Figuring Out Socially Responsible Investing

Socially responsible investing is not the same for all investors


Call it sustainable investing or impact investing; responsible investing or socially responsible investing or anything in between.

The reality is that there are many different strategies that are deployed by fund managers. We see everything from funds that specialize in alternative energy to funds with a religious mandate as well as those which seek to ascertain the sustainability winners of tomorrow.

Back just over five years ago, one fund manager, Matthew Zuck with SKBA Capital Management in San Francisco and manager of the AHA Socially Responsible Equity Fund, kept a simple thought in mind when investing: “There are no perfect companies.”

It’s an important point to remember when trying to act as a socially responsible investor. A company that makes it through the screen of an environmentally responsible mutual fund, may violate principles of a morally responsible fund. A company that clears screens on tobacco, gambling, and pornography, might still flunk the test to some because of its military operations. Yet believers in a strong national defense might not see that as a problem.

Socially responsible investing is about personal principles, which means it can be hard to find a one-size-fits-all model. Consider General Electric (GE), an industrial giant that has so many flaws from a socially responsible investing perspective it’s unlikely to be in any SRI-oriented fund.

When the market plunged in February of 2009, many investors considered stocks to be generally oversold, including GE. 

The share price for GE was down about 40 percent, despite the fact it was still hugely profitable. There were worries that GE Capital could become another banking albatross, though the company argued that its portfolio mix was different from the big losers.

GE had cut its dividend, painful to investors but a prudent measure to conserve cash. Finally, its AAA bond rating was had been downgraded, but not as severely as many feared.

A traditional investor might have looked at GE to see if there was an opportunity to get a blue chip stock at a discount. A social investor would do the same and then apply screens. Social investors would find that GE has a military equipment division. Environmental investors would note that GE is involved in nuclear power and fossil fuel production. Faith-based investors would object to the content of some of the programming from NBC Universal.

But here’s where shades of gray arise. GE makes military engines, which is different from making handguns. Granted the Apache helicopters powered by GE engines could be involved in combat. But can you believe it is important for a country to be able to defend its people and also be socially responsible?

GE has been building nuclear power plants since the 1950s. That’s a lot of nuclear waste being stored somewhere. But if a crisis exists from global warming and people are serious about reducing carbon emissions, many people argue that there is a place for nuclear energy.

Would supporting that position make someone an environmentally irresponsible investor?

GE is now in the final stages of selling out of most of its financial businesses, which weighed the company down during the financial crisis. Is it now a buy for SRI investors, given its Ecomagination platform? 

We would probably argue yes.  

Trillions of dollars of new infrastructure is expected to be built globally and companies such as GE and their peers have an opportunity to gain revenue share given their expertise.

Another company gaining billions of dollars in revenue in this regard is Ingersoll Rand, who has specifically aimed for increased emerging markets revenue on the back of the sustainability characteristic of their efforts. 

Morally based, ethical or religious investing is completely different.

The Timothy Plan mutual fund family, for example, won’t invest in GE because of the content of programs such as “30-Rock” or “Ugly Betty,” which founder Art Ally considered “pornography.” It also avoids GE because the company is “very active in the homosexual agenda” according to Ally. Those are non-negotiable views based on morals, not political or scientific positions.

Sharia investing is again different, with its roots in shared ownership and prohibition of debt.

And so it fully depends on who you are and what you are trying to achieve.