Both/And: The Big Tent of Socially Responsible Investing

Commentary by Murninghan Post Editor Bill Baue

The TakeAway: Seeming dichotomies thrive side-by-side as complementary strategies at the SRI in the Rockies Conference.

Attire at the SRI in the Rockies Conference last week in San Antonio ranged from tie-dye to jacket-and-tie.  It’s tempting to see this as a metaphor for the development of socially responsible investing, or SRI, as a linear progression toward sustainable investing.  The former takes a values-based approach of screening out companies that fail environmental, social, and governance (ESG) criteria; the latter pursues financial value by investing in strong ESG performers, or in influential companies to engage them on sustainability improvement.  However, this simplistic formula belies a more complex – indeed, intertwined – relationship.

In the Value vs. Values: A Fork in the Road? panel, Mark Regier of MMA-Praxis (which recently changed its name to Everence Financial) voiced the “values” proposition, asserting the continuing right to invest according to individual or institutional ethics.  He asked whether the quest to validate SRI to win over skeptical mainstream investors is “diluting our mission?”

“Are they becoming us, or are we becoming them?” he mused.

Peter Knight of Generation Investment Management, the firm launched in 2004 by Vice President Al Gore and former Goldman Sachs Asset Management CEO Peter Blood to prove the business case for sustainable investing, countered this us/them divide by affirming, “We are we as well.”  And he projects that the “we” will continue growing, with sustainable investing going mainstream in the US in 5 years.

“We owe it to the SRI pioneers,” said Marc Fox of Goldman Sachs’ GS SUSTAIN sell-side research stream.  “The fact that Wall Street firms are now setting up research teams, databases, and portfolio managers on ESG is a good thing for the SRI industry.”  He pointed out that 10 percent of GS’s equity clients manage SRI products, which begs the question, “What’s the other 90 percent doing?”  His goal: to get those in the 90 percent to adopt the practices of those in the 10.

A similar dichotomy – between screening out integrated oil companies, and holding them for engagement to promote change – surfaced in the Energy: Can’t Live Without It. How Do We Live With It As SRI Investors? plenary.  Amy Domini framed the challenge of finding companies that meet even “the midway point” on human rights and health screening criteria, much less environmental criteria.  Domini Social Investments and The Sustainability Group, her dual affiliation, have identified only one integrated oil company that passes its screens: Petrobras, which is majority-owned by the Brazilian government.

Bruce Kahn of Deutsche Bank Climate Change Advisors questioned this “binary” (pass/fail) screening strategy, characterizing it as responsible behavior for SRI to engage with energy companies on their impacts, and irresponsible to simply ignore the sector.  Michael Jantzi of Sustainalytics agreed.

“I’m no apologist – integrated oil is the ugliest, dirtiest sector of all,” said Jantzi, who for over two decades has researched and engaged with oil sands operators in Canada, which export almost all of their resulting product to the US.  “But engagement works: When US and global voices join the conversation on oil sands, they multiply the impact exponentially.”

Jantzi cited engagement over the past decade with Suncor on toxic tailings ponds from oil sands, which prompted the company to develop proprietary technology (after trying to collaborate with peers) for dry tailings that will reduce its tailings ponds from 12 to one.  He also pointed out that integrated oil companies are among the biggest investors in emerging renewable energy.  “If we’re interested in investing in the transition to sustainability, we need to work with this sector,” Jantzi said.

Tim Smith of Walden characterized it as an opportunity, duty, and burden to dialogue with oil companies on ESG issues such as climate change and human right.  Indeed, he questioned the value of mutual funds that avoid oil companies to minimize their carbon footprints – but lose the option of engaging.  He overlooked the fact, however, examples such as Calvert SAGE and Green Century, which hold companies that don’t pass their rigorous ESG screens expressly for engagement.

The entire SRI ecosystem operates similarly, with screening and engagement mutually reinforcing the goal of corporate sustainability.  Similarly, Regier summed up the Value vs. Values panel by cautioning against seeing a linear progression from SRI to sustainable investing, instead asserting that values-based and value-based investing will continue to advance on parallel, complementary paths.  Indeed, the best way to advance the overall objective of a truly sustainable world is to apply the full diversity of strategies under the big tent of socially responsible investing.