Thoughts On Socially Responsible Investing….

Good question here from the Ask Cullen page which I thought was worth highlighting:

“Is it really ever possible? I’m interested in Cullen’s or anyone’s views on this.

Investors like the idea of SRI, but I look at so called SRI funds and see things in the top ten holdings such as Herbalife (MLMs – exploitative?),  energy companies, gold etc. I know that no company can ever tick every box for social responsibility but sometimes I wonder if SRI funds that hold things like Wal-Mart just kind of make a mockery of the whole thing. I’m interested in other people’s thoughts on this.”

My response:

“I don’t think there’s really any point. You won’t find SRI funds that outperform the market over long periods of time. So most of the mutual funds that do it don’t beat the market or have higher fees. And the socially responsible KLD index fund is a closet S&P 500 fund that charges you 0.5%. There’s just no point owning something like that.

If you want to do good with your money then give to charity. You could just buy the VV (Vanguard Large Cap fund), save the 0.4% on fees and give it away. But don’t donate it to a fund manager via higher fees just because it makes you feel like you’re being “socially responsible”. Unless you think it’s your social responsibility to give money to Wall Street!”


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.
Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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  • Tom Brown
  • LVG

    SRI and capitalism don’t mix.

  • Anonymous

    Socially responsible government hacking your bank accounts……… where do treasuries fall in the mix of socially responsible?

  • Happy Dog

    The case for SRI might be a more convincing one for prominent figures or those with a huge amount of capital.

  • Conventional Wisdumb

    SRI is a matter of opinion usually based upon or informed by politics.

    In my opinion, Walmart has done more good for the most people on average than any other company in the world today by lowering the average cost of living and reducing inflation growth rates in the US and worldwide wherever it competes.

    Of course, that’s my opinion :)

  • NMW

    I’ve been doing a lot of work on this lately and I’m a little discouraged. You’re right in that what constitutes “ethical” is up for debate. But I think that people can probably generally agree on at least a few basic things. Workers should be fairly treated and make a living wage, community engagement, sustainable businesses practices, environmental responsibility. The singleminded pursuit of maximizing shareholder value leads to short term thinking which is not necessarily congruent with with being a corporate good citizen and I disagree that this is just how capitalism is. I understand that no company will every be able to tick all the ESG boxes, but I do think companies can do a lot better.

    The demand for SRI investments is on the rise and as I look at funds that are in teh SRI category, I see a pretty wide range. From funds that seem to take their SRI status seriously via e.g. what they invest in and proxy voting (Calvert) to funds where it seems as though it’s just kind of an add-on. When we invest in companies such as Wal-Mart – who maybe give a lot of money to charities that fight hunger but then don’t pay their employees enough to be able to survive without food stamps – is that really what we think of as socially responsible? And would that really satisfy the increasing numbers of clients who want to encourage corporate responsibility via SRI?

    It’s an interesting question and something I think about a lot. Also, I know the conventional refrain is that SRI funds underperform but I’ve seen mixed reports on this. Here’s a review that looked at a bunch of peer-reviewed studies on SRI performance over a certain period (note: I haven’t read this yet):

  • jaymaster

    AKA: Sanctimonious Rube Investing.

  • DRR

    The best SRI is buying and supporting local business!

  • DismalEconomist

    Considering how much more of our money is spent on weekly consumption than on our investment savings account, I wholeheartedly agree with this. Small, local firms are more connected to their communities and more likely to appreciate how their actions affect those around them. As a result, being socially responsible is an important part of their survival. A public company faces pressure that makes empathy difficult to achieve. So if you’re really adamant about investing in socially responsible companies start by changing your consumption habits. If consumption habits and demand change towards more SR products, corporations will become more socially responsible as they follow profits.

  • NMW

    I also agree with this wholeheartedly, but I think there are a few problems. The main one being that huge sections of the country don’t have these options. either financially (smaller businesses have hard time competing on price with the larger companies that have economies of scale) or geographically (the only options within any reasonable distance are a Walmart or a Safeway or Applebees or whatever) And another big criticism of some of the huge companies is that they stifle business (at best) or completely drive the mom-and-pops out of business.

  • Johnny

    I can’t stand companies that use their economies of scale to deliver the lowest prices for everyday goods. What a bunch of jerks. I want to pay high prices for my groceries because my neighborhood mom and pop is inefficient, regardless if a company gives a billion to charity a year or has more solar panels than anyone else.
    Also, their employees shouldn’t be paid on par with the skills required for the job… Their wages should be determined by how loud the unions cry about not being able to strong arm them. It’s easy to blame Walmart for the lower class not participating in the recovery, but if those low prices weren’t there, they would be hurting even worse.

  • Hans

    Johnny, I wholehearted agree with you…

    That greedy company kilt my Twinkies, Hoe Hoe and the Ding Dong…

  • Johnny

    I hear the twinkles are back, can’t say the same for the hoe hoe or the ding dong. but really, how dare they take that off the shelf. I also blame Michelle Obama for drawing a red line in the sand over childhood obesity.

    Vote for the world you want with your $$ and hope everyone agrees with you.

  • Steve W

    There’s another category of funds out there too: religiously conscientious funds. There are funds for Catholics, funds for Christians, etc. (Ave Maria Funds, Timothy Funds). Years ago, when I worked for Merrill Lynch, I attended a day-long workshop learning about those funds, as well as managed account options (SMAs) for investors following Sharia law. Char

    One of the best known financial planners in the industry, Ronald Blue (who sold his firm several years ago) was a featured speaker.

    It was interesting, I attended because of curiosity more than anything else.

  • tw

    Agreed, I try to buy locally and support local businesses as much as I can. I think there is something un-democratic about large global behemoths that undercut honest businesses and funnel too much of the profits to a few select executives and shareholders.

  • Dominick Lombardo

    Hi Cullen:

    As the editor of an SRI website, I can certainly understand and empathize with you. There are many different types of SRI including shareholder activism, those that avoid “sin stocks” those that look for some sort of positive attribute, etc. You have to make a choice of the above as well as choose to live life in a way that leaves the world cleaner than when you found it.

    And there are companies like Wal-Mart that had terrible ESG records, but are improving rapidly. And yes, they have helped the common-person live a more affordable life, but to me companies still need to be responsible for the side-effects of their actions. The U.S. Military prefers calling this “blowback.” Hope this helps..

    I personally prefer companies that treat their employees well (this is the “S” in ESG). Remember “Charity begins at Home.” Of course, Wal-Mart needs some work here..