At SRI Bend we talk a lot about SRI investing being an “investment strategy”. As if it is just one of the menu items that investors have to choose from: value investing, growth investing, long/short investing, global macro investing…there are many, but you get the idea. We talk about it as a strategy because I think it is the simplest way to describe it, although it would be more accurate to call it a lens through which we view all other strategies. SRI is the foundation and then the strategy mix of the entire portfolio is built on top of this decision. Just as wearing rose colored glasses tints the whole world red, investors wearing “SRI glasses” will view all the various strategies available to them with an “SRI tint”. The decision for socially responsible investing comes first, and then an investor can choose strategies after that: for instance one could be an SRI value investor or an SRI growth investor.
Looking at SRI this way makes it less of a strategy and more of an ideology…a philosophy… a personal creed. Let’s take an example: A value investor is an investor that is looking for stocks that are under-priced or out-of-favor but likely to trend back to their ‘intrinsic value’ over a significant enough period of time. Value investing is a strategy because value investors do not necessarily believe that all investors should only be value investors. Contrast this with SRI investors where many SRI investors that I work with would agree that: 1) SRI investing is the right thing to do for everyone and 2) if everyone was an SRI investor the world would be a better place. SRI investing is about more than the allocation of capital, it deals with the treatment of people and it deals with the use of this planet’s shared resources.
This is where SRI investing transcends the world of investment strategies and enters the realms of faith and politics:
Faith because believing that to invest responsibly is the ‘right thing to do’ is a moral appeal to a standard that transcends government, culture, and economics and whether that is faith in religion (God would want us to invest responsibly because God values just treatment of people, plants, animals, and natural resources) or faith in secular humanism (people should invest responsibly because they have an ethical responsibility to beneficence to all) or utilitarianism (people should invest responsibly because it creates the most long-term good for the most people).
Politics because the belief that the positive impacts of SRI investing are increased when all investors invest responsibly (i.e. the world would be a better place) this belief creates a policy imperative (at least in the western mind where government exists ‘for the people’) that government should regulate human actions for the long-term good of society. We see this political expression in policies like carbon credits , Agenda 21, and is summed up in it’s own “-ism” of environmentalism.
The SRI investors that do not fall into the faith-based or politically-based groups I call “Pragmatic SRI Investors”. Pragmatic SRI investors see the above faith and political trends as significant drivers of policy and consumer demand and they want to get in front of that swelling wave in order to profit from shifting regulations, consumer demand, and overall cultural trends. As an example, Climate Trust produced a study proposing that organizations that adjust their processes to compensate for ‘climate change’ now will pay approximately 2% whereas companies that wait until it is mandated by regulation to adjust their processes will pay 20%. The Pragmatic SRI investor looks at the political will that will likely drive regulation over the next decade and invests in companies that are preparing for “climate change regulation” because it is a more profitable business decision.
Who are you when it comes to socially responsible investing?
Do you approach investing from your own ethical, moral, or faith-based convictions that human being and the organizations they form should manage resources in a way where they are accountable to a higher power and/or to their fellow man (including future generations)?
Or do you see SRI investing as a political conversation that has to do with regulation of the allocation of common resources: air, water, land, minerals?
Or are you a pragmatist that looks at these first two groups as significant drivers of policy and consumer demand and seek to adapt your portfolio to it now, hoping to capture additional investment returns by adapting to the trend early?