The sham of "socially responsible investing"
The sham of socially responsible investing (SRI) is exposed in a recent New York Times column by Joe Nocera. This incisive article concludes that SRI “oversimplifies the world, and in so doing distorts reality.”
SRI silliness is highlighted by its preference for BP over ExxonMobil. For years, BP has been SRI-favored for endorsing the theory of global warming. “But in 2005, a BP refinery in Texas had a major explosion, killing 15 workers and injuring more than 100 others. And last year, the company spilled oil in the North Slope of Alaska. The world woke up to the fact that BP had a pretty shoddy safety and maintenance record,” writes Nocera. Exxon Mobil, a company detested by the greens for publicly doubting the global warming theory, has been banned from SRI portfolios (since 1990) despite having a terrific worker safety record, and no serious oil spills since 1989. SRI investors foolishly missed out on fantastic investment returns in what would become the most profitable company in the world.
The standards for social responsibility are another blotch on SRI. Two dozen researchers at Boston-based KLD Research & Analytics, decide what stocks to include or exclude from most SRI indexes, including the well-known Domini 400. Nocera discovered that KLD researchers “almost never go abroad to do on-site inspections, but rely on media reports, blogs, interactions with activist organizations and conversations with the company itself.” In other words, their decisions to define a company as evil are laughably arbitrary. When Nike was judged socially evil for working conditions, “Nike was using the same factories as Reebok and other shoe manufacturers, including Timberland, a darling of the socially responsible crowd. While Reebok and Timberland stayed, only Nike was ousted from the KLD index,” notes Nocera. When Nocera confronted KLD about this, it explained that “’there is an extra burden for the market leader.’ In other words, Nike was being punished because it had beaten its competitors in the marketplace, not because its practices were any worse than anyone else in the industry.” Though working conditions are still tough, Nike is now included in the SRI index on the basis of some favorable news clippings KLD found.
For more SRI follies, see this Free Market article.
Comments (5)
Dugg this.
http://digg.com/business_finance/The_sham_of_socially_responsible_investing
Published: April 11, 2007 4:04 PM
Maybe I was hallucinating before, but when it is complained that if people play not nice in the free market, the standard reply is 'well let people vote with their dollars and the not nice behaviour will disappear'. Ouch. Yet this article says otherwise. Oops.
Guess voting with your dollars is no more effective than voting in an election, unless enough people change their votes nothing much will happen in the free market or in politics.
Published: April 12, 2007 12:15 AM
That's the "Austrian" point. Free markets allow "majority rule" in a catallactic sense, thereby enabling legitimate democracy to guide a civilized society toward maximized progress and peace. Interventionism, of course, thwarts all that.
Like you said, there never has been a majority of people using the "socially responsible" philosophy of investment. This article demonstrates that companies like Exxon (which "cleaned up" its act after a certain incident in the 80's) have outperformed the Socially Responsible Circle Jerk Club.
Also, this article provides a clear example of how well-intentioned socialists often make themselves poorer, voluntarily, by investing in dubious & risky "socially responsible" schemes instead of trusting their genuine catallactic instincts.
Such is praxeology, I guess. Sometimes we put too much thought into our actions, and sometimes by 20-20 hindsight they don't look so good.
Here's a bit of general advice: don't trust the Al Gores of the world any more than you trust the Dick Cheneys of the world.
Dr. Ron Paul's kewl, though, IMO.
Published: April 12, 2007 1:14 AM
The basic premise of so-called "Socially Responsible" investing is nonsense from the get-go.
Since when is going along with the leftist cause of the week socially responsible? That sounds pretty irresponsible to me.
Published: April 12, 2007 1:34 PM
There are studies on both sides to show that SRI has outperformed or underperformed traditional investing. The fact is though, people will vote with their dollars for their principles, just like they do with anything else. I run a website that matches individuals to find financial advisors ( http://www.claroconnect.com ) and one of the most common custom searches lately is for socially responsible investment advisors.
There are many aspects to this, some people may be searching for advisors who simply are a match for their principles, many others are now looking for alternative energy and other "green" investments, in a true quest for the highest investment return because that's where the money is going.
Published: August 12, 2008 8:25 PM