Union economist blasts socially responsible investing

(January 30, 2003) Socially responsible investing is a contradiction in terms that tricks investors into feeling good about the capitalist system, says Canadian Auto Workers economist Jim Stanford. But Ethical Funds vice-president Bob Walker says SRI can make a difference, chiefly by providing access to company directors.

“We will not overcome the elite by picking ethical funds,” Stanford said. The SRI industry is rife with “loosey-goosey” standards, he added, pointing to McDonald’s, the Gap, Wal-Mart and the big banks as examples of questionable SRI fund holdings.

If SRI performs as well as other types of investing, he said, it’s probably because 90% of the holdings are the same.

Stanford attacked negative screening for its “questionable economics,” arguing that screening cannot hope to affect the cost of capital in a meaningful way.

SRI fosters a culture of individualism, Stanford said, noting that if people buy the right mutual fund, they don’t feel the need to hug trees. SRI causes volunteer acquiescence, he added: investors first, citizens second. That’s why SRI people don’t oppose tax cuts or call for tough regulation, he said.

Stanford’s solution: buy an index fund, take the management expense ratio saving and donate it your favourite political cause.

Walker agreed with Stanford that SRI screening is close to meaningless, although he cited the example of CALPERs, the $175 billion California pension fund, which put Thailand off limits because of human rights concerns. The Thai government responded by convening a meeting with CALPERs, asking how it could improve its human rights record.

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Walker’s main argument is that investors can’t change companies they don’t own. SRI can make a difference because it provides access to corporate directors, he said.

Walker criticized the SRI industry for failing to promote its success stories. Nelson Mandela, for instance, credits SRI for hastening the end of apartheid by keeping the issue alive and in the media.

One of the reasons SRI engagement packs more punch than its capital would imply is that it poses the threat, through shareholder resolutions, of disrupting the highly staged annual general meetings, Walker said.

Former federal NDP leader Ed Broadbent, who was also took part in the Monday night panel discussion, sponsored by the Metro Credit Union, endorsed SRI as one part of the tool kit of social change.

“Let’s not knock down those trying to do it,” said Broadbent, co-chair of the Canadian Democracy and Corporate Accountability Commission. “If you are going to have a market system, you need to reinforce it with as many levers as we have: SRI, trade unionism and political action are not mutually incompatible. They are all desirable.”

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Whose side are you on? Sound off on socially responsible investing in the “Free For All” forum of the Talvest Town Hall on Advisor.ca.

Toby Heaps is a Toronto writer and publisher of the annual ranking of Canada’s 50 Best Corporate Citizens.

(01/30/03)

Toby Heaps