Thursday, September 4, 2008

Quakers and the market

As a religious body, Quakers have a long heritage of viewing the outward manifestation of inward faith as a crucial component of Christianity rightly understood. “Quakerism is not just a set of beliefs or a statement of faith; it is a practical, ethical, and functional religious approach to life,” says Wilmer Cooper, for instance, in A Living Faith: An Historical and Comparative Study of Quaker Beliefs. “That is to say, it is a religious faith to be lived out and not just professed and talked about.” If we can begin to see economics as the study of human action, then given this Quaker perspective it seems clear that the practical application of Quaker faith can benefit from greater exploration of such a discipline.

Early Friends certainly viewed themselves as active economic agents within the larger society. “The early Friends were a people of great integrity, courage and independence of mind and in the second and third generations were among those people who would have gone into the universities and from there into law, the Church and the higher professions,” writes Arthur Raistrick in Quakers in Science and Industry. Business, though, proved a better fit. “Their Quaker beliefs, their refusal of the oath, their plainness of speech and dress and their whole attitude to life prevented this, and they were left with little but the ‘innocent’ domestic trades.” Indeed, as he points out, the Quaker ‘Advices on Trade’ were unique among religious groups of the time.

This economic activity and outlook had a profound impact upon the Society of Friends. First, as Cooper suggests, their “concern for honesty and truth-telling in their public life and in their business dealings” led to success in business. Second, the interaction of their faith upon their business dealings impelled them toward the promotion of the welfare of their employees and the population at large, as Raistrick notes. Finally, their acumen in business affairs had ripple effects on their social concerns. In The Quakers: Money and Morals, James Walvin argues that the successful drive toward abolition among Friends arose from an “insistence that the organisation be conducted on business lines: methodically, systematically, with careful recording of their transactions and finances.”

Many Quakers today, however, are arguably far less inclined to see the value of studying the economy, the marketplace, and our interactions in those arenas. Mark Cary’s research suggests that unprogrammed Friends, for example, view business activity in almost entirely negative terms. Jack Powelson sees these views arising from a focus on greed and consumerism as inherent byproducts of capitalism rather than as personal characteristics meriting personal attention.

John Punshon takes the further step of suggesting that such attitudes likely arise from modern Quakers too often operate as a “sustained class and not a sustaining class.” He worries that “The link between the production of wealth which the community can use for socially productive purposes, and the good ideas about what those purposes are, has been severed.”

If Punshon, Powelson, and the historical activity of early Friends have anything to say to Quakers today about the connection between economic understanding and the living out if Christian faith, it is that to ignore or reject the reality in which we find ourselves is to unnaturally isolate ourselves from the practical, ethical, and functional aspects of the religious tradition to which we claim to adhere.

Monday, July 14, 2008

SRI faces tough questions about group investments

[Palmeri, Christopher. "The Golden State's Not-So-Golden Goose," BusinessWeek, 11 July 2008.]

The latest news about California's socially responsible state pension funds is troubling, to say the least:

"A recent report from the California State Teachers' Retirement System (CalSTRS), revealed that the $170 billion fund, the nation's third-largest, would have been $1 billion richer if it had stayed in tobacco stocks. Meanwhile, investments in California real estate are proving particularly painful for the nation's largest fund, the $230 billion California Public Employees' Retirement System (CalPERS). Among other bad deals, it faces a loss of nearly $1 billion on one land investment alone.

"The performance of the Double Bottom Line plan illustrates the potential drawbacks of socially responsible investing."

In some ways, it seems the SRI field is caught in a Catch-22. There are few moral dilemmas if an individual chooses to invest his or her funds in a manner that may expose them to additional risk but may be more consistent with their values. But individuals taking such action can only hope to have a very small impact on any one company, much less the overall economy.

On the other hand, major group investments have the potential to achieve greater change in the marketplace, but this usually involves a small number of individuals making ethical decisions for a very large number of others. In a political situation, these decisions can be particularly prone to abuse. As Palmeri notes, "Politicians on the campaign trail can generate fast headlines by announcing bold investment initiatives, but the bottom-line consequences of such actions take years to show up."

Author Jon Entine has weighed in on the dangers of mixing SRI and public pension funds. You can read his contribution to the book Corporate Retirement Security here.

The California situation offers a cautionary tale that indicates it is perhaps worth considering whether there still is a place for SRI among very large and diverse bodies or if SRI is indeed best practiced among individuals, families, and groups with relatively homogeneous values.

Thursday, July 3, 2008

Investors need to speak up

[Anne Moore Odell, "Mainstream Fund Managers Vary Widely on Social Responsibility,", 1 July 2008.]

A new report from RI Metrics indicates that lack of communication is the primary difficulty preventing fund managers from implementing comprehensive and consistent SRI guidelines:

"the number one problem for the managers studied by RImetrics is the 'lack of clear, strong signals from their asset owner clients.' Sixty percent of asset managers didn't consult clients in the development of their SRI policies. This leads to policies that don't accurately reflect clients' priorities, RImetrics reports."

Monday, June 30, 2008



In a recent article, columnist Subashini Ganesan notes that "according to Coinstar (a national business that distributes and maintains coin-counting vending machines), the American household has an average of $99 in spare change lying around the house!

"While you might want to lavish yourself, there is another way to use your 'small change' to drive big changes, globally. In fact, globally, $100 is often all it takes for a poor person to work themselves out of poverty. And MicroPlace, a subsidiary of eBay, has created a powerful tool for us to aid the world’s working poor while still receiving modest interest on our investments."

You might recall the previous post on microfinance and the discussion of Kiva in particular. NextBillion writer Rob Katz took some time to outline the differences between the two organizations last October. Here's an excerpt:

"As P2P Lending News explains, [t]he big difference between MicroPlace and that loans will be securitized (and therefore potentially trade-able), and lenders will earn interest. Unlike Kiva, lenders on MicroPlace invest in microfinance by purchasing securities. Funds generated by these sales are then invested in microfinance institutions around the world. MFIs, in turn, solicit clients, make loans and collect payments - they do their normal day-to-day business.

"Once client payments are in, the institutional investors receive their loan (plus interest) who can then pay back their investors - people who purchased those original securities. It's not as simple a model as Kiva's, but its differences are very important.

"First of all, Kiva is a non-profit. As Matt and Jessica Flannery have explained, it's very difficult to become a SEC-registered broker/dealer - even more difficult when you're running Kiva from your living room on the nights and weekends. MicroPlace, on the other hand, had the institutional and financial backing of EBay, allowing it to go through the complex regulatory application process and to put up the necessary money for the SEC to sign off. Upshot: Kiva wanted to be for-profit, but had to stay a NGO because it was a regulatory nightmare to register with the SEC. As a result, lenders on Kiva only receive their loans back - without interest. MicroPlace, as a broker/dealer, can pay interest to lenders - thanks to its ability to navigate the aforementioned regulatory maze.

"Secondly, MicroPlace adds a level of intermediation that Kiva doesn't have. With Kiva, lenders provide capital to MFIs, who then lend to clients. MicroPlace is a market for microfinance securities, not just requests for loans. Sure, it takes away some of the intimacy, but for the microfinance industry, it's a big step. Securitizing loans helps diversify risk, and allows microfinance investors to reach into the second and third tier MFIs that are having a hard time raising non-donor money."

Friday, June 27, 2008

Quaker Quotes VIII


In his book Signs of Salvation Quaker author Ben Richmond calls us to "a faith in God that implies rejection of the sway of mammon over our lives."

This can be taken in a couple of ways. One is to see mammon itself as evil, but another is to see the love of mammon as evil and instead look for ways to use the resources at our disposal toward positive ends and achieve the "freedom from anxiety" mentioned by Richard Foster.

Along these lines, John Schneider echoes William Penn when he writes in his 2002 book The Good of Affluence that "Christians ought to have a view of modern capitalism that is 'world affirmative' and 'world formative' rather than mainly negative and prone to strategies of separation and withdrawal."

Thursday, June 26, 2008

CFA releases ESG guidelines

CFA logo

The Chartered Financial Analyst Institute, a "global, not-for-profit association of investment professionals," recently released a manual for investors on environmental, social, and governance factors, or ESG (I discuss ESG in this earlier post). The manual includes a list of key ESG issues along with organizations, principles and research central to the ESG movement.

Here is an excerpt:

"This manual aims to help investment professionals identify and properly evaluate the risks and opportunities ESG issues present for Investors in public Companies and in the process clarify the relatively sparse and inconsistent information provided in current financial statements."

The manual "focuses on the legislative and regulatory, legal, reputational, and operational ESG risks and opportunities Shareowners will need to consider to fully understand the Companies in which they invest."

Tuesday, June 24, 2008

SRI jitters

In an earlier post, I discussed the question of whether SRI is more or less a fad that may quickly fade if the market turns sour. It seems that others are beginning to ask this question, particularly in light of the decision by the board of Calstrs, the California State Teachers' Retirement System, to reconsider its exclusion of tobacco stocks:

"Unlike some socially responsible funds that banned tobacco companies for health-related reasons, Calstrs said it divested in 2000 because numerous lawsuits against the industry and the specter of government regulation made the stocks too risky. It now says those risks have diminished.

"Calstrs also indicated that missing out on a 'market weighting' in tobacco stocks these past several years cost the fund more than $1 billion in lost investment returns.

"Calstrs wouldn't be the first pension fund to reverse a ban on tobacco shares. The Florida Retirement System voted in 2001 to overturn a similar ban after divesting from tobacco stocks in 1997. Still, Calstrs's decision 'will be watched closely,' said Amy Borrus, deputy director at the Council of Institutional Investors. 'At a time when pension funds are under tremendous pressure to boost returns, they are rethinking the costs of divesting from a whole class of shares.'"

In a recent article in the New York Sun, columnist Liz Peek wrote that "The reality is that the performance of these funds is skewed by their relative exposure to various industry groups. Good works today simply don't measure up to oil prices of more than $130 a barrel. Investors may (and possibly should) choose to support firms they consider highly ethical, but they may well have to accept lower returns to do so."

Not all are quick to suggest that SRI is either financially unsustainable or likely to experience an exodus, though.

"Research by Julie Hudson, analyst at UBS, suggests the SRI sector could shrink in the short term as 'firms under pressure may go into survival mode, de-emphasising anything that is not relevant to immediate survival'. Hudson counters this with a long-term view that SRI issues such as climate change, resource constraints, food scarcity, the energy challenge, and corporate control are driven by politics, public opinion, and consumer behaviour rather than market volatility.

"Hudson said: 'SRI investors don’t abandon their values in a downturn. When markets are volatile and visibility is clouded, all investors cast around for other inputs to help them understand companies better.'"