A couple of days ago, my students and I attended a presentation by Bob Walker, Vice President of Ethical Funds Limited, a company that prides itself on being a leader on what is known as socially responsible investing (SRI). Unlike many other SRI fund houses that influence companies based on their decisions to invest or not invest in their business, Ethical Funds Limited invests in companies with the intention to influence their business through shareholder resolutions and a subsequent engagement process. One of my students felt that this was more of a marketing campaign than a positioning strategy.
So which has greater impact? Investing in a "not-so-good" company and using your role as an investor to change company behaviour OR pulling your investment as a message to the company that despite the potential return you would get, you will not stand for their activities?
Answering this question might depend on how much influence an investor can have. In his blog, Felix Salmon argues that at the end of the day, unless you’re a significant investor, your influence on a firm is minimal. Salmon nicely describes a 'slap in the face' scenario where a conscious investor who owns 1/220,000 of a company naively thinks that he's changing behaviour when all the while the company is using his money for a $4 million lobbying effort to void the firm from California’s 2006 Global Warming Solutions Act.
On the flip side, one can argue that pulling your investment likely doesn’t have that much of an impact either. So perhaps the question is not so much about impact as much as it is about leadership. Leadership to me is going against the mold by taking a courageous stance that conforms to your values in a way that aspires others to follow. Is Ethical Funds a leader?
Some would argue that Ethical Funds is having their cake and eating it too. A substantial investor in the oil sands affords the firm with massive returns on investment. Is their discreet shareholder activism merely a means to greenwash their greedy investment strategy? Does it afford them enormous returns while at the same time making it seem like they are doing good things to mask those 'dirty' returns? Is this any different from indulging in carbon intensive products and than purchasing offsets?
Or is this indeed a genuine effort on the part of an investor trying to make a difference in the behaviour of the companies in which it invests? I have a feeling this debate will grow in popularity as more and more investors get involved in this space.
This is an interesting one. You brought up some good points and I totally agree with you on your leadership perspective of the issue. In addition, I can't help but think about the opportunity cost element. For example, how does Ethical Funds Limited defend the fact that if they're investing in unethical companies to change them from the inside, this means they are not using that capital to invest in companies that are already operating responsibly.
ReplyDeleteIn my opinion, you can build a sustainable business by first clarifying the reasons you want a business. You need to define your customers and find out who your target market is.
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