Product Description

Socially responsible investing (SRI) is investing that is mindful of the impact on society of that investment. It is often described to investors as allowing them "to do well by doing good." SRI usually describes investments that screen out companies that violate environmental or other laws, use child labor or sweatshops, discriminate in hiring, or—in general—produce products detrimental to society or engage in practices deemed reprehensible by most people.

Although many people want to invest in socially responsible ways, until recently most investors believed that they had to give up some measure of performance to do so. The SRI Advantage demonstrates why this is emphatically not the case. It presents overwhelming evidence that SRI has outperformed financially, explains in detail why SRI outperforms, and then examines the im-plications for investment professionals, investors, pension funds, and community/nonprofit groups. Authored by Peter Camejo—the chair of an SRI investment fund—in collaboration with more than a dozen other SRI professionals, The SRI Advantage includes chapters on:

• Pension funds and fiduciary responsibility

• The energy industry and SRI

• SRI mutual fund performance

• The international dimension of SRI

• Community investing strategies

• Foundations and mission-related investing

Prefaced by consumer advocate Ralph Nader, and introduced by Republican corporate accountability advocate Robert A. Monks, The SRI Advantage will be of special interest to investment advisors and financial planners, private investors, the nonprofit sector, brokers, mutual fund managers, and—especially given the Enron scandal—pension fund trustees and staff.

Peter Camejo has 17 years of experience as an investment adviser, specializing in socially responsible investing. He founded the California-focused Council for Responsible Public Investment, created the Eco-Logical Trust for Merrill Lynch—the first environmentally screened fund for a major firm, and a top performer—and is chair of an asset management company.

Product Details

• Amazon Sales Rank: #845516 in Books
• Published on: 2002-09-01
• Original language: English
• Number of items: 1
• Binding: Hardcover
• 352 pages

Excerpt. © Reprinted by permission. All rights reserved.

INTRODUCTION by Robert A.G. Monks

People talk a lot about "socially responsible investing" ("SRI"). We need to talk more about who determines what constitutes SRI. Who sets the standards? Or, put another way, what is SRI? Lets start with what it is not. SRI cannot be the best-intentioned, most elaborately researched conclusions of the "best people," be they corporate executives, university professors or philosophers. In a democratic society, only those whose authority derives from informed popular consensus can establish legitimate standards defining the balance between corporate and public interest. SRI, therefore, must focus on assuring that portfolio companies spaciously obey the law. However, it is not quite that simple.

For the democratic process to work in a meaningful way, laws must be based on full information. The situation today is often otherwise. Not only are legislators dealing with imperfect information, in many situations they are legislating in areas where the information is deliberately withheld or distorted by the party they are seeking to regulate. In the United States over the last twenty-five years, this has conspicuously been the situation with respect to the automobile and power generating industries. W.R. Grace deliberately withheld information that its products contained asbestos well after the time it was established that this would injure workers. Responsible shareholders must assure that the managements of portfolio companies disclose fully the impact of corporate functioning on to society.

Ownership responsibility goes further. It is necessary in a democratic capitalist society that business and government communicate. In order to pass responsible laws, government must have full information about business' operations and their impact on society. There is a further need that business be restrained in its impact on elections, the making of laws and their implementation. The perception that laws are being made and enforced not for the public good but for the interest of corporate money and power will surely destroy a free society. Where are we today?

Consider the recent example of Microsoft. When the Clinton Administration filed its first suit against Microsoft in the fall of 1997, the company had a one man lobbying shop with an office above a suburban Washington mall and company executives considered the Capitol as a largely irrelevant factor in corporate life. Its political contributions were minimal. By early 1998, the Justice Department and 20 states filed their broad anti trust suit against Microsoft. Many observers came to believe that persistent lobbying by its competitors and adversaries, and senators from the states where they were located contributed to the decision. As befits the premier enterprise of the time, Microsoft learned and reacted on a large scale. The company assembled the usual bank of lobbyists, spinmeisters, and political payoffs and, as they say, the rest is history. There is no hero to this story. It is a story of SRI gone badly. It is a model of too much corporate power over government, both in its beginning and in its end.

The only element in the corporate universe that can effectively require that management be restrained in its dealings with government is the owners. What we are talking about is real SRI. It is what must be if the concept is to have legitimacy. It is not what it is today. Lets turn to that. Real SRI exists when owners change their company along lines of sensitivity to social concerns. Indeed, as we will note in concluding this introduction, shareholder involvement is necessary in order to mitigate the most brutal negation of shareholder values as dramatically evidenced in recent times by Enron.

SRI has largely existed as a passive concept. The guiding principle has been that skilled individuals are capable of selecting certain companies which do not (the emphasis has been on excluding certain categories) have acceptable impact on society. Using modern technology for diversification and risk, it has been possible to construct portfolios comprised of "good" (in the sense they are not bad) companies, which approximate the investment characteristics of the market as a whole - usually the S&P 5000 index. Peter Camejo devotes the first five chapters of this book to a careful analysis of the various modes of measuring stock performance over varying lengths of time. He usefully lays to rest any concern that SRI indexed funds perform at least as well as the general averages over any relevant length of time. This is very important, because of the persistent impression that social consciousness has an investment cost. So long as trustees, a species that incarnates risk aversion, have any basis to be inhibited by even a scintilla of potential liability they will decline to endorse a controversial investment mode.

This theme is picked up in Jon Hale's reference to the Department of Labor's Ruling 98-04A. The Pension and Welfare Benefits Agency (the "Agency") with authority over all U.S. private employee benefit systems under the Employees' Retirement Income Security Act of 1974 ("ERISA") is probably the most important explicator of fiduciary responsibility in the world today . The Agency has consistently maintained that SRI is not in itself illegal. A trustee must manage prudently with an "eye sole" to enhancing the value of the beneficiaries' interest. However, this investment may at the same time serve a parallel social purpose. An example is the investment by Prudential, as trustee, in mortgages on projects that are constructed only with union labor. Prudential's loan committee reviews all loan applications on a union blind basis. Only after the committee has approved particular credits is the fact of union labor involvement in construction revealed. The Agency opined that there was no ERISA objection to a trustee selecting from the approved credits only those with union involvement. This is an essential legal foundation for the Community Based Investing referred to in Steven Schueth's article which ".allows investors to put money to work in local communities, where capital is not readily available, to create jobs, affordable housing and environmentally friendly products and services."

Mathew Kiernan's piece and the article by Hawley and Williams raise the interesting question whether SRI is correctly seen as an entirely passive activity. One can ask what useful purpose is served by declining to invest in "bad" companies. The theory is that if enough potential buyers decline to purchase a security that its price in the market will drop, leading, one hopes, to appropriate remediation. The "creation myth" here is the long program of forced disinvestments in apartheid South Africa. It is occasionally cited that Nelson Mandela applauded those who demonstrated concern in this way; it is also widely cited that the great man applauded those companies who continued operations in South Africa with the effort to improve racial working conditions. There has never been any demonstration of adverse stock price on companies who continued to do business in South Africa. Horribly enough, the only financial consequences from this well intended effort that can clearly be adduced are the huge losses of the companies who, in response to SRI clamor, divested their operations under "fire sale" conditions. It is also certain that divesting institutions suffered losses. Roland Machold, formerly the much respected Investment Manager (later, Treasurer of the State) for the New Jersey pension funds, estimated his funds' losses at half a billion dollars. Philosophers have long taught that one cannot prove a negative. By analogy it is difficult to imagine being able to prove that moving pieces of paper (this is the action required under traditional SRI) representing minor ownership percentages among classes of owners will have material effect on the conduct of a publicly owned corporation.

We need pause to reflect on the appalling economic consequences involved in the creation myth of the SRI movement. What do we learn? Unless the "social rules" requiring divestiture are universally agreed and universally enforced, passive non-investment can be predicted to have little positive effect and, indeed, serious value destroying consequences. Global enforcement of a universal norm that not everyone will necessarily agree to seems unlikely in the extreme. This same energy directed at changing companies from within offers a more promising route.

The idea that there is such a category as SRI certainly raises consciousness. Thus, in Aiyer and Helm's article we learn that Novartis was retained in the favored index notwithstanding "a well documented, troubling legacy of product liability and environmental problems", [12-7]. The basis for this was the willingness of the company to change its internal environmental management systems and to have a dialogue with its critics. The concept of informed and persistent involvement by the shareholder begins to appear a critical element for an effective SRI.

Williams and Hawley bring us tantalizingly close to a world in which the global investors, whom they identify and quantify, can have useful impact, but they content themselves with ".. a universal owner has a fiduciary obligation to use a variety of means (including public policy advocacy and the corporate governance processes) to encourage firms to produce positive externalities, and to minimize or eliminate negative ones.'Care' involves active and forceful engagement with the firms they own.Thus, they must engage." [12-19,21] We are left to wonder, how? But, we can hope that fascinating subject will be the subject of their next book.

Stephen Viederman concludes this useful collection of papers with a most insightful listing of the reasons why the finance committees and board of directors and trustees of our leading institutions largely continue to refrain from considering social investing. The facts are discouraging - Harvard University teaches ethics, Harvard Management Company eschews active shareholding; the Ford Foundation grants hundreds of m...

Customer Reviews

socialfunds.com says...
Book Review: The SRI Advantage
by Doug Wheat

In this important new book, author Peter Camejo makes a case for why socially responsible investing strategies lead to higher returns than non-SRI strategies.

SocialFunds.com -- With the completion of The SRI Advantage, Peter Camejo has filled a large gap in the existing literature about socially responsible investing. Previous books have concentrated on how one can and why one should participate in social investing, often from ethical or moral perspectives. Mr. Camejo's contribution is focused squarely on dispelling a widely held myth that SRI investments do not earn competitive returns.

Mr. Camejo is very well versed in SRI strategies. He is the founder and chair of Progressive Asset Management, an investment firm that specializes in SRI. According to Mr. Camejo, SRI strategies enable investors to reduce company-specific risks in a portfolio. SRI strategies also allow investors to identify firms with strong finances and effective management. For example, SRI strategies weed out companies that harm society, such as those that sell tobacco or emit pollution from their factories. Moreover, the author states that SRI strategies identify companies that are less likely to develop unforeseen problems. These strategies also detect companies that are likely to possess financial and managerial resources that can "respond effectively to traditional business challenges."

In addition, the author posits that using SRI strategies sensitizes the investment process to the social concerns of society. In essence, SRI strategies screen out companies that are in conflict with public opinion. The result, he states, is that socially responsible investments financially outperform investments that are not socially responsible.

Ultimately, Mr. Camejo asserts that outperformance results because "SRI sees an aspect of reality not included in the research of traditional Wall Street firms." This concept is important because it allows the author to designate SRI strategies as a financial screen. When SRI strategies are viewed as a financial screen, the explanation of their ability to yield outperformance fits within accepted financial theories. This logic may make SRI more palatable to financial analysts and institutional investors than when the strategies are marketed as "socially responsible."

Mr. Camejo writes, "Wall Street's traditional view is that you can add alpha (performance), but that SRI does not because it uses screens that are external to financial performance. But Wall Street is wrong in this judgment, precisely because SRI is a financial screen."

The recent jury award of $28 billion from Phillip Morris to a smoker must surely give pause to analysts who think every portfolio should have a slice of tobacco because it passes traditional financial screens.

Mr. Camejo does a commendable job presenting some complicated financial material. However, lay readers may find themselves lost in a sea of alphas and betas while financial analysts will likely be hunting in vain for detailed analyses. Nonetheless, both of these groups will find the book useful. Individual investors will find some comfort in the fact that they do not have to sacrifice financial performance to invest with their values. Financial professionals will get a solid view of SRI strategies and copious references they can look to for further clarification.

Readers will also benefit from the nine supporting chapters written by experts in the socially responsible investing field. These chapters provide some key arguments as to why SRI strategies should be considered by foundations and pension funds. They also offer additional views on how to employ SRI strategies in such areas as the environment, international investing, and community investing.

The SRI Advantage is sure to create some discussion. Mr. Camejo does not hold back in making claims and seems to even encourage readers to challenge his conclusions. He goes so far as to frame the premise of the book, that investments using SRI strategies outperform investments that do not consider social and environmental concerns, as a hypothesis rather than a proof. The author addresses some counter-arguments to his assertions but never wavers in his belief that because SRI strategies avoid companies that produce social harm, investments using these strategies outperform.

Finally, this book is also a call to existing social investors to not be satisfied with sub-par financial performance. Indeed, most SRI professionals will not claim that investments using SRI strategies outperform other investments; they simply say that investments using SRI strategies earn competitive returns. Now, Mr. Camejo suggests that outperformance is the new measure of success.