A recent article in the Christian Science Monitor discusses the eternal question of ethical investing: "Can you have market rate returns and be socially responsible?"  Perhaps it should be framed as, "Must people in the business of SRI (mutual funds) emphasize the ability to meet market benchmarks in order to exist?"  G. Jeffrey Macdonald's conclusion is right there in his title: "Maybe SRI investors should settle for lower returns – and more satisfaction." 

For me, the question receives a different answer depending upon the assumed goal of SRI in the eye of the person answering.  For instance, if you are trying to make SRI mutual funds a valid and respectable asset class for all investor portfolios, you would never say aloud that the funds are looking for below market return.  But if you are an investor with a large amount of money looking to deploy your capital in the most valuable (thinking in terms beyond explicit economic value) way possible, then the desire for market rate returns is not only unnecessary, but possibly distracting from the real goal. 

Several points of view are well sketched out in the article.  Here are a few snippets:

Wayne Silby, founder of Calvert:

Our society more and more needs to … be OK about saying, 'We're not going to get the same rate of return as we used to under the "do well, do good" kind of thing,'…We want to create a cultural meme that says, 'Gee, you're still into getting double-digit returns when all these things are more interesting [and] could be done on the planet? Are you so poor a person that you need that kind of money?'

John Fullerton:

Since capital is for sustaining life…investors with enough capital to feel prosperous should be able to focus less on returns and more on supporting ecological sustainability…[but] not everyone is in a position to choose investments that forgo market rates of return. If you're a working-class family, you shouldn't feel guilty about trying to get ahead and making a market rate of return

Barbara Krumsiek, Calvert CEO :

Social investors by and large are ordinary people – teachers, family members, workers, 401(k) investors. We have an obligation to help them earn the returns they need.… I would say it's a moral obligation.

Lisa Wise, executive director of the Center for a New American Dream:

Some Americans wouldn't need a market-competitive portfolio every year…if they chose to live simpler lifestyles that cost less to sustain, allow more time with family, and put less strain on the planet's resources. Such a shift…can lead to greater individual happiness and support the common good at the same time.

Tim Freundlich of Good Capital and xigi.net, responds by saying that he believes the article represents the first steps toward SRI 3.0.  In his words:

The realization that in fact the world is finite in its resources, in its ability to support human footprint, extraction, externalization…that in fact return and value are more nuanced than before we thought…an unapologist new sort of stance on social investing is emerging finally. Do Good, Maximize the flow of capital to good…make a living return…but step outside of the play book of freidman et al. Finance change and innovation with a range of return expectations that blend value in a new calculus.

I tend to agree.  As my rational self, I believe that most people who invest their money need to ensure good return for a secure future, particularly as many basic living expenses are rising. I also believe that this can be provided by many forms of socially responsible investing, not just mutual funds.  But as we all move to a world of more conscious capitalism, I think that we'll begin to understand why it is so hard to rationalize an investment in a cigarette company or a major oil or mining company.  We'll realize that there are many ways to deploy capital, to support business that intends to function efficiently and to produce profits without stepping on other people or destroying our planet.  And I anticipate that we'll realize that living in that world is more valuable than an extra 2 or 3%. 

Moreover, I agree with Tim that in the future we will be able to stop categorizing things as either one or the other, market or below, responsible or not, and move beyond "these false dichotomies."

Photo:caribb, Creative Commons, Flickr