The movement for Socially Responsible Investment (SRI) makes explicit what has always been implicitly the case: that where a person or institution decides to invest their money has social, environmental, and general ethical consequences. Investors are not used to thinking about these consequences because for so long most of them have focused only the financial bottom line. Today, that is no longer enough. Not only do we have many more investment options today than ever before, we also have more information about the social and environmental performance of those options. To ignore this information in choosing where to invest is to turn a blind eye to the ethics how one makes money.
Surely we care about how we make money in other contexts. Most people would not steal something from their neighbor and then try to sell it back to him, not merely because it is against the law, but because it’s wrong. A less extreme example involves choosing a job. Most people consider their moral comfort level with the overall purpose of the company as well as what kind of work they themselves would be doing. While many people might choose to work for a company they find morally questionable, they would avoid doing so if given other opportunities.
That opportunity now exists for investors. U.S. socially screened mutual funds, funds which do not invest in industries or companies that they consider morally objectionable, have grown from assets of $500 billion in 1997 to well over $2 trillion in 2003. How well these funds perform of course depends on whose study you read, but in general, while the best screened funds do not outperform the best non-screened funds, they have done significantly better than the market and on average have received higher ratings than non-screened funds. This suggests that there is some connection between progressive companies and financial performance.
Surely many readers have wondered by this point what we mean when we say “socially responsible.” After all, aren’t these words the subject of constant and intense debate among well-meaning but mutually exclusive ideologies? Isn’t “the greater social good” a relative term – who are we to define it for everyone else? In response we say “yes” and “yes.” SRI is not about telling people what is socially responsible, it is about getting people to invest in ways which they themselves view as socially responsible – getting investors to make sure their values are reflected in, or at least not undermined by, their investments.
There are many different socially screened mutual funds out there, from conservative ones which will not invest in any companies that make products which are involved in abortions, to funds that only invest in companies with very progressive energy and labor policies. The great thing about SRI is that it is a powerful advocate for both a range of issues and for a range of positions on those issues. If you want to, you can only invest in companies which abuse their workers and emit as many toxins into the environment as possible. Socially screened mutual funds are a way for the average investor to engage in SRI – find mutual funds whose values agree with yours and pick the best one.
Ultimately, people advocate for SRI because they really want to advocate for another cause, typically one such as human rights or environmental sustainability. The success of these causes depends on wide support – the more people who hold a certain value, and who put their money where their values are, the more those who want the money will have to respect those values to get it. SRI is a democratic movement that relies on transparency to allow investors to know how their money is being spent, or in the case of just buying a stock, allowing investors to know what kind of businesses practices they are profiting from. The more people that realize that they have this power as an investor, the more powerful the movement will become, and the more responsive businesses will have to become.
Princeton University is no exception to all of this. In fact, if you believe that your level of responsibility for the consequences of how your money is invested goes up with every dollar you invest, Princeton has a much greater responsibility than most – it must then make sure to invest its $10 billion endowment in ways the University community is morally comfortable with. Just because we are an institution which promotes social good by our very nature, through education and research, does not mean we are off the hook and can therefore make money by any means necessary towards those admirable ends. Realizing this, we helped to start a student group this year, called Princeton Coalition Advocating Investor Responsibility (PCAIR).
Many other schools, including Harvard, Yale, Stanford, Columbia, Penn, Dartmouth, Brown, Duke, Williams, and Swarthmore already practiced some kind of SRI at their school, but at Princeton we had nothing. Our group has been advocating that Princeton take an important step towards being a socially responsible investor by being an actively educating ourselves and discussing how we want to vote our proxies.
A brief description of proxy voting: when you own shares of a public company (such as Wal-Mart or Coca-Cola) you are entitled to vote on certain items at the annual meeting. Sometimes “social issues” proposals come up for a vote, usually proposed by a shareholder. Shareholders can vote for, against, or abstain from these proposals. Examples of such issues are proposing that a company should adopt a human rights policy for themselves and their suppliers, proposing that a company report on the environmental impact of its operations in a particularly sensitive area, and proposing that a company add sexual orientation to its nondiscrimination policy.
The results of this vote are not usually binding on the company, but if the proposal receives significant support, the voting results are influential on the company and become a public relations concern. Many social issue proposals have resulted in a company changing its policies, and sometimes companies even make the proposed changes before the proposal comes to a vote.
It is time that Princeton address the most pressing issue of moral accountability with respect to its investments: proxy voting. We cannot refuse to acknowledge the power of proxy voting. Neither can we ignore the moral consequences of how we vote, nor refuse to vote and deny accountability.
Princeton’s current proxy voting policy of pure profit maximization does not adequately balance our concerns as an institution. Voting in favor of social issues proposals, which usually means voting against corporate management’s recommendation, very rarely has a material affect on a company’s profits. Proxy voting as a mechanism for responsible investment, therefore, does not actually affect the profit maximization goal. That is not to say that profit should never be sacrificed for social or environmental concerns, only that proxy voting does not present this issue.
The administration is currently reviewing our investment policy. They have been instructed by the Trustees to take student attitudes towards this issue into account when making their decision. To this end, PCAIR is circulating a petition in support of creating a proxy voting advisory committee, composed of students, faculty, alumni, and administrators, to research and recommend to the board of trustees how to vote in an ethical manner (you can sign the petition at www.princeton.edu/~pcair).
Ever since the first caveman lent another caveman a spear with the expectation of sharing the meat of the wooly mammoth which the second caveman would use the spear to kill, there has been investment. And ever since the first time that second caveman turned out to be a psycho, or for whatever reason used the spear to kill random people, and the caveman could see that this might happen but lent him the spear anyway in hopes of more meat, investment has had consequences for which the investor is partly responsible. SRI presents a broad avenue for advocating important issues that concern us all.
Princeton is a long-term institution promoting social good, and as such needs to consider the sustainable practices of other institutions in which it is invested. We need to make sure that as an institution we do not promote social good on the one hand while opposing it on the other.