Why "socially responsible investing" doesn't actually exist

Yes, the concept of socially responsible investing sounds nice. In general, I’m a firm believer that our actions should reflect our values. I acknowledge that investors make a conscious choice as to where they put their money, and that they have the freedom to put their money wherever they so desire. So, why not? Why not buy into the socially responsible revolution? 

Well, for starters, I agree with many current arguments against investing “socially responsibly”. Classified socially responsible indexes tend to underperform the market. On top of the lower returns of socially responsible investing, many also argue that the stock market isn’t the place to be a social activist. The nature of the stock market is that if you don’t buy that Shell stock, someone else will. If you decide to not invest in tobacco, to not invest in oil, someone else will. So are you even making a change? Probably not. The market is efficient, and at the end of the day, your choice to invest socially responsibly will not pressure companies to better working conditions or greener practices. All you’re doing is giving others the opportunity to put their money there. An individual has much, much, much more power as a consumer than investor. 

Yes, I agree with all those arguments. But I’m going to make a bold claim: socially responsible investing doesn’t exist. 

That’s right. 

Socially responsible investing doesn’t exist.

That’s because there’s no such thing as a “socially responsible” company. There’s also no such thing as a socially irresponsible company. 

Every company-- every single company-- has responsible practices. Every company-- every single company-- also has irresponsible practices. 

It’s misleading-- and unfair-- to classify companies as socially responsible, or not. 

Take Shell Oil Company. Shell Oil Company. Polluting the world, right? Morally bad, right? Socially irresponsible, right? 

Not so fast. 

As The Guardian headlined last May, “Shell, Europe’s largest oil company, has established a separate division, New Energies, to invest in renewable and low-carbon power.” Yes, Shell is one of America’s largest natural gas producers. It engages in deep sea drilling, a practice much hated among environmentally conscious peoples. Just this past summer, here in Portland, kayakers protested the passage of Shell’s icebreaker ship, Fennica, to Alaska. This event captured national media attention. As one news source put it: “In two of the most daring days in the modern environmental movement, Greenpeace activists set social media ablaze and, despite the Fennica’s moving on toward the Arctic, hailed the action as a ‘historic achievement.’”  

Yet, despite Shell’s bad press and less than ideal reputation, Shell has committed to investing in renewable energy. 

Shell has already committed $1.7 billion to their green initiative, New Energies, and plans on investing $200 million annually. New Energies invests in wind farms and solar energy to ensure Shell “is at the leading edge of the transition to lower-carbon economies.” Seems pretty socially responsible to me! 

On the other end of the spectrum, there’s TOMS. TOMS’ places a huge emphasis on sustainability, social action, and corporate responsibility. “Corporate Responsibility at TOMS® provides focus on the environmental and social impacts of our products and operations, responsible giving and employee life. We know that our customers will look to us for our accomplishments, which currently include,” their website states. TOMS’ is most known for their ‘one for one’ model: for every pair of shoes purchased, the company donates a pair to a developing country. And since its inception, TOMS’ has donated over 60 million shoes to people in need. 

Despite their socially responsible mission, TOMS’ “has become a subject of criticism from many in the international development community,” reports ecosalon, a popular environmentally conscious online newspaper. Because TOMS’ donates shoes for free, the company has consequently driven many local shoe trades out of business. Some argue the “TOMS model harms the communities it intends to help.” I’m not sure if I would consider damaging local economies to be socially responsible. On top of that, TOMS’ has been criticized for their lack of transparency about materials, sustainability of supply chains, and business practices. As Jessica Marati, the author of the ecosalon article exploring TOMS’ socially irresponsible actions, wrote: “What I do find troublesome…  is that TOMS continues to create a movement around conscious consumerism and being heard through choices, yet it continues to hedge questions about the sustainable and ethical nature of its manufacturing practices.” 

I’m not saying TOMS’ is a bad company, nor Shell is a good company. Both are companies. Not good, not bad. Not socially responsible, not socially irresponsible. All companies are a mix of both. Nike, criticized for inhumane labor practices, also commits to “investing 1.5% of pre-tax income to drive positive impact in communities.” RJ Reynolds, a large tobacco corporation, expends a great deal of time and resources into its Youth Tobacco Prevention initiative. 

Don’t bother trying to invest socially responsibly. It’s just not possible. Want to make a difference with your money? Donate to charity! Use your power as a consumer! But don’t sacrifice your returns by trying to invest with a conscience. I hate to break it to you-- but it’s just not possible. At the end of the day, your investments will support both the socially responsible and socially irresponsible, no matter how hard you try not to. 

Sources:

https://www.theguardian.com/business/2016/may/15/shell-creates-green-energy-division-to-invest-in-wind-power

https://www.theguardian.com/business/2015/jul/31/portland-bridge-shell-protest-kayaktivists-fennica-reaction

http://www.toms.com/about-toms#corporateResponsibility

http://www.toms.com/what-we-give-shoes

http://ecosalon.com/behind-the-label-toms-one-for-one/

http://about.nike.com/pages/community-impact-faq

http://www.rjrt.com/youth-tobacco-prevention/