Big Money Backs Social Responsibility's Rise

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Good news, Fools: We may have learned a few lessons from the financial crisis after all. Big money seems to be joining the responsibility revolution -- and if you ignore this growing trend, you could miss out big time.

According to the Social Investment Forum Foundation's 2010 Report on Socially Responsible Investing Trends in the United States, assets under management by managers using socially responsible and sustainable investing strategies are growing at a faster pace than the rest of the investing realm.

Since 2005, SRI assets have surged more than 34%, and these assets have now hit $3 trillion. Nearly one out of every eight dollars, or 12.2% of the total $25.2 trillion in total assets under management, is dedicated to some form of socially responsible and sustainable investing thesis.

Want an even more amazing statistic? During our recent economic malaise, socially responsible investing actually flourished. Between the beginning of 2007 and the end of 2009, broad markets declined, and overall assets under professional management stayed flat, but the amount of assets managed under sustainable and socially responsible investing strategies grew by 13%.

Doing well by doing good
No wonder so many companies publicize their inclusion on lists and indexes that deal with socially responsible investing (SRI) and sustainable (or green) investing. They don't want to fall behind the curve. The biggest companies recently added to the Dow Jones Sustainability Index included Standard Chartered, Morgan Stanley, and ArcelorMittal.

On the flip side, companies recently booted from such indexes have received shareholder flak. In the past few months, Microsoft (Nasdaq: MSFT  ) and Oracle (Nasdaq: ORCL  ) both fielded unhappy shareholder proposals related to their dismissal from sustainability indexes.

Many companies are now taking corporate social responsibility to heart -- and the public's taking notice. Boston College's Center for Corporate Citizenship and the Reputation Institute recently released their list of companies the public considers the most socially responsible. Johnson & Johnson (NYSE: JNJ  ) , Walt Disney (NYSE: DIS  ) , and Kraft Foods (NYSE: KFT  ) topped the list.

Social responsibility's benefits to a solid corporate reputation may even be quantifiable. According to the Boston College/Reputation Institute report, if a company can boost its reputation by five points on their scale, the number of people who feel moved to positively recommend the company increases by six percentage points.

Not surprisingly, financial companies like Bank of America (NYSE: BAC  ) , AIG (NYSE: AIG  ) , and Citigroup have watched their reputations crumble over the past two years, as the public learned of their reckless and irresponsible conduct. The clear problems these businesses revealed in the financial crisis and its aftermath may have made banks the newest sin stocks to avoid.

A paradigm shift to the positive
The combination of positive public opinions of social responsibility, and trillions of dollars pouring into new investments, may herald a new era of improved corporate behavior. Socially responsible investing focuses on solid companies that do well by doing good. These enterprises can make the world a better place through innovation, sound judgment, and the belief that treating all stakeholders well is a competitive advantage, not a weakness.

Seeing beyond short-term profits could be a difficult paradigm shift for many of the individuals running companies today, which may explain several businesses' recent efforts to rebel against responsibility. But now is no time to give up on the goal of better, more ethical companies, nor surrender to a backlash from complacent leaders. Indeed, there's never been a better time to start devoting our money, voices, and shareholder votes to advance socially responsible values at the companies we own.

Check back at every Wednesday and Friday for Alyce Lomax's columns on corporate governance.

Walt Disney and Microsoft are Motley Fool Inside Value picks. Walt Disney is a Motley Fool Stock Advisor selection. Johnson & Johnson is a Motley Fool Income Investor selection. Motley Fool Options has recommended diagonal call positions on Johnson & Johnson and Microsoft. The Fool owns shares of Bank of America, Johnson & Johnson, Microsoft, and Oracle. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.

Read/Post Comments (5) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 10, 2010, at 4:34 PM, CMFStan8331 wrote:

    I think the crucial factor is that one doesn't need to believe in the non-financial value of socially responsible investing to use it as a profitable investment thesis. Excessive focus on short-term profits is what ends up getting so many companies into so much trouble. To the extent that a socially responsible strategy encourages more and better long-term thinking, it can be a big positive for any company on that basis alone.

    In terms of rejecting "sin stocks", I think we need to be careful about making a distinction between ethical, socially responsible behavior and the core nature of a business. For example, it makes no sense to me to reject all cigarette companies based on a dislike of the product they sell. If closing up shop and liquidating the business is the only way for a company to become socially responsible, we basically give them carte blanche to behave as badly as they like in every aspect of their operations. Much better to find a more nuanced method of evaluation that can reward a sin company for all the behaviors over which it does have the ability to exert control.

  • Report this Comment On November 11, 2010, at 11:27 AM, GraceStyles wrote:

    Very interesting report on SRI in US , reminds me very much of the Eurosif report covering ethical investment in Europe earlier this year, covered here..

    Very similar looking trends. Impressed by how this whole area has held up despite the crisis,...does look like some important shifts in investor/insitituional attidues is taking place.

  • Report this Comment On November 12, 2010, at 9:56 AM, Corporality wrote:

    Stan, excellent first point and fascinating humanist argument for how calling a company a sin stock, just encourages more wicked behavior. Case in point, United Slave Holdings, sure slavery has gotten vilified but to discount them based on that is exactly what led them to reject the proxy statement on a dental plan.

    Another great article Alyce, though that's what I've come to expect.

  • Report this Comment On November 12, 2010, at 12:40 PM, CMFStan8331 wrote:

    Corp, I think there are some rather dramatic differences between USH and MO, starting with the extreme illegality of the former's business. But even if one believes that selling cigarettes SHOULD be illegal, there's another fundamental difference between the two businesses. Slave-holding involves the use of force to strip the freedom of others, against their will. Cigarettes involve the sale of a product that causes serious long-term health risks for the buyer. There is the issue of second-hand smoke - that threat is being addressed by an increasing number of laws across the country restricting or banning public smoking.

    I'm no proponent of smoking - I certainly will never be a smoker. But I do believe in liberty, and in the futility of attempting to legislate morality. People always have and always will do stupid things that harm themselves. If we outlaw cigarettes tomorrow, there will be a thriving black market before one can blink twice. Do we really want to try to extend the amazing success of the war on drugs to even more substances?

    Given that backdrop, I see a net harm to society from failing to closely examine the actual behavior of any company that sells legal products. We gain far more by encouraging ethical behavior from a cigarette company - e.g. not intentionally misrepresenting the health risks of their products - than we gain by simply tossing it in the sin bin and throwing away the key.

  • Report this Comment On February 09, 2011, at 2:48 PM, pamelahawley wrote:

    Thank you for this article on changing trends in CSR!

    CSR programs can be geared for external -- and internal purposes. The trend we're seeing now is that CSR can actually be shaped as an internal tool for employees.

    One of the most important aspects of a company's bottom line is making sure that they don’t have too many costs as far as turnover with employees. It’s not only getting more people to buy your product. It's also about reducing costs. And one of the greatest costs for companies is turnover. It affects profits, productivity, morale.

    So we can build parts of CSR geared towards a strong retention program for employees. And it has demonstrated that employees who are allied with companies doing good in the world are much more likely to stay.

    In fact, what’s starting to happen now with young people, and people just graduating, they’re demanding that of any company that they would join. That’s why the biggest question that they ask in an interview is “What does your company do to serve the community?” Because if they’re going into the for-profit world, they want to know that what they’re doing is tied to a greater good. They want to know that the company they’re going to work for, even if their day-to-day isn’t involved in it, has programs that allow them to feel a part of the community, allow them to feel a part of a greater good.

    So shape your CSR program as a retention tool. Keep your employees happy. Keep your team costs and turnover low. You'll find the corporate environment motivating, productive and smoothly running, for them and you.


    Pamela Hawley

    Founder and CEO


    Living and Giving blog

    UniversalGiving Corporate

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