SRI is a minority sport but one with a growing appeal as almost all other types of equity investing ...
SRI is a minority sport but one with a growing appeal as almost all other types of equity investing appear to be a one way ticket to capital reduction.
It is also a comforting marketing wheeze, something that persuades people they can have God and Mammon together at the same time in a nice and easy package, something so clever even the Bible didn't think it could be done.
On closer inspection, there seem to be few ethics or much that is socially responsible about SRI. As there are not enough companies to invest in that are 'good,' most funds now invest in any company that is going and claim they will try and pressure the 'bad' ones to be better.
Quite how active and questioning SRI managers are in this remains to be seen. Keep a note of how many SRI presentations use oil companies as examples of stocks that are trying to improve themselves. Now compare this to oil companies' own advertising and try and spot the difference between the two.
Assuming SRI is anything at all, it is surely an advocate of the importance of being an active shareholder. Making sure a 'bad' company becomes a 'good' one is in the economic interest of shareholders, even if they are not interested in the morality element. The bottom line is poorly-run companies with unhappy workforces do not do as well as quality companies. It is a small world and companies that engage in what is perceived as unethical activity can get huge amounts of negative PR with unpleasant knock-on effects on sales; just ask Shell, McDonald's and Nike.
Why should SRI's claim to active shareholder action be seen as such a selling point? Surely it is something the City should be doing the whole time. Intermediaries keep an eye on client investments, contact providers if performance looks as if it might tail off and if the situation does not improve, exit the fund.
Fund management houses should do the same. There are plenty of dismal companies in the market but how many of their shareholders, usually fund management firms, are actively trying to improve the business? The great advantage of being an influential shareholder is getting two bites at the cherry: an investment and a chance to influence the investment should it begin to go off track.
The fact SRI is able to trumpet positive shareholder activity is not a triumph for SRI, it is something of a disaster for the non-SRI element. For an industry that is so keen to repeat anything Warren Buffett says, it might also be worth doing what he does ' be an active shareholder.
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