Socially Responsible Investing: Whence Did We Come? And Whither Are We Going?

By Robert Zevin, Chairman, Chief Investment Officer & Portfolio Manager at Zevin Asset Management

Shortly after registering my own investment advisor firm in 1967, I found myself offering to apply socially responsible selection criteria to my clients’ portfolios, as well as helping my clients exercise other shareholder powers in order to achieve changes in companies’ behavior. I also helped educate management and other shareholders about issues such as U.S. aggression in Vietnam, Apartheid in South Africa, oppressive, dictatorial regimes in Latin America, environmental impairments caused by intense applications of chemical fertilizers and insecticides, strip mining, the importance of affirmative action programs in hiring and sourcing, all rather distressingly similar to the issues of the present.

This all happened because I was a social activist before as well as while I was an investment management professional. My interest in building an investment business naturally led to most of my earliest clients coming from the ranks of other social activist individuals and organizations. Socially responsible investing was the unsurprising result of this confluence. As far as I know all of the early practitioners of socially responsible investing were themselves front rank social activists in the anti-war, anti-nuclear, civil rights, economic justice and environmental movements, although motivated by diverse ethical, religious, philosophical and political principles.

Bob Schwartz, who started managing socially responsible portfolios for his clients as a broker in Manhattan about ten years before I did, was also a lifetime social activist. He founded what is now known as Economists for Peace and Security which advocates reduction and elimination of nuclear weapons. He was a strong supporter of worker and union rights, and an active protester against the war in Vietnam which led him to conduct an independent campaign for a seat in Congress.  I think anyone who knew Tim Smith in 1971 when, as a young minister, he founded the Interfaith Center for Corporate Responsibility, would describe him as a leading social activist in the causes of civil rights, ending Apartheid, economic justice and opposing unjust wars, among others.

I first met Wayne Silby, co-founder of the business that later created the Calvert Social Investment Fund, when we served together on the very small board of an organization of idealists that tried, without success, to persuade large foundations, churches and schools to invest in a fund that would support co-operative and other communitarian forms of business. So just about every colleague in the SRI movement of the late 1960’s and early 1970’s was a social activist at the time they were bringing the same issues into their work as investment professionals and as investors. And this was still very much the case in the 1980’s when Joan Bavaria and Amy Domini brought their social commitments and multiple talents into the SRI community.

In those formative years for my business, I also was a principal creator of RESIST, founded to advocate and support civil disobedience against the war in Vietnam by citizens, taxpayers, draftees and members of the U.S. military: an organization that is still functioning today. In addition I was a founder and active manager of the United States Servicemen’s Fund, which supported many anti-war coffee houses, newspapers and entertainments done for and often by anti-war servicemen and women; and I served on the founding board of the Haymarket Foundation. My point is not to show you how much younger and more energetic I was then, but rather, to provide what I think is a representative case of the activities and interests of the first people in the SRI movement.

And indeed we called it a movement alongside the Civil Rights, Women’s, Environmental, Organic Farming, Anti-War and Nuclear Disarmament Movements, among many others. Now – after more than forty years of astonishing growth in ethically invested assets, clients and practitioners – we are no longer a movement, although many of us still have strong collegial ties rooted in shared values, we are a niche market. Although new issues have been added to our work, our causes have become “products” or “services”. Instead of calling ourselves Socially Responsible Investors, most now prefer to say that we carefully screen Environmental, Social and Governance attributes. The implication is that investing in companies that do well in these areas is a ticket to financial success, much the same as adherents of Growth or Value investing often argue for their selection criteria.

There is more than a grain of truth in the claims made for the investment virtues of all three approaches; but putting ESG on the same shelf with Growth and Value, seems to have taken it off the shelf that SRI shared with advocacy, demonstrations and political action. And this in turn seems to have been quite deliberate, especially on the part of, and then in response to the gatekeepers and consultants, many of whom had spent decades strongly advising their clients against socially responsible investing. So from my perspective we have been co-opted.  Many of us are now embarrassed to say that our religious or moral or political views should and do affect our investment selections. We know the gatekeepers don’t want to hear it; and they know that many of their institutional clients definitely don’t want to hear it. So, like Adam and Eve, we hide our true selves behind the cloak of ESG. But then, as so often happens, our true selves grow to be more and more like the ESG cloak.

We cling to the idea that ESG investing is a formula for making money. The “doing well” part of the old aphorism about SRI is now the primary justification for what we do, rather than “while doing good”. ESG screening certainly helps to identify companies that are well-managed, attentive to shareholder interests, not in serious violation of laws and regulations and able to sustain their relationships with suppliers, workers, customers, surrounding communities and the natural environment. Owning such companies reduces the likelihood of many investment risks. And we know from numerous studies that portfolios of securities screened for these criteria do not do any worse than broad market indices. But, as far as I know there is no significant evidence that they do any better either. To do better, the SRI or ESG manager must add some additional value to the way a portfolio is constructed. On balance, the average ESG/SRI manager or fund does not appear to have done any better than those using other disciplines.

The extreme example of this confabulation of making money with doing good is evident now in a group of self-described high impact investors who believe that a confirming attribute of a high impact investment is that it provides a high profit.  This is wishful fantasy in the extreme. It is also an unintended attack on the efficacy of capitalism. If the very poor are such big profit opportunities capitalists are either ignoring about two billion splendid opportunities or making enormous profits from the poor without ending their poverty. In the actual world, poverty comes encased in barriers to success including, illiteracy, despair, discrimination, undernourishment, ill health and crime. These problems in turn are due to the lack of a vast and necessary infrastructure of schools, transportation, communications, public health and safety, finance and markets.

These are “public goods” typically provided by governments or with the help of governments. If private investors tried to capture the gains these investments produce in wealth and income, they would have to undertake most of them simultaneously and wait twenty years or more for their profits. Most examples of successful use of investment money to combat poverty (Accion, Boston Community Capital, Grameen Bank, Oikocredit, Shared Interest and Chicago’s Shore Bank [now United Partnership Bank] among others) result in very small returns to investors and sometimes depositors, although no losses. The only way to earn mega profits from aiding the very poor would be to have a subsidy from taxpayers providing all of the necessary infrastructure and social services as in the global investment bank model.

Of course this glorification of money and profits in place of values and community has not happened only because of a desire to please the gatekeepers and appeal to potential clients who are less interested in SRI values. Since the late 1960’s America and most of the world has turned in a different direction. The rich have made themselves even richer and far more powerful, while conditions for the vast majority in the US and other economically advanced countries seem to have deteriorated. Private is good, public is bad. The individual is our new deity.  Community has become a dirty word. We are all, in the words of Robert Putnam’s book title, Bowling Alone.

Occupy Wall Street was a series of protests against these trends. When my firm issued a statement in support of the Occupy movement, there were certainly other social investors who took a similar stand before and after we did. However many did not. Even more distressing to me were the messages I received from SRI friends commending our “courage” in supporting Occupy. Apparently the idea that our core purpose is to make money rather than change society, has caused our former movement to feel in many instances more aligned with Wall Street than its occupiers. This identification is not even good for our clients’ financial interests, which should come as no surprise to anyone. In 2008 there were instances of clients asking SRI managers to reduce equity exposure and the manager refusing to carry out the request because the account belonged to a composite that the consultants insist should always be fully invested.

My vision for the next twenty years of social investing, more hope than forecast, is to go back to the future. The social investment industry will again become a movement for fundamental social change, part of the solution as people used to say in the 1960’s, not the problem. My earnest hope is that as social investors we can be at the forefront of an effort to move reasonable human values of equality, sustainability, peace and love, back closer to the middle of our work, our lives and our society; and that we can whole heartedly declare our independence from the rest of the investment industry, with its sorry record of deception, self-enrichment and ill-served clients. Then we would better serve our clients and our mission at the same time.

Article by Robert Zevin, Chairman, Chief Investment Officer & Portfolio Manager at Zevin Asset Management  ( zevin.com )

Robert has been a leader in socially responsible investing since 1967.  At the same time he also pioneered the use of modern portfolio theory seeking to protect his clients against the losses that are so often the result of conventional investment approaches. Robert has mentored and trained many people in the social investing movement as employees and as friends. He started what is now Walden Asset Management in 1975, making it the first explicit socially responsible unit in any bank. He was also a principal architect of the first Calvert Social Investment Fund in 1982. Robert was a leader in the movement to divest from apartheid South Africa. He gave testimony, performed studies and engaged in debates in numerous cities, states and universities. His 1987 expert testimony in defense of the Baltimore pension funds’ right to divest led to a precedent-setting decision.

His activism and commitment to civil disobedience has led to arrests and beatings as well as boardrooms. He has founded, co-founded and led numerous social change organizations such as Resist (against the war in Vietnam), United States Servicemen’s Fund (anti-war GI coffee houses), Haymarket Foundation (change not charity), Affirmative Investments (direct community investments), and Shared Interest (support for informal economy in South Africa since 1996) as well as the School for Community Economic Development at Southern New Hampshire University. Robert is also a Harvard PhD in economics, who has taught at Berkeley, Columbia, Harvard, Boston University, UMass Amherst, and Simmons College. He has published two books and numerous articles about economic history and social policy.