. What's more, SRI is taking hold globally. In the US, the Social Investment Forum estimated in 1999, there was US$2.1 trillion in screened assets, or 13% of total assets under management. SRI in the UK has exploded, with the Blair government requiring pension fund managers to disclose whether or not they apply social and environmental criteria in their investment decision-making. In Europe, SRI is growing rapidly as capital markets displace banks as the main source of business finance.
  SRI is cropping up in places its proponents never dreamed of: there are four new screened funds in Japan, three in Italy, two in Morocco, one in Brazil and one in India. Mainstream investment houses are hiring SRI researchers and beefing up screening capacity. Large indexing institutions such as Vanguard and Dow Jones are producing a wide variety of screened indexes for benchmarking and product offerings, joining the venerable Domini Social Index (DSI) 400.
  [DSI went live in 1990 at a time when the mainstream said SRI WAS whacky and prone to chronic underperformance. The DSI helped prove the entire financial services industry was wrong, outperforming the S&P 500. The DSI has been the main tool used to dismantle the claims made by the mainstream. Dow Jones and Vanguard are Johnny- come-latelies. While we in the SRI industry welcome their introduction, we do believe there is a need to honor the originals and not allow the newcomers, whose moral commitment to SRI may be questioned, to steamroll over the people and organizations who have dedicated their careers to the concept of SRI. Socially responsible mutual funds are pouring resources into corporate engagement programs (see the Corporate Dialogue Program at Ethical Funds, disclosed on our website, [www.ethicalfunds.com].) In the US, Walden Asset Management, [www.waldenassetmgmt.com] and Domini Social Equity Fund, [www.domini.com] are notably involved in this kind of work.
  The concept of socially responsible investment has 'tipped': more and more, investors are not just interested in maximum return. They want to know how they're money is being invested, where it's being invested, and what steps they can take to improve corporate accountability and raise the bar for corporate social and environmental performance.
  Partnerships and alliances are forming among socially responsible investors to offer a new, socially-concerned shareholder voice to the table and bring global capital to heel. Just this past month, groups seeking to file shareholder resolutions with BP Amoco on global warming, drilling in the Arctic National Wildlife Refuge and BP's relationship with PetroChina needed the support of socially responsible shareholders in North America. (In the UK, shareholder resolutions must be supported by 100 shareholders with a total of one million pound sterling in stock). Because of infrastructure development and common understanding of the issues at hand, socially responsible shareholders in the US and Canada - including Ethical Funds - were able to answer the call and ensure that these resolutions will be on the agenda for BP's annual general meeting this year. More than two hundred social-content resolutions will be filed with corporations this year, and companies are beginning to understand the benefits of sitting down with shareholders to determine how business activity can be changed to minimize the social costs of business activity while maximizing the benefits.
  Each of us - as mutual fund investors, pension fund beneficiaries, church goers, or donors to charity - has an opportunity and a responsibility to make sure our mutual funds, our pension funds, our church endowments, and the charitable foundations we support begin to integrate social and environmental criteria into their investment decisions. All of us have a role to play in forcing global capital markets to respond to us as people - not just as one-dimensional caricatures driven by only by return and maximum personal gain.
  Ultimately, socially responsible investment is about fundamental social change. Its potential is expressed in the closing words in Loosing the Bonds, Robert Kinloch Massie's exhaustive account of the battle to end apartheid in South Africa:
  "... acts of protest and conscience, so often dismissed as pointless can accumulate into an irresistible force for change. It [the narrative of how apartheid was brought to an end]suggests, in an era when people feel overwhelmed by the power of elites, that social transformation can take place 'from below'. It outlines the circumstances under which economic calculations about institutional self-interest can give way to a broader concern for human well-being. It counters our sense of futility by reminding us that amazing changes can and do take place in history - and that they depend not only on the evolution of impersonal forces but also on human imagination and commitment. We have control over our ideas, our ideas have material consequences, and, in the end, as a people, we become what we believe."

Robert Walker is Vice President, SRI Policy and Research, with Ethical Funds Inc.

* Note: The stagecoach metaphor was introduced into the SRI industry by Amy Domini, Managing Principal, Domini Social Investments.

Web sites
  [www.ethicalfunds.com]
  [www.socialinvestment.ca]
  [www.socialinvest.org]
  [www.uksif.org]
  [www.socialfunds.com]
  [www.shareholderaction.org]
  [www.domini.com]
  [www.waldenassetmgmt.com]

Posted: February 12, 2001

[ Front Page ]