Responsible Investing

Often I am asked about our socially responsible investing and our core beliefs that guide our investment strategies. As investors that want to be responsible, thoughtful, and ethical in their investment themes, it becomes difficult with the landscape of ever-moving corporate management, investor’s fickleness and short-termism. Recently there has been an increased interest in Socially Responsible Investing (SRI). Since 1995 there has been a $190 billion increase in social screened funds according to the Social Investment Forum Foundation www.socialinvest.org.

I think socially responsibility is an irresponsible phrase for a more ethical style of investing because it infers that other investors are socially irresponsible. But I believe that there is a balance between the extremes of SRI. Every individual’s ethical framework is different, so after obvious unethical investing like tobacco and alcohol, the arena becomes muddy and gray. As a money manager I try to minimize our impact, but I don’t expect other people to be similarly predisposed. I don’t degrade us because we are using resources, nor do I deny that human beings have influence on the environment, quality of life, and ecosystems. Somewhere between those two extremes I believe there is a balance. I try to attain that balance through a number of ways.

One is I try to come from a point of view that investors cannot do an effective social screen or a rigid selection system on whether an organization is ethically responsible. The oil and gas industry is often targeted as unethical but what I look for are energy companies that realize they are in the energy business and not specifically in the oil business. I look for those that that are trying to help people minimizing their need for oil, while building within their policies an emphasis on true, renewable energy sources all the while being good, corporate citizens. Often those attributes are very hard to locate. What makes it so one company meets the criteria to be owned or not, is purely judgment, and it is not through a tick-off-the-box system.

A lot of social investors have done what I call the “tick off the box”” method of investing. They basically say diversity is important, so they say, “Well, if I have a diverse corporate board that means that we are a more ethical company.” If you have a very diverse board, it does not make the organization any more ethical or responsible than another corporation. You have to look at the ethics of individuals and not make an assumption because a person is of a certain social status, gender, race or religion that they are going to have somehow been beholden with ethical and social virtues. What you want are virtuous, long-term thinkers on the board.

I believe I have to process the attributes of a company on an intellectual level and determine if the investment is balanced and meets our criteria. Most socially-responsible investment companies have significant holdings in the area of health care and pharmaceuticals, and to say that those companies are not marketing drugs the same way that Adolph Coors markets beer is pure shortsightedness. Every company needs to be looked at with scrutiny and with judgment.

Our fiduciary job with each shareholder is to increase their financial security, increase their wealth, and provide a stable income for them after retirement. To me as a fiduciary, it is irrational and illogical to own socially-irresponsible companies. It is irrational and illogical to own a tobacco company that is basically killing people. It is illogical to own a defense company that basically makes products that kill people. I like to say that I try to be economically responsible and whole-brained about the way I invest in our duty as fiduciaries.