Dear Reader

"On moral choices and money"(A)

I am one of those mindless consumers who will read any book Oprah puts her name on. The reason is simple: I have never read an Oprah book I hated. I had not, however, had any experience with “O: The Oprah Magazine” until a recent column by Suze Orman dissed socially responsible investing. In the magazine column dated August, 2003, with the by-line “On moral choices and money”, Suze mistakenly states that socially responsible investing involves lesser returns. She then counsels her readers to invest “in a top-flight fund that has the potential to make you a lot of money regardless of its social screens” and then “donate some of your profits to a cause you believe in”. This is a sad, wrong, and out-of-date view of socially responsible investing. Since the women of Trillium Asset Management agree that we admire Suze Orman and what she’s accomplished for women in the world of finance, we’d like to change her mind.
When I first started talking to people about socially responsible investing in the late 70’s and early 80’s, I used the simplistic metaphor of a lemonade stand. If people of a small town did not have the option to invest anywhere but in that town, would they choose a lemonade stand founded by local people or a switchblade factory that used child labor owned by people from another place? The options in my story offered equal returns. In real life, nothing is that simple, but the metaphor made the point that there are other factors that count besides profit. All things being equal, most people would choose the lemonade stand because it seemed to contribute more than just money profits to the town, whereas the switchblade factory actually did damage. On some fundamental level, people understood that the process of making money mattered.
Over twenty years later, that metaphor needs some refining. We know, first of all, that the prospective profits from socially responsible investing vs. other “top flight” funds are potentially equal. Those collateral benefits or damages defined in the original story as food and equal opportunity versus violence and abuse of labor are obviously overly simplistic. In my experience, no company is all bad. No company is all good, either. The truth is that investing, like life, is complex. Like life, it is also a process where many choices matter, and where there are multiple opportunities to influence many parts of the outcome.
Some years ago, a member of the SRI professional community coined the phrase “doing good while doing well”. The possibility of doing good and well at the same time, we know now, is beyond argument. The factors that leverage financial performance are many. Manager competence, timing, style, and external influences out of the control of the investor or the manager can have huge impact on the results of an investment. Not much discussed is the very important fact that most investors are really bad market timers, tending to panic at the bottom and follow the herd into over-priced assets at the top.
Whether or not a fund is leaving out some group of possible investments can cause a portfolio to behave differently from the indices that have been constructed to proxy the markets. This is the Wall Street definition of risk that is quoted so widely, referring to “screened” portfolios. What is rarely mentioned is that real risk – losing a significant portion of your money – is not at all greater with screened funds. Most social investment funds, when analyzed by style, indeed do NOT exhibit increased risk characteristics (by this definition) relative to non-screened funds. And as to performance, 76 percent of the largest socially screened mutual funds (those with $100 million or more in assets) achieved the highest rankings for performance from either or both Morningstar and Lipper for the one- and/or three-year periods ending June 30, 2003.
So if you accept that we can, in fact, do well with “screened” portfolios, what’s left in the decision-making process that Suze Orman so quickly dismisses? The other half – doing good. Suze posits that we can make money any old way and then give our profits to something we think makes a contribution to society. She leaps over the concept that shareholders in major corporations can, though active input, actually influence corporate policies. Many, many examples of this exist on Trillium Asset Management’s web site or the web sites of the ICCR, the Social Investment Forum, CERES or the many members of the Forum and CERES.
Bottom line, I have a suggestion for Suze. Invest in a diversified portfolio of the excellent socially responsible mutual funds that use their role as shareholders to exert influence in corporate policies and processes, and then also give some of your profits to charitable causes.