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.

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