Corporate scandals increase interest in socially responsible investments

October 4, 2002

The recent spate of corporate scandals, and the questions they raise about business ethics and governance, has increased interest in socially responsible investments, according to participants in a recent conference in Massachusetts. The Episcopal Church's Social Responsibility in Investments Committee (SRI) joined with the Church Pension Fund (CPF) and the dioceses of Western Massachusetts and Vermont in a groundbreaking conference September 14 in Williamstown that could change the stewardship strategies of those who invest the church's resources.

According to the Rev. Brian Grieves, director of Peace and Justice Ministries for the Episcopal Church, 'the vision for the conference belongs to Joyce Austin, chair of the SRI committee.' He said that the conference could be 'the beginning of a new model to make the experience available to the rest of the church.'

Austin expressed a hope that the conference would serve as 'a springboard for the future.' Both she and Grieves noted the cooperation of the CPF, which recently filed a joint resolution with the Executive Council for the first time in history. 'This partnership is very gratifying,' he said. 'But this is just the beginning. We must also help individuals make socially responsible investments.'

How do we invest?

'How can we be faithful followers of Christ with our investments?' asked Bishop Gordon Scruton of Western Massachusetts in his opening comments. He suggested that every Christian should write a 'money autobiography' showing when and how their convictions developed over the years.

Scruton admitted that 'in the parish I didn't talk about money--certainly didn't preach about it.' Then he attended a conference where he learned that the most frequent theme of Jesus was the kingdom of God--and the relationship to material possessions. 'What we think about and do with money--that's right at the heart of the message of Jesus and how we relate to God and to our neighbors,' he said. In the Old Testament practice of 'gleaning,' grain or grapes were left for the poor in an effort to share the abundance of the harvest. He said that the question for Christians today is, 'Out of our own gratitude to God, how do we invest so that the poor always benefit, so they are blessed?'

What's good for society?

'We are learning that what is good for business is not necessarily good for society,' said Professor Kai Lee of Williams College, who heads the nation's oldest collegiate program in environmental studies. While businesses are intended to earn profits, the question becomes how they account for the content and distribution of those earnings. 'Can we hold corporations responsible for their behavior?' he asked. 'Are they acting well?'

Kai said that corporations today face what he called 'a double bottom line--social and financial.' When corporations do not act responsibly, their reputations and therefore their profitability can be seriously affected.

Churches have been very active participants in the movement for social responsibility in investments that grew out of the Vietnam War and the anti-apartheid movement in South Africa. Since the 1980s mutual funds have been screening potential investments, sorting out the bad from the good. They have also engaged in reform, petitioning for changes in corporate behavior. And they have sought to make investments that serve broader environmental and social purposes, 'doing something for future generations,' he said.

Socially responsible investments are likely to expand, Kai argued, but 'the results are mixed.' The movement has given shareholders a voice and it can claim success on avoiding investment in guns and tobacco but 'diminished trust may make investors more suspicious' of making bad investments as they balance social investment and financial performance. 'Yet capitalism is an awesome force for transforming life,' he said.

Money can corrupt

Amy Domini of Boston, who started the original socially responsible mutual fund, was for a long time a lonely voice on the investment committee of the Church Pension Group. In her presentation, she said that her mutual fund has sought to buy better companies, be better owners and neighbors--seeking dialogue with management. 'Those are the interlocking factors for any socially responsible investment strategy,' she said.

Speaking as an Episcopalian and former member of the SRI committee, Domini pointed with some pride to the foundations of the movement when Presiding Bishop John Hines went to a stockholder meeting of General Motors in 1971 and, with the help of Paul Neuhauser of Iowa, called for it to withdraw from business in South Africa, where it was the largest international investor.

The whole purpose of the SRI movement, she said, is to find ways that corporations can 'build a better world' because 'the way we invest builds the world we live in.' The Domini Index began by eliminating investments based on religious objections in such areas as alcohol, tobacco and gambling. 'Then we looked at military and nuclear power,' she said. That eliminated 200 companies on the Standard and Poor's list of 500. The Index then devised a 100-question survey that included 'markers of corporate behavior.'

One of the major barriers to participation in the movement is the mentality that alleges it is the wrong way to foster change in society, Domini observed. 'But corporations are creations of society so we can have some control.' She said that finance and business is 'the strongest force on the planet. So what happens when it goes out of control--and who fixes it? Not government, not management but the shareholders who created it and must restore it.'

Domini said that 'corporate scandals can have a beneficial effect because the American public begins to see the underlying structural, systemic problems, the corruption of power. And money is a powerful corrupting force.' Yet fallout from the scandals 'could encourage and give momentum to greater transparency--exactly what we have been arguing for--more screening of investments and curbing of runaway greed.'

Barton Jones, general counsel for the Church Pension Group, described the decision to divest from Philip Morris. Originally CPG asked Morgan Stanley to find alternative, equally remunerative investments, but that was difficult so CPG decided to sell anyway.

Early-warning system

Two principles have guided the SRI movement since the early 70s--more information is better so shareholders can make informed decisions, providing ethical guidelines exist for the business role of religious institutions, according to Prof. Harry van Buren, who teaches business at the University of Northern Iowa and serves as consultant to the Episcopal Church's SRI committee.

He offered examples of times when filing resolutions has led to dialogue and dialogue has led to change. 'Sometimes confrontation is necessary but dialogue is often more effective. Often good things happen,' he said. While shareholders 'can have an influence out of proportion to the shares they own,' van Buren expressed dismay at the 'remarkable failure of the church to influence business ethics.' However, he cited the 'remarkable evolution in what the Pension Fund is doing and they should be encouraged to expand their efforts.'

'We are not alone, we are working in collaboration and partnership with others,' said Lindsey Parker, a lawyer from Boston and a participant in a panel discussion hosted by St. John's Church in Williamstown. She said that the Episcopal Church was one of the founders of the Interfaith Center for Corporate Responsibility (ICCR), a coalition of about 275 faith-based organizations with over $110 billion under management.

'This movement is like an early-warning system, dealing with issues that will become prominent in the future,' said van Buren in echoing comments attributed to Tim Smith of ICCR. The movement also identifies related issues. Apartheid, for example, raised issues of labor relations and economic justice, how workers were treated. 'Financial industries are the driving force in the world so we must look at the links among the institutions,' he said. 'How can we help them be more responsible?'

A teaching moment

Corporate scandals were also on the agenda for an ICCR symposium in New York. 'Understanding the task of corporate governance in terms of ensuring that all of a corporation's stockholders benefit is not just an ethical imperative, it also makes good business sense,' van Buren said during his participation in a panel discussion on September 19.

He argued that all stakeholders, not just shareholders, 'take a risk in helping a corporation achieve its goals. The employees of Enron who invested their skills with the company took a risk that ultimately did not pay off and in the process lost their livelihoods and their retirement security,' he said.

Van Buren also cited the risk some communities take in hosting companies that pollute and workers who risk their health in dirty and unsafe plants. 'Companies and corporate boards at the very least owe disclosure about such risks to their stakeholders,' he said. He pointed out that ICCR and its members 'have sought to ask questions about the content and process of corporate decision-making,' trying to influence the debate about the ethical responsibilities of corporations.

Raising the issue of corporate governance and ethics is 'a natural extension' of the commitment of religious institutions to the 'inherent worth and dignity of every person and community,' van Buren added. 'As tragic as recent corporate scandals have been for many shareholders and other stakeholders alike, this is a real teaching moment that should not be lost.'