A recent article in Business Week highlights how quote-unquote socially responsible investing has resulted in billions of dollars of losses for the state of California. An investment initiative named “Double Bottom Line,” by then California State Treasurer Philip Angelides, took pension fund money out of tobacco stocks and emerging markets and reinvested it in real estate in low-income communities.
In establishing his own criteria for SRI (for example- whether or not a country has free press or protects workers rights), Angelides eliminated investments in Thailand, China, India and Russia among others. As a result, the Thai stock market fell 7 percent in just two days after the list came out! These screens beg the question: why is it socially irresponsible to invest in developing countries? Another decision removed investments in tobacco stocks – a decision which cost the fund more than $1 billion! So when will the world of SRI see past the stigma of tobacco companies? (See post from June 18th) Even worse, what was sold to the public as investment in low-income communities also included investing in luxury high-rise condos. Since when is gentrification socially responsible?
Don’t get me wrong, I’m not against SRI, but in this case, investments under the guise of SRI have resulted in a mishandling of the pension fund money of California’s state teachers and public employees. SRI shouldn’t be unprofitable and the metrics for determining what is an SRI need to be reexamined. Socially responsible citizens shouldn’t have their pensions jeopardized by irresponsible investing.
-Aneesa Arshad
August 3, 2008 at 2:54 pm
Just like ‘conventional’ investing, socially responsible investing provides returns all-over the map. However, serious, unbiased studies do show that in general, returns on socially responsible investment portfolios are as as good, and sometimes better, than with most regular portfolios. See http://investingforthesoul.com/Main%20Pages/ethical-investing-CSR-research-studies.htm
Best wishes, Ron Robins
PS I’ve been following socially responsible investing for about forty years and the link above is to a page on my website. My website focuses on global news, research and services related to the subject.
August 6, 2008 at 12:24 am
The debate certainly isn’t over. I think I see a new study each month- one saying Socially Responsible Investing is slightly better than average, one saying SRI is worse. That’s why for individual investing, socially responsible or green investing shouldn’t be your ONLY focus, just a consideration. You should search for a financial advisor based on multiple criteria and a good fit for your needs.