More Than Money
Issue #31

The Everyday Ethics of Wealth

Table of Contents

“Socially Responsible Investing”

Sure, you want to be "socially responsible." But what does that mean? Members of MTM's online discussion group tackled that question.

I'm trying to get a discussion going on social investing. The term sounds good for sure. Who would want to invest unsociably? However, I find, when I press for detail, that one person's socially redeeming interest may not be so socially redeeming to another. Does anybody have a good definition of what is acceptable to everyone, or is it, as I suspect, a very personal decision?

My definition would be: Social investing is investing where performance is measured by total impact, including social impact. As you have implicitly noted, that begs the questions: What kind of impact? How do you measure impact? How much are you willing to sacrifice before your "investment" is more appropriately described as a donation? What kind of social change is desirable? How can that be accomplished? In fact, some groups that invest using social considerations work directly against each other (e.g. on the issue of abortion).

Note that if the economic system worked as it should, there wouldn't even be a concept of social investing. Investing would simply be how we maximize the use of resources to achieve the best world possible. The social benefit would be built in. For example, in a well-structured system where reducing AIDS in Africa is seen as "productive," a company that helped to reduce AIDS in Africa would be productive and profitable. In a system like that, investors would not have to be concerned about social impact, because the social impact would be factored in to the prices of stocks. All investors would have to do is anticipate where they can make the most money. Similarly, all consumers would have to do is look for the best price, not research and evaluate the hundreds or thousands of implications of buying each product. Investors and consumers, consciously or not, would be working to make a better world through their seemingly selfish behavior.

I'm suggesting that the concept of social investing reveals a fundamental problem with the way the system is now structured. Our social needs are left out of the equation in the current incarnation of the market. Currently, the public subsidizes many businesses through paying social costs that should be paid by the consumer. For example, the public, instead of the consumer, pays for much of pollution—through reduced quality of life, if nothing else. This unfair public subsidy distorts the decisions of both investors and consumers.

Given this fundamental flaw in the current rules of the market, I think most of what is called "social investing" creates primarily a warm and fuzzy feeling for the investor. The impact we can have on the world through social investing, as opposed to through changing the laws that govern everyone's behavior, is small. (Social investing would be appropriate if the laws were adequate, and we just had to discipline a few bad apples.) In my opinion, most social investing, unfortunately, is akin to giving two aspirin for a bullet wound that requires far more serious medical attention. Would we call a doctor who merely gives two aspirin for a bullet wound "medically responsible"?

I partially agree that "socially responsible investing" isn't much more than two aspirin for a bullet wound. And I agree with the fundamental point, that our economy is seriously, perhaps fatally, wounded (although I think it's an inherent flaw rather than an external wound). I strongly agree that we need to fix the way it works through far-reaching legislation. I think socially responsible investing is an important step toward creating the kind of climate in which the government could be more responsible. The supposed interests of shareholders, and the real, if short-term, monetary interests of large corporations, drive the economy now. That's where the muscle is, and it's what interferes with our weak and corrupt government imposing some cures. Socially responsible investing, along with shareholder actions, popular protest, reasoned analysis, and all the other tools we have in a democracy, may succeed in creating the fundamental changes. But members of Congress won't become courageous and responsible just by themselves in their present beholden states. The particular piece of all this that socially responsible investing accomplishes is to give lie to the widely believed myth that what's good for business, if not good for America, at least is widely demanded by the shareholder citizens.
—anonymous author

I do think that people should be "socially responsible" in their investing. To me it's like a vote, in that the majority should prevail. However, within an organization like MTM, is it fair to impose a specific, socially responsible "brand" on everyone, as opposed to respecting individual opinions? I have examined the issue in detail and have found some surprising things. For example, I know of one major religious group that doesn't invest in U.S. Government securities because it believes we are war mongers. Another religious group invests in war machinery, but not in banks and music. I don't personally agree with either, but I respect both groups' opinions. Randy's environmental example is a good case in point. I agree that we should avoid investing in and thereby supporting any company that pollutes. But where do we draw the line? How much pollution is too much? What if the same company employs the elderly? Are there any other mitigating factors? I think we should decide for ourselves in the marketplace and in the stock market.

I think you're right that people have a wide range of conceptions about socially responsible investing. It may not be very difficult to agree on a few investments being irresponsible, but beyond that, it's hard.

I read into your message the implication that because there are no easy answers and not many clear-cut issues, an investor should not take social criteria into account. If that's what you mean, I don't agree with you there. We wield tremendous economic power, collectively, and could do a great deal to mitigate some of the harmful aspects of the way our economy currently works. Creating shareholder pressure on companies to weigh the environmental impact of every business decision is one example.

—All excerpts printed with permission.

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