SRI Overview & Calvert
I recently completed a paper on Socially Responsible Investing (SRI) and Calvert (best known for their Calvert Mutual Funds) and include a slightly modified version here for anyone interested in SRI, Calvert, or CSR. The paper provides an introduction to SRI for the uninitiated and also takes a close look at Calvert’s rating system to determine qualifying companies in which to invest. As a brief introduction, I’ve included the executive summary below (download the SRI paper [PDF]).
Executive Summary
Corporations are entering an exciting stage in history—profits, once the focal point of all corporate actions, are beginning to make room for another business priority: social responsibility. Corporate social responsibility (CSR), or the prioritization of societal concerns in addition to maximizing shareholder wealth, has been gaining momentum over the past few decades, enjoying a recent surge following the various Enron-era corporate scandals.
Much of the acceleration in interest can be attributed to the growing popularity of socially responsible investing (SRI), which seeks to evaluate companies as investment candidates that not only meet certain financial performance baselines, but also show a commitment to corporate integrity. Asset management firms such as Calvert have popularized SRI through the use of SRI mutual funds and simple, easy to understand rating systems (e.g. the Calvert RatingsTM). Nothing is perfect, however, and while it is easy to identify the strengths and shortcomings of the various rating schemes, additional rating criteria such as disclosure, product/service safety and purpose, and commitment to and the impact of corporate social responsibility, would make the system more solid.
Unfortunately, there are a few factors impeding SRI’s growth. First, there is a misconception that SRI investments provide lesser returns than non-SRI investments. Second, a corporation’s governance structure is inherently in conflict with the pursuit of social concerns. A corporation’s fiduciaries have duties of loyalty and care to the corporation and it’s shareholders, which typically leads to the prioritization of profits over any other concern. Placing corporate integrity and social concerns first, or even in addition to profit maximization, may cause the fiduciaries to be in breach of one or both duties. Introducing additional fiduciary duties, such as duties of citizenship and humanity, which stipulate a greater social concern by the corporation, may alleviate this conflict.
Please feel free to download the full SRI paper [PDF].
TAGS: This entry was posted on Tuesday, May 30th, 2006 at 11:55 pm and is filed under CalPoly MBA, Corporate Governance, Corporate Social Responsibility, Socially Responsible Investing. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.