Settling the great debate on socially responsible investing

There are changes afoot at The New Mexican, and as a result I won’t be writing my monthly column — at least for the foreseeable future.

I can’t express how rich and satisfying this experience has been, and to all of those who read my column and provided feedback to me over the years, I thank you and wish you good luck in your investment experiences. I also want to thank The New Mexican for never leaning on me once concerning my sometimes extremely subjective commentary. Having a bully pulpit once a month has been a great privilege.

It’s a good thing humans aren’t perfect because neither is socially responsible investing.

Some of you might remember my challenge to Paul Hawken’s critique of SRI a few years back. The debate continues within the SRI community, and that is a good thing. We want to continually serve our clients in a way that serves their most important social concerns while also enhancing their financial returns.

One side of the debate goes like this: Some social investors don’t participate in SRI because they claim the mutual funds are ethically weak and are asking for deeper shades of green for the industry.

Somehow, over time, the SRI industry came to some consensus about how to do the business of SRI — which industries and practices should SRI avoid and which industries should be engaged through the power of social exclusionary screens, i.e. dialogue.

Many social investors don’t want to support a company with a solid diversity track record that is also a major polluter. So it is indeed difficult to pick responsible companies, and we would narrow our choices even more.

That’s the problem. Strengthen the social criteria and you risk fiduciary responsibility because there aren’t enough responsible, and really green, companies to diversify a portfolio.

Nevertheless, these investors laugh at GE (the leader in alternative energy), Krispy Kreme, Pepsi, Merrill Lynch, Carnival Cruises, Merck and fossil fuel companies being on any list of sustainable or socially responsible companies or in SRI mutual funds.

Fortunately, these investors can be served better by customizing their own portfolios. However, this doesn’t work for the small investor, hence the continuing interest in deepening the standards of well-known SRI mutual funds.

Another angle on the debate goes like this: Who decides what social responsibility is?

The other side of the coin, and comments by Paul Hawken and others, appears to suggest that there should be some kind of “responsibility central” that decides what is socially responsible and what is not.

Most SRI investment advisors submit that the only judge of what “social responsibility” might be is the client. Period.

This might sound like the same view, but consider this: A person primarily concerned with minority entrepreneurship or the availability of entry-level jobs for teens (and there are many who feel this is immensely important) would consider McDonald’s a socially beneficial company, much more so than dozens of companies often found in deep green portfolios.

Another client primarily concerned with the impact of junk food would obviously come to a different conclusion.

Is the placement of McDonald’s in one portfolio and not the other “resting on our laurels” or a strategy lacking “teeth”? I don’t think either is. The collective, aggregate wisdom of each and every one of us is far more perceptive and far-reaching than the genius of any one of us. That being the case, I think it’s arrogant for us to think ourselves enlightened enough to pass universal judgment for all on these fundamental questions of ethics and behavior.

The implication of this is discomforting to us as financial advisors. The inability for the industry to come up with a handy all-inclusive set of standards applied to the investment universe places the responsibility on ourselves to apply rigorous standards that honor each client’s social concerns. It would be nice if someone else did it for us. No such luck. It’s on each of our shoulders.

It occurs to me that client-driven SRI can only be a good thing. Among others, it indicates a shift away from the pervasive feelings of powerlessness that has characterized even the most well off folks in this country for years.

It takes time, but dialoguing and engaging clients in what this (SRI) means is the perfect opportunity to keep SRI moving forward, for us, them and the planet.

I started this column with the “perfection issue.” I end the column with a quote from Johann Klassen, VP of Managed Accounts at First Affirmative: “If every investment in a company large enough to offer common stock is fraught with moral peril, then we face a clear dilemma. We can choose to disengage from the imperfect world of international capitalism in despair at our inability to escape the taint of corporate wrongdoing. Or, we can choose to engage with corporate wrongdoers and challenge them to do business in a way that will benefit everyone. I choose to help capitalism evolve. I choose not to make perfect the enemy of the good.”

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